SCHEDULE 14A
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INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
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Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/X/ Soliciting Material Pursuant to Rule 14a-12
NIAGARA MOHAWK HOLDINGS, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it is determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing or which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the form or schedule and the date
of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
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[THIS FILING CONSISTS OF THREE PRESS RELEASES, A FINANCIAL PRESENTATION
AND REMARKS OF NIAGARA MOHAWK CHIEF EXECUTIVE OFFICER WILLIAM E. DAVIS,
ALL OF WHICH ARE SET FORTH BELOW]
[NIAGARA MOHAWK AND NATIONAL GRID JOINT PRESS RELEASE DATED SEPTEMBER 5,
2000]
[National Grid Logo] [Niagara Mohawk Logo]
NATIONAL GRID TO ACQUIRE NIAGARA MOHAWK IN $3.0 BILLION TRANSACTION;
CREATES NINTH LARGEST ELECTRIC UTILITY IN U.S.
Transaction Doubles Size Of National Grid USA; Creates Most Extensive
Transmission Network And 2nd Largest Distribution Business
In New England/New York Region
Niagara Mohawk To Retain Name And Syracuse-Based Operating Headquarters;
National Grid Casts Vote of Confidence for Upstate New York Economy
WESTBOROUGH, MA and SYRACUSE, NY, September 5, 2000 - National Grid Group
plc (LSE, NYSE: NGG) and Niagara Mohawk Holdings, Inc. (NYSE: NMK) announced
today that they have signed a merger agreement under which National Grid will
acquire Niagara Mohawk through the formation of a new National Grid holding
company, New National Grid, and the exchange of Niagara Mohawk shares for a
combination of American Depositary Shares (ADSs) and cash. National Grid, one of
the U.K.'s 50 largest companies and the world's largest independent electric
transmission company, builds, owns and operates electric and telecommunications
networks around the world. Niagara Mohawk is the second largest combined
electric and gas utility in New York State.
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Niagara Mohawk is National Grid's third U.S. acquisition, after New
England Electric System (NEES) and Eastern Utilities Associates (EUA), which
were both acquired earlier this year.
The combination will create the ninth largest electric utility in the U.S.
with an electric customer base of approximately 3.3 million. With Niagara
Mohawk, National Grid will own and operate the most extensive transmission
network (by miles) and be the second largest distribution business (by power
delivered) in the New England/New York market.
Niagara Mohawk will continue to operate under its current name and will
keep its operating headquarters in Syracuse. Upon completion of the transaction,
Niagara Mohawk will become a wholly-owned subsidiary of National Grid and be
re-branded "Niagara Mohawk, a National Grid Company."
Under the terms of the transaction, Niagara Mohawk shareholders will
receive consideration of $19.00 per Niagara Mohawk share, subject to the dollar
value of five National Grid ordinary shares being between $32.50 and $51.00. In
the event that the dollar value of five National Grid ordinary shares is greater
than $51.00, the per share consideration received by Niagara Mohawk shareholders
will increase by two-thirds of the percentage of the increase in value over
$51.00. In the event that the dollar value of five National Grid ordinary shares
is less than $32.50, the per share consideration received by Niagara Mohawk
shareholders will decrease by two-thirds of the percentage of the decrease in
value below $32.50. Shareholders can elect to receive their consideration either
in cash or ADSs, or a combination of both, subject to the aggregate cash
consideration offered being at least $1.0 billion. If cash elections received
from Niagara Mohawk shareholders exceed $1.0 billion, National Grid has the
option to increase the cash element of the consideration. The terms of the
merger agreement value the equity of Niagara Mohawk at approximately $3.0
billion ((pound)2.1 billion) and the enterprise value of Niagara Mohawk at
approximately $8.9 billion ((pound)6.1 billion), including net debt of $5.9
billion ((pound) 4.0 billion) as of June 30, 2000.
The transaction is expected to be accretive to National Grid's earnings
per share after the amortization of goodwill in the first full financial year
after completion of the
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acquisition, and should substantially enhance National Grid's cash flow per
share immediately following the completion. Through merger-related cost
synergies and sharing of best practices, National Grid expects to achieve annual
cost savings of approximately $90 million across New England and New York
operations, representing some 10 percent of the enlarged group's electric
controllable cost base. These savings are expected to be achieved within four
years of the merger's completion, with approximately 50% of these savings
achieved in the combined company's first full financial year.
The transaction is expected to be completed by late 2001, subject to a
number of conditions, including regulatory and other governmental consents and
approvals, the sale of Niagara Mohawk's nuclear facilities or other satisfactory
arrangements being reached, and the approval of Niagara Mohawk and National Grid
shareholders.
David Jones, chief executive of National Grid, said, "This acquisition
builds perfectly on our successful North American strategy. It builds on both
the platform we have created in New England and our top quality U.S. management
team. With Niagara Mohawk, we double the size of our U.S. business and reinforce
our position as a leading player in the Northeast - a region that is clearly at
the forefront of the industry's restructuring in the U.S.
"Niagara Mohawk's management team has managed the critical issues related
to purchase power contracts and industry restructuring over the last several
years, which resulted in lower delivery costs for customers," Jones continued.
"This work, along with its focused transmission and distribution business and
depth of regional knowledge and experience, makes Niagara Mohawk an attractive
partner to National Grid as we expand our U.S. business."
Jones concluded: "Our ten years of experience operating a transmission
system in a competitive environment strengthens our ability to provide services
that will benefit customers in today's rapidly changing U.S. energy markets. We
look forward to bringing our experience to New York, and to continuing to
contribute to the current debate on the restructuring of the U.S. transmission
sector."
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<PAGE>
William E. Davis, chairman and chief executive of Niagara Mohawk, who will
become chairman of National Grid USA and will join the National Grid board of
directors as an executive director for two years after the completion of the
acquisition, said, "We are delighted to be joining forces with National Grid to
become an important part of one of the largest and most efficient energy
delivery companies in the world. This transaction is in the best interests of
our shareholders, and will yield significant benefits for our customers,
employees and the communities we serve. Direct savings and sharing of best
practices will create an even more efficient company, leading to lower delivery
costs and enhanced customer service, making upstate New York a more attractive
region for economic growth."
National Grid will have - following the acquisition of Niagara Mohawk -
approximately 10,000 employees in its regulated electric and gas businesses in
New York and New England. National Grid's goal is to achieve workforce
reductions across the entire National Grid USA organization by 500 to 750
positions - over a period of four years - through natural attrition and
voluntary programs. National Grid has achieved targeted merger savings and
efficiencies in its previous U.S. mergers on a similar basis. A joint National
Grid - Niagara Mohawk integration team will manage the cost reduction program
and facilitate sharing of best practices.
Said National Grid USA President and CEO Rick Sergel, who will continue in
his role after the merger, "Based on our successful integration of NEES and EUA
earlier this year, we are confident that we will be able to reduce energy
delivery costs, improve service for consumers in Niagara Mohawk's territories
and contribute to economic development in upstate New York. We are fortunate to
be working with Niagara Mohawk's dedicated employees, who have decades of
experience in serving customers in upstate New York."
Noting that the Pataki administration, New York State regulators, and
Niagara Mohawk have made tremendous progress in restructuring New York State's
energy markets and achieving settlements on above-market power purchase
contracts, Sergel added, "We aim to work with New York regulators to structure
long-term rate plans that benefit customers and shareholders and include
incentives for cost control and superior
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<PAGE>
customer service. We intend to provide long-term rate stability that will
support regional economic development in upstate New York."
"This transaction is a vote of our confidence for the long-term health of
the upstate New York economy," concluded Sergel, noting that Niagara Mohawk will
continue to be a major taxpayer in New York State. "We will continue Niagara
Mohawk's excellent record of corporate citizenship in upstate New York. The same
people who serve Niagara Mohawk customers and live in their neighborhoods will
continue to do so after the merger. We will honor all union agreements, be
responsive to the needs of local communities and support charitable
organizations as Niagara Mohawk has done in the past. We will establish a New
York Advisory Board made up of Niagara Mohawk's current outside directors to
help advise on customer and community relations."
N M Rothschild & Sons Limited and Rothschild Inc. are advising National
Grid, and Niagara Mohawk is being advised by Donaldson, Lufkin & Jenrette
Securities Corporation. Merrill Lynch International and Credit Suisse First
Boston are brokers to National Grid.
Niagara Mohawk Holdings, Inc. (NYSE: NMK) is an investor-owned energy
services company that provides electricity to more than 1.5 million customers
across 24,000 square miles of upstate New York. The company also delivers
natural gas to more than 540,000 customers over 4,500 square miles of eastern,
central and northern New York. The company has approximately 7,600 employees.
The National Grid Group plc builds, owns and operates electric and
telecommunications networks around the world, focusing on liberalizing markets.
National Grid operates electric networks in the U.K., the U.S., Argentina and
Zambia. The company's growing portfolio of telecommunications businesses
includes ventures in the U.K., the U.S., Brazil, Argentina, Chile and Poland.
National Grid Group's headquarters are in London, England.
National Grid USA includes local electric companies Massachusetts
Electric, Narragansett Electric, Granite State Electric, and Nantucket Electric,
and a substantial transmission business. The company has approximately 3,800
employees.
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<PAGE>
Contacts:
Citigate Sard Verbinnen
Media:
Judy Brennan/Susan Burns/Jonathan Gasthalter
212-687-8080
National Grid
Media:
Fred Mason, Vice President and Director, Corporate Communications
508-389-3568
Niagara Mohawk:
Media:
Joseph M. Russo, Vice President,
Public Affairs and Corporate Communications
315-428-6922
Financial:
Leon T. Mazur, Director, Investor Relations
315-428-5876
This press release includes forward looking statements within the meaning of
Section 27A of the United States Security Act of 1933 and Section 21E of the
United States Securities Exchange Act of 1934. Although National Grid believes
that its expectations are based on reasonable assumptions, it can give no
assurance that its goals will be achieved. Important factors that could cause
actual results to differ materially from those in the forward looking statements
herein include risks and uncertainties relating to the ability to obtain
expected synergies from the merger, delays in obtaining or adverse conditions
contained in related regulatory approvals, competition and industry
restructuring, changes in economic conditions, changes in energy market prices,
changes in historical weather patterns, changes in laws, regulations or
regulatory policies, developments in legal or public policy doctrines,
technological developments, the availability of new acquisition opportunities,
the timing and success of future acquisition opportunities and other presently
unknown or unforeseen factors.
In connection with the proposed merger, National Grid and Niagara Mohawk will
file a proxy statement/prospectus with the Securities and Exchange Commission
(the "SEC"). Investors are urged to read the proxy statement/prospectus and
other documents filed with the SEC when they become available because they
contain important information concerning the transaction. Investors will be able
to obtain a free copy of the proxy statement/prospectus (when available) and
other documents filed by National Grid and Niagara Mohawk at the SEC's web site,
http://www.sec.gov or at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. In addition, documents filed by Niagara Mohawk
with the SEC can be obtained by contacting Niagara Mohawk at the following
address and telephone number: Investor Relations, Niagara Mohawk Holdings, Inc.,
300 Erie Boulevard West, Syracuse, NY 13202, telephone:
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<PAGE>
315-4283134. Documents filed with the SEC by National Grid can be obtained by
contacting National Grid at the following address and telephone number: David
Forward, National Grid Group plc, 15 Marylebone Road, London, NW1 5JD,
telephone: 020-7312-5600.
Niagara Mohawk, its officers, directors, employees and certain other members of
Niagara Mohawk management and employees may be soliciting proxies from Niagara
Mohawk shareholders in favor of the merger and may be deemed to be "participants
in the solicitation" under the rules of the SEC. Information concerning the
participants will be set forth in the proxy statement/prospectus when it is
filed with the SEC.
N M Rothschild & Sons Limited, which is regulated in the U.K. by The Securities
and Futures Authority Limited, is acting exclusively for National Grid and no
one else in connection with the Acquisition and will not be responsible to
anyone other than National Grid for providing the protections afforded to their
customers or for giving advice in relation to the Acquisition.
# # #
[NATIONAL GRID U.K. SUMMARY PRESS RELEASE DATED SEPTEMBER 5, 2000]
[National Grid Logo] [Niagara Mohawk Logo]
NEWS RELEASE
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO CANADA,
AUSTRALIA OR JAPAN
EMBARGOED UNTIL 7.00 AM 5 September 2000
NATIONAL GRID ANNOUNCES $3.0 BILLION AGREED ACQUISITION OF
NIAGARA MOHAWK DOUBLING SIZE OF US OPERATIONS
National Grid and Niagara Mohawk today announce that they have signed a Merger
Agreement under which National Grid will acquire all of the outstanding shares
of Niagara Mohawk for a combination of New National Grid Shares and cash. The
terms of the agreement value each Niagara Mohawk Share at $19.00 and the equity
of Niagara Mohawk at approximately $3.0 billion ((pound)2.1 billion) and the
enterprise value of Niagara Mohawk at approximately $8.9 billion ((pound)6.1
billion), including net debt of approximately $5.9 billion ((pound)4.0 billion)
as at 30 June 2000.
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Niagara Mohawk is a focused transmission and distribution business with limited
non-core businesses. It is the second largest combined electricity and gas
utility in New York State serving over 1.5 million electricity and over 540,000
gas customers. For the year ended 31 December 1999, Niagara Mohawk reported
earnings before interest, tax and depreciation of $1.3 billion on revenues of
$4.1 billion and had net assets of $3.0 billion as at that date.
Strategic benefits of the Acquisition
The Acquisition:
o builds upon the proven success of National Grid's US strategy through the
acquisition of NEES, its experience of introducing incentive based
regulatory settlements and the integration skills demonstrated in the
acquisition of EUA;
o provides substantial upside potential from a combination of:
o synergies, where National Grid expects to generate annual cost
savings of approximately $90 million, representing some 10 per cent.
of the enlarged group's electricity controllable cost base, within
four years of Completion with the objective of achieving savings of
approximately 50 per cent. of this amount in the first full
financial year;
o improvements in the efficiency of Niagara Mohawk's core transmission
and distribution operations to bring its operating performance into
line with National Grid USA's; and
o working with New York regulators to structure long term rate plans
that benefit customers and shareholders and include incentives for
cost control and good customer service;
o enhances National Grid's earnings per share, after the amortisation of
goodwill, in the first full financial year after Completion, and
substantially enhances National Grid's cash flow per share immediately
following Completion;
o more than doubles the size of National Grid's US operations and reinforces
its position as a leading player in the Northeast US, where it would own
and operate the most extensive transmission network and be the second
largest distribution business. The Acquisition also creates the ninth
largest electricity utility nationally;
o improves the profile of the enlarged National Grid group with more than
half the group's operating profits after Completion being derived from the
US, where National Grid is able to achieve higher returns on investment
than in the UK; and
o offers other potential upsides from:
o the consolidation of National Grid and Niagara Mohawk's transmission
networks which offers opportunities for delivering greater value to
customers and
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<PAGE>
shareholders in line with the Federal Energy Regulatory Commission's
vision for independent, incentivised regional transmission
organisations;
o the opportunity to extend National Grid USA's dark fibre
telecommunications business into Niagara Mohawk's service territory;
and
o Niagara Mohawk's minority investment in Telergy, a competitive local
exchange carrier which, in contrast to National Grid USA's
telecommunications business, provides integrated broadband
telecommunications services to large corporates and other carriers
in the Northeast US. Telergy has proposed to list its shares through
an initial public offering.
Following Completion, Rick Sergel will continue as President and Chief Executive
Officer of the enlarged National Grid USA and William E. Davis will be appointed
Chairman of National Grid USA and will join the National Grid board as an
executive director for two years. In addition, one of Niagara Mohawk's
non-executive directors will join the National Grid board as a non-executive
director. Upon Completion, National Grid USA will be organised into two
geographic divisions covering New York and New England. The headquarters of the
New York division will continue to be in Syracuse.
The Acquisition is subject to a number of conditions, including regulatory and
other consents and approvals in the US, the sale of Niagara Mohawk's nuclear
facilities or other satisfactory arrangements being reached and the approval of
the shareholders of both National Grid and Niagara Mohawk. The Acquisition is
expected to complete by late 2001.
David Jones, Chief Executive of National Grid, said:
"This, our third acquisition in the US, builds perfectly on our successful US
strategy. It builds on both the platform we have created and our top quality US
management team. With Niagara Mohawk, we double the size of our US business
reinforcing our position as a leading player in the Northeast region and
becoming a top tier utility in the US as a whole."
"In contrast to our existing US business, Niagara Mohawk has recently
underperformed its peer group principally due to its substantial exposure to
above market power purchase contracts. Niagara Mohawk's management has expended
considerable effort in restructuring these contracts, successfully implementing
a plan that provides a stable future for the company. We can now focus with
Niagara Mohawk's management on improving the efficiency of Niagara Mohawk's
business. This, together with the synergies from combining our businesses and
the potential opportunities we see in transmission and telecommunications, makes
the timing of this acquisition ideal and offers substantial potential upside."
William E. Davis, Chairman and Chief Executive of Niagara Mohawk, said:
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"We are delighted to be joining forces with National Grid to become an important
part of one of the largest and most efficient energy delivery companies in the
world. This transaction is in the best interests of our shareholders, and will
yield significant benefits for our customers, employees and the communities we
serve. Direct savings and sharing of best practices will create a more efficient
company, leading to lower energy costs and enhanced customer service, making
upstate New York a more attractive region for economic growth."
Rothschild is advising National Grid and Niagara Mohawk is being advised by
Donaldson, Lufkin & Jenrette Securities Corporation. Merrill Lynch International
and Credit Suisse First Boston are brokers to National Grid.
This summary should be read in conjunction with the attached announcement.
For ease of reference, in this document, all currency conversions between pounds
sterling and US dollars have been made at a rate of $1.46:(pound)1.00.
Analysts' and press briefings
There will be a presentation to analysts at 9.30 a.m. and a press conference at
11.30 a.m. today at Merrill Lynch International, 20 Farringdon Road, London EC1M
3NH. Should you be unable to attend the analyst presentation in person, there
will be a dial in facility available as follows:
From the UK Dial in = 020 8515 2310
From the US Dial in = +1 212 699 6881
This presentation will have a replay facility, available until close of business
on Friday, 8 September, which can be accessed as follows:
From the UK Dial in = 020 8797 2499, Access code = 113949#
From the US Dial in = +1 303 590 3000, Access code = 756164
There will also be a teleconference, followed by a Q&A session, for UK and US
institutions at 3.15pm UK time (10.15am EDT). To participate in this call:
From the UK Dial in = 020 8240 8243
From the US Dial in = +1 800 482 2239
This presentation will also have a replay facility, available until close of
business on Friday, 8 September, which can be accessed as follows:
From the UK Dial in = 020 8288 4459, Access code = 689352
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From the US Dial in = +1 800 625 5288, Access code = 802684.
All other enquires should be made to the following:
Enquiries
National Grid Group plc 020 7312 5600
David Jones Chief Executive
Stephen Box Finance Director
Susan Stevens Director of Group Corporate Affairs
Jill Sherratt Investor Relations Manager
Fred Mason Vice President, Corporate Communications,
National Grid USA 001 508 389 3568
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Niagara Mohawk 001 315 474 1511
William E. Davis Chairman of the Board and Chief Executive Officer
William F. Edwards Senior Vice President and Chief Financial Officer
Joseph M. Russo Vice President, Public Affairs and Corporate
Communications
Leon Mazur Director, Investor Relations
Rothschild
UK 020 7280 5000
Nicholas Wrigley Managing Director, Investment Banking
James Douglas-Hamilton Director, Investment Banking
US 001 212 403 3500
Yves-Andre Istel Vice Chairman
Kevin Joyce Director
Matthew Savage Director
Citigate Dewe Rogerson 020 7638 9571
Anthony Carlisle
Duncan Murray
DLJ 001 212 892 3000
Michael Ranger Managing Director
Gavin Wolfe Vice President
This announcement does not constitute an offer or invitation to purchase
securities.
These materials contain certain statements that are neither reported financial
results nor other historic information. These statements are forward looking
statements within the meaning of the safe-harbor provisions of the U.S. federal
securities laws. Because these forward-looking statements are subject to risks
and uncertainties, actual future results may differ materially from those
expressed in or implied by the statements. Many of these risks and uncertainties
relate to factors that are beyond the companies' ability to control or estimate
precisely, such as future market conditions, currency fluctuations, the
behaviour of other market participants, the actions of governmental regulators
and other risk factors detailed in National Grid's and Niagara Mohawk's reports
filed with the SEC. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this document.
The companies do not undertake any obligation to publicly release any revisions
to these forward-looking statements to reflect events or circumstances after the
date of these materials.
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In connection with the Acquisition, National Grid and Niagara Mohawk will file a
combined proxy statement and prospectus with the SEC. Investors are urged to
read the combined proxy statement and prospectus and other documents filed with
the SEC when they become available, because they will contain important
information concerning the transaction. Investors will be able to obtain a free
copy of the combined proxy statement and prospectus (when available) and other
documents filed by National Grid and Niagara Mohawk at the SEC's website,
http://www.sec.gov or at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20459. In addition, documents filed by Niagara Mohawk
with the SEC can be obtained by contacting: Leon Mazur, Niagara Mohawk Holdings,
Inc. 300 Erie Boulevard West, Syracuse, NY 13202, telephone: 001 315 474 1511.
Documents filed with the SEC by National Grid can be obtained by contacting:
David Forward, National Grid Group plc, 15 Marylebone Road, London NW1 5JD,
telephone: 020 7312 5600.
Niagara Mohawk, its directors, executive officers and certain other members of
Niagara Mohawk management and employees may be soliciting proxies from Niagara
Mohawk shareholders in favour of the Acquisition. Information concerning the
participants will be set forth in the combined proxy statement and prospectus
when it is filed with the SEC.
N M Rothschild & Sons Limited, which is regulated in the UK by The Securities
and Futures Authority Limited, is acting exclusively for National Grid and no
one else in connection with the Acquisition and will not be responsible to
anyone other than National Grid for providing the protections afforded to their
customers or for giving advice in relation to the Acquisition.
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[NATIONAL GRID U.K. PRESS RELEASE DATED 5 SEPTEMBER, 2000]
[National Grid Logo] [Niagara Mohawk Logo]
NEWS RELEASE
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO CANADA,
AUSTRALIA OR JAPAN
EMBARGOED UNTIL 7.00 AM 5 September 2000
NATIONAL GRID ANNOUNCES $3.0 BILLION AGREED ACQUISITION OF
NIAGARA MOHAWK DOUBLING SIZE OF US OPERATIONS
1. Introduction
National Grid and Niagara Mohawk today announce that they have signed a Merger
Agreement under which National Grid will acquire Niagara Mohawk through the
formation of a new National Grid holding company, New National Grid, and the
exchange of Niagara Mohawk Shares for a mixture of New National Grid Shares and
cash. Niagara Mohawk is the second largest combined electricity and gas utility
in New York State serving over 1.5 million electricity and over 540,000 gas
customers.
Under the terms of the Merger Agreement, Niagara Mohawk shareholders will
receive consideration of $19.00 per Niagara Mohawk Share, subject to the US
dollar value of five National Grid ordinary shares being between $32.50 and
$51.00 (equivalent to between 446p and 699p per National Grid ordinary share
based on an exchange rate of $1.46:(pound)1 on 4 September 2000). In the event
that the US dollar value of five National Grid ordinary shares is greater than
$51.00, the per share consideration received by Niagara Mohawk shareholders will
increase by two-thirds of the percentage of the increase in value over $51.00.
In the event that the US dollar value of five National Grid ordinary shares is
less than $32.50, the per share consideration received by Niagara Mohawk
shareholders will decrease by two-thirds of the percentage of the decrease below
$32.50.
Niagara Mohawk shareholders will be able to elect to receive their consideration
in cash, New National Grid Shares or a combination thereof, subject to the
aggregate cash consideration offered to all Niagara Mohawk shareholders being at
least $1.0 billion. If cash elections received from Niagara Mohawk shareholders
exceed $1.0 billion National Grid may, at its sole discretion, increase the
amount of the consideration paid in cash.
<PAGE>
The merger terms value the equity of Niagara Mohawk at approximately $3.0
billion (approximately (pound)2.1 billion) and the enterprise value of Niagara
Mohawk at approximately $8.9 billion ((pound)6.1 billion), including net debt of
approximately $5.9 billion ((pound)4.0 billion) as at 30 June 2000.
Based on the closing price of a National Grid ordinary share of 560p and an
exchange rate of $1.46:(pound)1 on 4 September 2000 and assuming National Grid
does not exercise its right to increase the cash proportion of the
consideration, National Grid would issue approximately 248 million new ordinary
shares of National Grid representing approximately 14 per cent. of National
Grid's enlarged share capital. On the same basis, the number of new ordinary
shares of National Grid which could be issued under the collar structure would
be between approximately 199 million and 312 million, representing between
approximately 12 per cent. and 17 per cent. of National Grid's enlarged share
capital.
The Acquisition is subject to a number of conditions, including regulatory and
other consents and approvals in the US, the sale of Niagara Mohawk's nuclear
facilities or other satisfactory arrangements being reached and the approval of
the shareholders of both National Grid and Niagara Mohawk. The Acquisition is
expected to complete by late 2001. Upon Completion, Niagara Mohawk will become a
wholly-owned subsidiary of New National Grid.
Rothschild is advising National Grid and Niagara Mohawk is being advised by
Donaldson, Lufkin & Jenrette Securities Corporation. Merrill Lynch International
and Credit Suisse First Boston are brokers to National Grid.
2. Background to and reasons for the Acquisition
Rationale for entry into the US
In December 1998, National Grid announced its entry into the US electricity
market with the acquisition of NEES, one of the leading transmission and
distribution businesses in the Northeast US. The US market provided an
attractive market for investment as it allowed National Grid to exploit its core
infrastructure management skills in the world's largest energy market and
offered the opportunity for earning higher returns than are achievable in the
UK.
NEES, with its strong operational track record, was considered by National Grid
to provide a high quality management team and an excellent platform from which
to expand the US business given the high degree of fragmentation in the
Northeast.
The success of National Grid's US strategy to date has been demonstrated by:
<PAGE>
o the negotiation of ground breaking long term regulatory settlements in
Massachusetts and Rhode Island, which provide incentives for efficient
management and higher service quality; and
o the successful follow-on acquisition of EUA and its integration into the
National Grid USA business ahead of schedule, delivering integration
savings of approximately 10 per cent. of the combined controllable cost
base of NEES and EUA (over 50 per cent. more savings than originally
estimated) and with projected further efficiency savings of some 20 per
cent. of the combined controllable cost base by 2003/4. Assuming
achievement of these savings, National Grid's annual pre tax return on
investment will be 10.5 per cent. by that date.
National Grid now expects the acquisitions of NEES and EUA to be earnings
enhancing after the amortisation of goodwill for the year ending 31 March 2001,
a year earlier than expected at the time of announcement of the acquisitions of
NEES and EUA.
National Grid's stated strategy has been to build upon this platform and it has
continued to seek other acquisition opportunities where it can utilise its
proven management team and integration skills to develop its US business
further.
Attractions of Niagara Mohawk
National Grid believes that Niagara Mohawk represents an attractive next step in
achieving National Grid's strategy and offers an outstanding opportunity for
National Grid. Niagara Mohawk is the second largest combined electricity and gas
utility in New York State, focused primarily on transmission and distribution
with limited non-core businesses. Niagara Mohawk has sold or has agreements to
sell all of its non-nuclear generation capacity in the US and is currently in
the process of selling its nuclear generation interests. This sale process is
expected to be concluded before Completion.
Niagara Mohawk's electricity system, which interconnects with National Grid
USA's system, consists of over 9,000 miles of transmission lines and 118,000
miles of distribution networks. In terms of customer numbers, Niagara Mohawk is
of a similar size to National Grid USA, serving in excess of 1.5 million
electricity customers. Niagara Mohawk is also the third largest gas local
distribution company in New York State, serving over 540,000 gas customers.
Niagara Mohawk also benefits from having negotiated a restructuring of power
purchase contracts representing approximately 80 per cent. of its above market
costs and a five year electricity rate plan with the New York Public Service
Commission. The agreements put in place, which opened Niagara Mohawk's market to
retail competition and provided for reductions in residential, commercial and
industrial rates, provide for the recovery of the vast majority of Niagara
Mohawk's stranded costs and enable it to recover fully market energy and
capacity costs from customers from September 2001. A three year gas rate
agreement was approved in July 2000 providing for certainty of rates,
<PAGE>
the pass through of commodity and transportation costs to customers and the
possibility of improved returns on investment.
For the year ended 31 December 1999, Niagara Mohawk reported earnings before
interest, tax and depreciation of $1.3 billion on revenues of $4.1 billion and
had net assets of $3.0 billion as at that date. Further details of Niagara
Mohawk's business are set out in Appendix III.
3. Benefits of the Acquisition
The Acquisition provides a major opportunity for National Grid to create further
value in a number of areas.
Integration cost savings
Following Completion, Niagara Mohawk will be integrated into National Grid USA.
As a result National Grid expects to achieve annual integration cost savings of
approximately $90 million through the rationalisation of overlapping functions,
principally in the administration area. This level of savings represents some 10
per cent. of the combined electricity controllable cost base of National Grid
USA and Niagara Mohawk. The savings are projected to be achieved within four
years of Completion with savings of approximately 50 per cent. of this amount
achieved in the first full financial year. This level of integration cost
savings is consistent with those achieved on the integration of NEES and EUA.
Niagara Mohawk's existing regulatory settlements provide for the retention of
the savings associated with an acquisition or merger for a period of five years
from Completion up to the amount of the acquisition premium paid. In addition,
National Grid USA's long term regulatory settlements in Massachusetts and Rhode
Island provide for the retention of a substantial share of any cost reductions
in its New England operations.
Improved operating performance
National Grid believes that it will create significant value for shareholders by
transferring to Niagara Mohawk its proven skills in delivering cost efficiencies
and providing high quality services. National Grid USA currently ranks as one of
the most efficient electricity utilities in the Northeast US on a number of cost
measures.
Niagara Mohawk's higher cost structure offers the opportunity for National Grid
to enhance Niagara Mohawk's performance in the core transmission and
distribution business. National Grid's aim is to raise Niagara Mohawk's
operating performance over time so that it is more in line with that planned to
be achieved by National Grid USA. However, because of Niagara Mohawk's different
operating environment, National Grid does not expect to achieve these
enhancements as quickly as is projected with National
<PAGE>
Grid USA. In addition, National Grid USA will work with New York regulators to
structure long term rate plans that benefit customers and shareholders and
include incentives for cost control and good customer service.
Creation of a substantial US business
The acquisition of Niagara Mohawk is National Grid's third US acquisition and is
a further major step in achieving National Grid's US strategy. The acquisition
of Niagara Mohawk will more than double the size of National Grid's US
operations:
o creating the most extensive transmission network and the second largest
distribution business in the Northeast US;
o creating the ninth largest electricity utility in the US; and
o improving the profile of the enlarged National Grid group with more than
half the group's operating profits post Completion being derived from the
US, where National Grid is able to achieve higher returns on investment
than in the UK.
Additional upside opportunities
The Acquisition also provides opportunities to develop the transmission
business. The transmission networks of National Grid USA and Niagara Mohawk are
interconnected. After the Acquisition the enlarged National Grid group will be
the owner and operator of the most extensive transmission network in the
Northeast US, supporting FERC's vision of transmission being operated
independently from market participants and on a regional basis.
The Acquisition will pool the two businesses' skills and experience of operating
reliable transmission networks. In addition, it offers opportunities for
delivering greater value to customers and shareholders under the incentive based
rate structures considered by FERC for regional transmission organisations in
its Order 2000 earlier this year.
There is further potential upside from:
o the opportunity to extend National Grid USA's existing dark fibre
telecommunications business into Niagara Mohawk's service territory; and
o Niagara Mohawk's minority investment in Telergy, a competitive local
exchange carrier which, in contrast to National Grid's existing
telecommunications business, provides integrated broadband
telecommunications services to large corporates and other carriers in the
Northeast US. Telergy has proposed to list its shares through an initial
public offering.
<PAGE>
Financial impact
The Acquisition is expected to enhance earnings per share after the amortisation
of goodwill in the first full financial year after Completion, and also
substantially to enhance cash flow per share immediately following Completion.
Following Completion, National Grid's interest cover (excluding exchangeable
bond interest and before amortisation of goodwill) is expected to fall to 2.5
times in 2002/03, before rising steadily to 3 times within three years post
Completion. National Grid believes this level of cover is comfortable given the
cash generative nature of the enlarged National Grid group and the value of
National Grid's investment in Energis. The enlarged National Grid group will
have strong operational cash flows allowing it to meet its operating and
financing requirements.
4. Board, management and employees
Board and management
A Joint Integration Committee of National Grid USA and Niagara Mohawk, chaired
by Rick Sergel, will be set up immediately to ensure a smooth transition in the
period between announcement and Completion.
National Grid's management is confident that the good relationship that has been
established between the management teams of Niagara Mohawk and National Grid
will assist in the negotiation of the regulatory approval process and the
subsequent integration phase. In addition, the experience of Niagara Mohawk's
management team of operating in New York State will strengthen further National
Grid USA's management team.
Following Completion, Rick Sergel will continue as President and Chief Executive
Officer of the enlarged National Grid USA. William E. Davis, Chairman and Chief
Executive Officer of Niagara Mohawk, will be appointed Chairman of National Grid
USA and will join the National Grid board as an executive director for two years
to ensure a smooth transition and rapid integration. In addition one of Niagara
Mohawk's non-executive directors will join the National Grid board as a
non-executive director.
Upon Completion, National Grid USA will be organised as two geographic divisions
covering New York and New England. The New York division will be managed from
Syracuse, which will continue to be the headquarters of Niagara Mohawk. In
addition, following Completion a New York Advisory Board comprising Niagara
Mohawk non-executive directors will be established for two years.
<PAGE>
Employees
It is anticipated that career opportunities for employees of the enlarged
National Grid group will be enhanced as a result of the Acquisition and both
sets of employees will benefit from potential transfers within the enlarged
National Grid group. National Grid has confirmed that all Niagara Mohawk's
employment agreements will be honoured.
5. Terms of the Acquisition
Acquisition terms
The Acquisition will be effected in accordance with the terms of the Merger
Agreement, a brief description of the principal terms and conditions of which
are set out in Appendix I. Under the terms of the Merger Agreement, Niagara
Mohawk shareholders will be entitled to receive consideration of $19.00 per
Niagara Mohawk Share (subject to adjustment as described below).
Niagara Mohawk shareholders will be able to elect to receive their consideration
in cash, New National Grid Shares or a combination thereof, subject to the
aggregate cash consideration offered to all Niagara Mohawk shareholders being at
least $1.0 billion.
The consideration of $19.00 per Niagara Mohawk Share will remain fixed if the
Reference Price, as defined below, is between $32.50 and $51.00 (equivalent to
between 446p and 699p per National Grid ordinary share based on an exchange rate
of $1.46:(pound)1 on 4 September 2000). If the reference price is above $51.00
or below $32.50, the consideration will be increased by two-thirds of the
percentage of the increase in the Reference Price over $51.00 or decreased by
two-thirds of the percentage of the decrease in the Reference Price below $32.50
respectively.
The "Reference Price" will be calculated by reference to the average closing
mid-market price of a National Grid ordinary share (multiplied by five and
converted into US dollars at the exchange rate for each day) for 20 trading days
selected at random from the 40 trading days ending on the tenth trading day
prior to Completion.
No fractions of New National Grid Shares will be issued in connection with the
Acquisition. Niagara Mohawk shareholders who would otherwise have been entitled
to receive a fraction of a New National Grid Share in the Acquisition will
receive cash, in lieu of such fraction.
The terms of the Acquisition:
o value each Niagara Mohawk Share at $19.00 (subject to adjustment as
described above);
<PAGE>
o value the equity of Niagara Mohawk at approximately $3.0 billion
(approximately (pound)2.1 billion) and the enterprise value of Niagara
Mohawk at approximately $8.9 billion (approximately (pound)6.1 billion),
including net debt of approximately $5.9 billion (approximately (pound)4.0
billion) as at 30 June 2000;
o represent a 37 per cent. premium to the closing price of $13.875 per
Niagara Mohawk Share on 1 September 2000 (the last trading day in the US
prior to the execution of the Merger Agreement) and a 36 per cent. premium
to the three month average closing price per Niagara Mohawk Share; and
o represent a multiple of 6.9x Niagara Mohawk's earnings before interest,
tax and depreciation for the year ended 31 December 1999 and 1.0x Niagara
Mohawk's book value as at that date.
Consideration Election and Cash Increase
Under the terms of the Merger Agreement, Niagara Mohawk shareholders will be
able to elect whether they receive New National Grid Shares or cash or a
combination of both as consideration (a "Consideration Election") subject to the
aggregate limitations described above. In the event that no election is received
from a Niagara Mohawk shareholder, National Grid may, at its sole discretion,
determine the allocation of cash and New National Grid Shares received by such
Niagara Mohawk shareholder.
In addition, based on the outcome of these elections, National Grid may, at its
sole discretion, reduce the total number of New National Grid Shares to be
issued and increase the cash component of the consideration to satisfy in full
or in part the elections made by Niagara Mohawk shareholders to receive cash
(the "Cash Increase").
Accordingly, the ability of National Grid to satisfy each Consideration Election
will depend on other Niagara Mohawk shareholders making offsetting elections and
on the extent, if any, of the Cash Increase. National Grid will, so far as
possible, pay Niagara Mohawk shareholders in the proportion of cash and New
National Grid Shares for which they elect. To the extent that elections cannot
be satisfied in full, they will be scaled down on a pro rata basis.
6. Financing the Acquisition
Under the terms of the Merger Agreement, the total consideration payable is $3.0
billion of which, assuming National Grid does not elect to increase the
aggregate cash consideration, approximately $1.0 billion will be satisfied in
cash provided from borrowings or cash resources. The balance of the
consideration will be satisfied by the issue of New National Grid Shares to
Niagara Mohawk shareholders.
The number of New National Grid Shares to be issued will be calculated based on
the Reference Price and is subject to the collar described above such that the
maximum
-15-
<PAGE>
number of new ordinary shares of National Grid to be issued is approximately 312
million, representing approximately 17 per cent. of National Grid's enlarged
share capital. Assuming National Grid does not exercise its right to increase
the cash proportion of the consideration, the minimum number of new ordinary
shares of National Grid to be issued is approximately 199 million, representing
approximately 12 per cent. of National Grid's enlarged share capital.
Based on the closing price of a National Grid ordinary share of 560p on 4
September 2000 National Grid would issue approximately 248 million New National
Grid Shares representing approximately 14 per cent. of National Grid's enlarged
share capital.
The number of New National Grid Shares which are issued will also be affected by
any adjustment to the proportion of the consideration which is paid in cash.
7. Scheme of Arrangement
To implement the Acquisition, it is intended that prior to Completion National
Grid will effect a Scheme of Arrangement under which New National Grid will
become the holding company of National Grid, and National Grid shareholders will
receive, in exchange for their ordinary shares in National Grid, new shares
issued by New National Grid having the same economic and voting rights. The
shares issued by New National Grid will be listed on the London and New York
Stock Exchanges with ADSs representing such shares being listed on the New York
Stock Exchange following which the ordinary shares in National Grid will be
de-listed.
The Scheme of Arrangement is subject to, inter alia, the approval of National
Grid shareholders and the sanction of the High Court in London. Under the terms
of the Merger Agreement, if the Scheme of Arrangement does not become effective,
the Acquisition will proceed using an alternative structure to be agreed between
National Grid and Niagara Mohawk which substantially preserves the economic
benefits of the Acquisition for both parties and Niagara Mohawk shareholders.
Further information regarding the Scheme of Arrangement will be provided in due
course.
8. Approvals and consents
Shareholder approvals
(a) National Grid
The Acquisition is subject to approval by a majority of National Grid
shareholders at an EGM. The Merger Agreement is conditional upon such approval
being obtained and the satisfaction or waiver of the other conditions in such
agreement.
-16-
<PAGE>
A circular relating to the Acquisition will be despatched to National Grid
shareholders as soon as practicable. This circular will include notice of an EGM
and full details of the Acquisition and will specify the necessary actions to be
taken by National Grid shareholders to approve the Acquisition.
<PAGE>
(b) Niagara Mohawk
The Acquisition is also subject to approval by the holders of a majority of
votes entitled to be cast by all the holders of Niagara Mohawk Shares and the
Merger Agreement is conditional upon such approval being obtained.
A combined prospectus and proxy statement relating to the Acquisition will be
mailed to Niagara Mohawk shareholders as soon as practicable after the SEC has
completed its review. The proxy statement will contain a notice convening a
meeting of Niagara Mohawk shareholders at which they will be asked to approve
the Acquisition.
Regulatory consents and timing
The Acquisition cannot be completed until a number of conditions have been
satisfied, which include the granting of regulatory and other consents and
approvals in the US. The principal regulatory approvals required are approval by
the SEC and by the Federal Energy Regulatory Commission together with certain
approvals from the New York Public Service Commission. The Acquisition also
requires clearance under US anti-trust laws.
The Acquisition will become effective at the time when a certificate of merger
is delivered for filing with the Department of State in the State of New York
and the Secretary of State of the State of Delaware, which is expected to occur
by late 2001.
Settlement, Listing and Dealing
National Grid is currently listed on the London and New York Stock Exchanges.
National Grid will be seeking a listing on the London and New York Stock
Exchanges for the New National Grid Shares.
Further details on settlement, listing and dealings will be included in the
documents to be sent to National Grid and Niagara Mohawk shareholders.
9. Recommendation
The Board of Directors of National Grid, which has been advised by Rothschild,
considers the Acquisition to be in the best interests of National Grid and its
shareholders as a whole. In giving its advice, Rothschild has relied upon the
views of the Board of Directors of National Grid of the commercial merits of the
Acquisition. The Directors of National Grid intend unanimously to recommend its
shareholders to vote in favour of the resolution to be proposed at the EGM to
approve the Acquisition, as they intend to do in respect of their own beneficial
holdings.
-17-
<PAGE>
The Board of Niagara Mohawk has unanimously approved the Acquisition and intends
to recommend that Niagara Mohawk shareholders vote in favour of the resolutions
to be proposed at the shareholder meeting of Niagara Mohawk to approve the
Acquisition. Donaldson, Lufkin & Jenrette Securities Corporation, which is
acting as financial adviser to Niagara Mohawk, has provided an opinion to the
Board of Directors of Niagara Mohawk that the consideration for the Acquisition
is fair from a financial point of view to the shareholders of Niagara Mohawk.
10. Other
For ease of reference, in this document, all currency conversions between pounds
sterling and US dollars have been made at a rate of $1.46:(pound)1.00.
Enquiries
National Grid Group plc 020 7312 5600
David Jones Chief Executive
Stephen Box Finance Director
Susan Stevens Director of Group Corporate Affairs
Jill Sherratt Investor Relations Manager
Fred Mason Vice President, Corporate Communications,
National Grid USA 001 508 389 3568
Niagara Mohawk 001 315 474 1511
William E. Davis Chairman of the Board and Chief Executive Officer
William F. Edwards Senior Vice President and Chief Financial Officer
Joseph M. Russo Vice President, Public Affairs and Corporate
Communications
Leon Mazur Director, Investor Relations
Rothschild
UK 020 7280 5000
Nicholas Wrigley Managing Director, Investment Banking
James Douglas-Hamilton Director, Investment Banking
US 001 212 403 3500
Yves-Andre Istel Vice Chairman
Kevin Joyce Director
Matthew Savage Director
<PAGE>
Citigate Dewe Rogerson 020 7638 9571
Anthony Carlisle
Duncan Murray
DLJ 001 212 892 3000
Michael Ranger Managing Director
Gavin Wolfe Vice President
This announcement does not constitute an offer or invitation to purchase
securities.
These materials contain certain statements that are neither reported financial
results nor other historic information. These statements are forward looking
statements within the meaning of the safe-harbor provisions of the U.S. federal
securities laws. Because these forward-looking statements are subject to risks
and uncertainties, actual future results may differ materially from those
expressed in or implied by the statements. Many of these risks and uncertainties
relate to factors that are beyond the companies' ability to control or estimate
precisely, such as future market conditions, currency fluctuations, the
behaviour of other market participants, the actions of governmental regulators
and other risk factors detailed in National Grid's and Niagara Mohawk's reports
filed with the SEC. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this document.
The companies do not undertake any obligation to publicly release any revisions
to these forward-looking statements to reflect events or circumstances after the
date of these materials.
In connection with the Acquisition, National Grid and Niagara Mohawk will file a
combined proxy statement and prospectus with the SEC. Investors are urged to
read the combined proxy statement and prospectus and other documents filed with
the SEC when they become available, because they will contain important
information concerning the transaction. Investors will be able to obtain a free
copy of the combined proxy statement and prospectus (when available) and other
documents filed by National Grid and Niagara Mohawk at the SEC's website,
http://www.sec.gov or at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20459. In addition, documents filed by Niagara Mohawk
with the SEC can be obtained by contacting: Leon Mazur, Niagara Mohawk Holdings,
Inc. 300 Erie Boulevard West, Syracuse, NY 13202, telephone: 001 315 474 1511.
Documents filed with the SEC by National Grid can be obtained by contacting:
David Forward, National Grid Group plc, 15 Marylebone Road, London NW1 5JD,
telephone: 020 7312 5600.
Niagara Mohawk, its directors, executive officers and certain other members of
Niagara Mohawk management and employees may be soliciting proxies from Niagara
Mohawk shareholders in favour of the Acquisition. Information concerning the
participants will be set forth in the combined proxy statement and prospectus
when it is filed with the SEC.
N M Rothschild & Sons Limited, which is regulated in the UK by The Securities
and Futures Authority Limited, is acting exclusively for National Grid and no
one else in connection with the Acquisition and will not be responsible to
anyone other than National Grid for providing the protections afforded to their
customers or for giving advice in relation to the Acquisition.
<PAGE>
APPENDIX I
SUMMARY OF PRINCIPAL CONDITIONS OF
THE MERGER AGREEMENT
1. Introduction
The Merger Agreement sets out the conditions to Completion. It also contains
certain termination rights, mutual representations and warranties and various
covenants, including certain limitations on the operation of the business of
Niagara Mohawk in the period prior to Completion.
2. Principal Conditions
The principal conditions to Completion that must be satisfied or waived include
the receipt by National Grid of approval of its shareholders for both the Scheme
of Arrangement and the Acquisition and receipt by Niagara Mohawk of approval of
its shareholders for the Acquisition, as well as receipt of certain regulatory
approvals and the absence of any governmental order prohibiting Completion. The
principal regulatory approvals required in the US include approval by the New
York Public Service Commission, the SEC under the Public Utility Holding Company
Act of 1935, the Federal Energy Regulatory Commission under the Federal Power
Act and the Federal Communications Commission. The Acquisition also requires
clearance under US antitrust laws. In the UK, the Scheme of Arrangement must be
sanctioned by the High Court.
The Agreement requires that prior to Completion, Niagara Mohawk's nuclear
generation interests shall have been sold , and that sale itself requires
approval of the New York Public Service Commission and the US Nuclear Regulatory
Commission. If it appears that the sale of Niagara Mohawk's nuclear generation
interests may be delayed beyond the term of the Agreement, but is likely to
occur, National Grid and Niagara Mohawk agree to consider alternative
arrangements for the Niagara Mohawk nuclear generation interests in order to
permit Completion.
It is a condition to Completion that the required regulatory approvals,
including the approvals of the sale of Niagara Mohawk's nuclear generation
interests or other arrangement and a determination of the level of allowed
recovery of stranded costs from such sale, do not have a material adverse effect
on Niagara Mohawk.
3. Termination Rights
National Grid and Niagara Mohawk can jointly agree to terminate the Merger
Agreement at any time. The Merger Agreement requires National Grid and Niagara
Mohawk to complete the Acquisition unless any one of the conditions to
Completion is not satisfied
<PAGE>
or waived by 31 December 2001. This date may be extended to 31 March 2002, if on
31 December 2001, the only conditions to Completion are the receipt of certain
regulatory approvals and the completion of the sale of Niagara Mohawk's nuclear
generation interests; provided that in the latter case, Niagara Mohawk must have
entered into a definitive agreement with a third party relating to such sale.
The date may then be further extended to 31 August 2002 if the only unsatisfied
conditions to Completion are the receipt of regulatory approvals for, and the
closing of, the sale of Niagara Mohawk's nuclear generation interests.
The Merger Agreement may also be terminated by either National Grid or Niagara
Mohawk (i) as a result of material breach of the Merger Agreement by the other
party, (ii) if either of such parties fails to obtain approval of its
shareholders, (iii) if the Board of Directors of the other party withdraws its
recommendation with respect to the Acquisition or (iv) if a court of competent
jurisdiction issues an order preventing or prohibiting the Acquisition.
In addition to these termination rights, the Merger Agreement may be terminated
by Niagara Mohawk prior to obtaining the approval of its shareholders if its
Board of Directors determines, in certain circumstances, that its fiduciary
obligations require Niagara Mohawk to terminate the Agreement as a result of a
more favorable acquisition proposal from a third party.
4. Effect of Termination in Certain Circumstances
Niagara Mohawk is required to make a payment to National Grid in the amount of
$150 million plus National Grid's out-of-pocket expenses up to $10 million as
National Grid's exclusive remedy if the Merger Agreement is terminated for any
of the following reasons:
- Niagara Mohawk terminates the Merger Agreement prior to obtaining Niagara
Mohawk shareholder approval of the Acquisition because its Board of
Directors has determined that Niagara Mohawk's fiduciary obligations
require it to accept an alternative acquisition proposal;
- the Niagara Mohawk Board of Directors withdraws its recommendation for
approval of the Acquisition prior to obtaining Niagara Mohawk shareholder
approval of the Acquisition;
- Niagara Mohawk shareholders fail to approve the Acquisition while an
alternative acquisition proposal is outstanding and Niagara Mohawk enters
into a definitive agreement with respect to the alternative acquisition
proposal within two years;
- National Grid terminates the Merger Agreement because Niagara Mohawk has
materially breached a representation, warranty or covenant of the Merger
Agreement while an alternative acquisition proposal is outstanding and
Niagara
<PAGE>
Mohawk enters into a definitive agreement with respect to the alternative
acquisition proposal within two years; and
- Niagara Mohawk terminates the Merger Agreement because Completion has not
occurred by 31 December 2001, subject to any extensions made in the manner
described above, and at the time of such termination an alternative
acquisition proposal is outstanding and Niagara Mohawk enters into a
definitive agreement with respect to the alternative acquisition proposal
within two years (provided that if the failure to close while an
alternative acquisition proposal is outstanding is solely the result of
failure to complete the sale of Niagara Mohawk's nuclear generation
interests, the fee will become payable if Niagara Mohawk enters into a
definitive agreement regarding the alternative acquisition proposal within
one year).
National Grid is required to make a payment to Niagara Mohawk in the amount of
$150 million plus Niagara Mohawk's out-of-pocket expenses up to $10 million as
Niagara Mohawk's exclusive remedy if the National Grid Board of Directors
withdraws its recommendation for the Acquisition prior to obtaining the National
Grid shareholder approval for the Acquisition.
In the event of a wilful breach of the Merger Agreement by one party, the
breaching party may also be liable for damages for breach of contract.
<PAGE>
APPENDIX II
INFORMATION ON NATIONAL GRID
Business description
National Grid's principal business is the transmission of electricity. It owns,
operates and maintains the high voltage network in England and Wales, which
connects generators with major customers and regional electricity companies.
National Grid also owns and operates interconnectors which enable electricity to
be transferred between the England and Wales market and Scotland and France.
National Grid is listed on the London and New York Stock Exchanges with a
current market capitalisation of (pound)8.3 billion ($12.1 billion). National
Grid ordinary shares are tradeable on the New York Stock Exchange in the form of
ADSs, each of which represents five National Grid ordinary shares.
In addition, National Grid holds a 36 per cent. economic interest in Energis,
which operates a national telecommunications network and provides a range of
communications and information services. Energis has a current market
capitalisation of (pound)10.5 billion ($15.3 billion).
As the liberalisation of international electricity and telecommunications
industries continues, National Grid has sought investment opportunities overseas
where it can utilise its existing assets, skills and resources to improve
returns for shareholders.
On 22 March 2000 National Grid completed the acquisition of NEES. This
acquisition provided National Grid with a regional platform for growth in the US
and was followed on 19 April 2000 with the completion of the acquisition of EUA,
together forming National Grid USA. National Grid USA now delivers electricity
to approximately 1.7 million residential, commercial, industrial and municipal
customers in Massachusetts, Rhode Island and New Hampshire. National Grid USA's
subsidiaries own and operate approximately 3,000 miles of transmission lines and
28,000 miles of distribution lines in New England.
National Grid has a 42.5 per cent. interest in a joint venture which has a
majority stake in the principal Argentine transmission system. In another joint
venture, National Grid supplies electricity to the mines of the Zambian
Copperbelt. In Brazil, National Grid owns 50 per cent. of Intelig, Brazil's
second national and international telecommunications service provider. National
Grid also owns a telecommunications company in the US, NEESCom, and is working
with Energis in the creation of an alternative national telecommunications
network in Poland. National Grid has a shareholding in Manquehue net, a
telecommunications company based in Santiago, Chile. National Grid also has a 50
per cent. shareholding in Southern Cone Communications which is developing a
telecommunications network in Argentina with a spur to Chile.
<PAGE>
The following information is extracted from National Grid's annual report for
the year ended 31 March 2000:
Group historical cost profit and loss account
(UK GAAP)
<TABLE>
<CAPTION>
Year ended Year ended Year ended
31 March 31 March 31 March
1998 1999 2000
(restated) (restated)
(pound)'m (pound)'m (pound)'m
<S> <C> <C> <C>
Group turnover
- Continuing operations 1,519.3 1,514.2 1,578.5
- Discontinued operations 90.1 -- --
- Acquisition -- -- 36.2
---------------------------------------------
1,609.4 1,514.2 1,614.7
Operating costs (1,074.9) (937.5) (1,042.6)
Operating profit/(loss)
- Continuing operations 562.9 576.7 569.4
- Discontinued operations (28.4) -- --
- Acquisition -- -- 2.7
---------------------------------------------
534.5 576.7 572.1
Share of joint ventures' and associate's operating profit/(loss) 1.3 0.7 (33.5)
---------------------------------------------
Total operating profit 535.8 577.4 538.6
Exceptional items 107.1 839.2 1,027.3
Net interest (61.7) (118.5) (64.9)
---------------------------------------------
Profit on ordinary activities before taxation 581.2 1,298.1 1,501.0
Taxation
- Excluding exceptional items (133.5) (120.3) (123.1)
- Exceptional items -- (162.8) (229.5)
---------------------------------------------
(133.5) (283.1) (352.6)
Profit on ordinary activities after taxation 447.7 1,015.0 1,148.4
Dividends
- Ordinary (189.2) (192.0) (205.5)
- Special (768.6) -- --
---------------------------------------------
(957.8) (192.0) (205.5)
---------------------------------------------
Retained profit / (loss) (510.1) 823.0 942.9
=============================================
Basic earnings per ordinary share:
-excluding exceptional items and goodwill amortisation 20.2p 23.3p 24.3p
-excluding exceptional items, goodwill amortisation and telecom
start-up losses 20.6p 24.6p 28.3p
</TABLE>
<PAGE>
Summary group historical cost balance sheet
(UK GAAP)
<TABLE>
<CAPTION>
At 31 March At 31 March
1999 2000
(restated)
(pound)'m (pound)'m
<S> <C> <C>
Fixed assets
Intangible assets 15.1 844.7
Tangible assets 3,099.4 4,938.3
Investments 233.1 519.0
-----------------------------
3,347.6 6,302.0
Current assets 1,746.3 2,464.8
Creditors (amounts falling due within one year) (1,414.9) (1,861.1)
-----------------------------
Net current assets 331.4 603.7
Total assets less current liabilities 3,679.0 6,905.7
Creditors (amounts falling due after more than one year) (1,680.9) (3,500.2)
Provisions for liabilities and charges (45.6) (461.4)
-----------------------------
Net assets employed 1,952.5 2,944.1
=============================
Capital and reserves
Called up share capital 173.9 174.7
Share premium account 246.5 274.7
Profit and loss account 1,532.1 2,459.6
-----------------------------
Shareholders' funds 1,952.5 2,909.0
Minority interests -- 35.1
-----------------------------
1,952.5 2,944.1
=============================
</TABLE>
<PAGE>
APPENDIX III
INFORMATION ON NIAGARA MOHAWK
Business description
Niagara Mohawk is an exempt holding company whose principal subsidiary, Niagara
Mohawk Power Corporation, is a regulated electricity and gas utility serving
more than 1.5 million electricity customers and over 0.5 million gas customers
in the areas of central, northern and western New York State. Niagara Mohawk's
electricity system consists of over 9,000 miles of transmission lines and
118,000 miles of distribution networks.
The company has sold or has agreements to sell all of its non-nuclear generation
capacity in the US and is currently in the process of selling its nuclear
generation interests. Niagara Mohawk owns Nine Mile Point Nuclear Station Units
1 (100 per cent. ownership) and 2 (41 per cent. ownership).
The company has opened its market to retail competition and has reached an
agreement with the New York Public Service Commission for the recovery of the
vast majority of its stranded costs.
Niagara Mohawk is also the third largest gas local distribution company in New
York State serving over 540,000 residential and business customers on a retail
basis as well as a growing number of customers for whom Niagara Mohawk
transports gas that they purchase directly from suppliers.
In addition, Niagara Mohawk has investments in telecommunications (Telergy),
energy-related and services businesses and a 50 per cent. interest in Canadian
Niagara Power, an Ontario based utility.
For the year ended 31 December 1999, Niagara Mohawk reported earnings before
interest, tax and depreciation of $1.3 billion on revenues of $4.1 billion. As
at 31 December 1999 Niagara Mohawk had audited net assets of $3.0 billion.
<PAGE>
The following financial information is extracted from Niagara Mohawk's annual
report for the year ended 31 December 1999; it is not considered indicative of
Niagara Mohawk's expected contribution to National Grid's earnings post
Completion:
Summary Statements of Consolidated Income
(US GAAP)
<TABLE>
<CAPTION>
Year ended Year ended Year ended
31 December 31 December 31 December
1997 1998 1999
$'m $'m $'m
<S> <C> <C> <C>
Operating revenues:
Electric 3,396 3,390 3,465
Gas 681 601 611
Other 2 1 8
-----------------------------------------
4,079 3,992 4,084
Operating expenses:
Electricity purchased 1,323 1,138 1,013
Fuel for electric generation 179 240 190
Gas purchased 372 308 298
Other operation and maintenance 846 948 911
PowerChoice charge -- 263 --
Amortisation of the MRA regulatory asset -- 129 386
Depreciation and amortisation 340 356 345
Other taxes 472 461 415
-----------------------------------------
Total operating expenses 3,532 3,843 3,558
Operating income 547 149 526
Other income 37 61 4
-----------------------------------------
Income before interest charges 584 210 530
Interest charges and preferred dividends 274 397 485
Preferred dividend requirement of subsidiary 37 37 37
-----------------------------------------
Income (loss) before federal and foreign income taxes 273 (224) 8
Federal and foreign income taxes 127 (67) 19
-----------------------------------------
Income (loss) before extraordinary item 146 (157) (11)
Extraordinary item -- -- (24)
-----------------------------------------
Net income (loss) 146 (157) (35)
=========================================
Earnings per average common share before extraordinary item $ 1.01 $(0.95) $(0.06)
</TABLE>
<PAGE>
Summary consolidated balance sheet
(US GAAP)
At 31 December At 31 December
1998 1999
$'m $'m
Assets
Net utility plant 6,878 5,888
Other property and investments 411 485
Current assets 970 674
Regulatory assets 5,468 5,518
Other assets 134 105
--------------------------
Total assets 13,861 12,670
==========================
Liabilities and capitalisation
Capitalisation
Common stockholders' equity 3,170 2,976
Preferred stock of subsidiary:
Not subject to mandatory redemption 440 440
Subject to mandatory redemption 69 61
Long-term debt 6,417 5,043
--------------------------
Total capitalisation 10,096 8,520
Current liabilities 843 1,118
Regulatory and other liabilities 2,702 2,792
Commitments and contingencies 220 240
--------------------------
Total liabilities and capitalisation 13,861 12,670
==========================
<PAGE>
APPENDIX IV
DEFINITIONS
The following definitions apply throughout this press release unless the context
requires otherwise:
"Acquisition" the acquisition of Niagara Mohawk by National
Grid pursuant to the Merger Agreement
"Completion" the closing of the Acquisition following
satisfaction or waiver of the conditions
attaching to the Acquisition and the delivery
of a certificate of merger for filing with the
Department of State of the State of New York
and the Secretary of State of the State of
Delaware
"EGM" the extraordinary general meeting of National
Grid to be convened for the purpose of seeking
approval for the Acquisition
"Energis" Energis plc, an associate of National Grid
involved in the provision of
telecommunications services
"EUA" Eastern Utilities Associates
"London Stock Exchange" London Stock Exchange plc
"Merger Agreement" the Agreement and Plan of Merger
and Scheme of Arrangement dated 4 September
2000 entered into between National Grid, New
National Grid, Grid Delaware, Inc., a direct
wholly owned subsidiary of New National Grid,
and Niagara Mohawk
"National Grid" National Grid Group plc
"NEES" New England Electric System
"New National Grid" New National Grid Limited, which will
re-register as a public limited company and
following implementation of the Scheme of
Arrangement will be the new holding company of
National Grid
<PAGE>
"New National Grid Shares" new ordinary shares issued by New National
Grid in the form of American Depositary Shares
of New National Grid ("ADSs"), each of which
will represent five ordinary shares in New
National Grid. Such ADSs will be evidenced by
American Depositary Receipts of New National
Grid, each representing any number of
underlying ADSs
"Niagara Mohawk" Niagara Mohawk Holdings, Inc.
"Niagara Mohawk shareholders" holders of Niagara Mohawk Shares
"Niagara Mohawk Shares" shares of Niagara Mohawk
"Rothschild" N M Rothschild & Sons Limited and Rothschild
Inc.
"Scheme of Arrangement" a scheme of arrangement pursuant to section
425 of the Companies Act 1985
"SEC" the US Securities and Exchange Commission
"UK" the United Kingdom
"US" the United States of America, its territories
and possessions, any state of the United
States of America and the District of
Columbia, and all other areas subject to its
jurisdiction
"$" US dollar
[FINANCIAL PRESENTATION DATED SEPTEMBER 5, 2000]
[LOGO] National Grid
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
[GRAPHIC]
<PAGE>
DAVID JONES
GROUP CHIEF EXECUTIVE
[GRAPHIC]
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
Agenda
David Jones : Headlines
Group Chief Executive
Mike Jesanis : Niagara Mohawk - the business
CFO, National Grid USA
Stephen Box : Deal structure and valuation
Group Finance Director
David Jones : Summary
Group Chief Executive
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
US opportunity
o Discussions with Niagara Mohawk started December 1999
o US market attractive
o Opportunities to improve shareholder returns Incentive based
regulation Synergy benefits of consolidating acquisitions
Rationalisation of transmission networks
o Opportunity to exploit UK expertise
NEES the right entry point
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
Delivering value in US
o Swift integration of EUA
Integration savings 50% more than originally estimated
o Negotiated long term incentive based regulatory deals Integration
savings 10% controllable cost base Total savings 30% by 2004
o Earnings enhancing after goodwill a year early
o Nominal pre-tax return up to 10.5% by 2004
Compares to 6.5% real return in UK
Now leveraging US platform and skills with Niagara Mohawk
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
Niagara Mohawk
o Electricity and gas transmission and distribution
o Operates in a single state
o Generation capacity sold or being sold
o More than doubles US operating profit and customers
o Reinforces leadership in Northeast
o Improves profile of National Grid Group business
o Earnings and cashflow enhancing
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
Four upsides
o Integration savings
10% of combined controllable cost base
$90 million per year
o Improve Niagara Mohawk's operating performance
Lift to National Grid USA level
o Exploit transmission opportunities
o Telecoms
Extend NEESCom across Niagara Mohawk
Telergy stake
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
The acquisition
o $3.0 billion ((pounds)2.1 billion)
o One third cash / two thirds new shares
o Proportion of cash can be increased
o Completion late 2001
o Rick Sergel to run combined business
o Bill Davis joins Group Board on completion
<PAGE>
MIKE JESANIS
CHIEF FINANCIAL OFFICER
NATIONAL GRID USA
[GRAPHIC]
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
Service territory
o Highly focussed wires and pipes business
o Over 1.5 million electric customers
o Over 0.5 million gas customers
[GRAPHIC]
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
Distribution leader in Northeast
[BAR CHART]
Distributes 34 TWh electricity and 208 billion cubic feet gas
3.3 million combined electricity customers
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
Largest transmission business
[BAR CHART]
Approximately 12,000 combined transmission circuit miles
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
Exit from generation
o All US non-nuclear generation sold or under contract
o Nine Mile Point nuclear plants
Sale expected 2001 before completion of acquisition
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
Summary of PowerChoice
o Sets Niagara Mohawk rates until September 2003
o Provides framework for recovery of stranded costs
o Allocates supply risks between customers and investors
o Provides merger incentives
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
Stranded costs recovery
o Long term power contracts - $3 billion
o Nuclear costs (including decommissioning)
Up to $2 billion, to be reduced by sales proceeds
o Non-nuclear generation - $150 million
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
Other PowerChoice provisions
o Supply risk
Niagara Mohawk has hedged significant component of supply risk
Investors bear unhedged risks until September 2001
estimated $90 million in total
Customers bear all risks from September 2001
o Merger incentives
Investors to retain all merger savings for 5 years up to amount of
acquisition premium
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
Niagara Mohawk - an excellent fit
o Focus on wires and pipes
o Divestiture of generation
o Resolution of stranded costs
o Managed supply risk
Premier energy delivery company in Northeast
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
Recent financial performance
o Strong cashflow
EBITDA $1.3 billion
Free cashflow approximately $500 million pa before asset sales
o Changes in capital structure
Debt reduction of $1.1 billion
Buy backs reduced shares from 187 million to 160 million
o Installation of new customer service system - $69 million
o Non earning regulatory assets
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
1999 Pro forma income statement
$m Reported Adjustments Restated
--------------------------------------------------------------------------------
Revenue 4,084 4,084
Operating expenses 2,793 (69) 2,724
--------------------------------------------------------------------------------
EBITDA 1,291 1,360
Depreciation & amortisation 761 (232) 529
--------------------------------------------------------------------------------
EBIT 530 831
Interest & preferred dividends 522 (25) 547
Taxes 19 97 116
--------------------------------------------------------------------------------
Net income (11) 168
Average shares 186 160
EPS (0.06) 1.05
Book value per share $16.78 $12.51
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
Improving financial performance
o Reduce combined controllable electricity cost base by 10% ($90 million pa)
o Opportunities to increase operating efficiencies
o Existing rate agreements allow investors to retain benefits
Expected return on expanded US business - 10.5%
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
Additional upside - transmission
o Lack of strong transmission operators significant factor behind rising and
volatile wholesale electricity prices
o National Grid operating expertise
Most extensive transmission system in North East
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
Additional upside - gas
o 3rd largest and lowest cost in New York State
o $580 million revenues
o $90 million operating profit
o Favourable regulatory settlement
o Acquisition brings new skill set to the group
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
Additional upside - telecoms
Opportunities to expand NEESCom
model in Niagara Mohawk
territory
[GRAPHIC]
18% economic interest in Telergy
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
The acquisition of Niagara Mohawk
o Expands distribution, transmission and telecoms in Northeast
o Opportunity to earn superior returns
o Gas provides potential vehicle for creating value
<PAGE>
STEPHEN BOX
GROUP FINANCE DIRECTOR
[GRAPHIC]
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
Transaction structure
o Recommended $3.0bn offer ($19 per share)
o Collar: $32.50 to $51.00 per National Grid ADS
446p to 699p per share at current exchange rates
o Two thirds equity / one third cash
14.3% of enlarged equity based on current share price
Range 11.8% to 17.4%
o Flexible structure enables increase in cash element
o New Top Co structure
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
Valuation
o 37% premium to equity value
o Recent under-performance
One-off earnings hits
No dividend paid since 1995
Stock overhang - Tiger Fund
o DCF valuation
Price covered by businesses plus recovery of stranded costs
Excludes merger savings or operating efficiency opportunities
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
Exit multiples
NiMo Other acquisitions
EV / EBITDA 6.6x 7.6x
EV / EBIT 10.8x 11.5x
PER 18.1x 16.0x
Book value 1.5x 2.0x
o NiMo multiples better on completion
Strong cashflow
No ordinary dividends
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
Financial impact
o EPS enhancing after goodwill
o Cash flow enhancing
o Interest cover 2.5x increasing to 3.0x
o Group effective tax rate remains 26%
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
Timetable
o Shareholder meetings in early 2001
o Regulatory approvals - no difficult issues
o Completion expected late 2001
<PAGE>
[LOGO] National Grid
National Grid pre Interims update 1
o One off impacts - (pounds)177 million
(pounds)17 million net interest benefit
Release of (pounds)20 million tax provisions
(pounds)140 million exceptional tax credit
o Brazil increased start-up losses to (pounds)75 million
Co-billing arrangements being introduced
New tariffs from January 2001
Peak operating losses in current year
Sprint to resume active involvement
<PAGE>
[LOGO] National Grid
National Grid pre Interims update 2
o UK transmission in line with expectations
o US well ahead of expectations
Strong volume growth
Earnings enhancing after goodwill - a year early
<PAGE>
DAVID JONES
GROUP CHIEF EXECUTIVE
[GRAPHIC]
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
The right next step
o Builds on existing platform
o Substantial merger synergies
o Additional operational efficiencies
o Transmission and Telecoms upsides
o Stronger Group earnings profile
<PAGE>
[LOGO] National Grid
Niagara [LOGO] Mohawk
[GRAPHIC]
[REMARKS OF WILLIAM E. DAVIS]
INTRODUCTIONS
Good morning. And it truly is a great morning for Niagara Mohawk. We have
just signed a merger agreement that will make Niagara Mohawk a key part of
the National Grid Group - a rapidly growing international transmission,
distribution and telecommunications company headquartered in London.
With me today to present the highlights of our merger agreement are
-Stephen Box, Group Finance Director for National Grid Group
-Bill Edwards, Chief Financial Officer of Niagara Mohawk
SUMMARY OVERVIEW
<PAGE>
Under the terms of the merger agreement, National Grid Group will acquire
Niagara Mohawk Holdings in exchange for a mixture of cash and National
Grid Group American Depositary Shares.
The merger is a vote of confidence by National Grid in Niagara Mohawk and
the New York State economy. I believe National Grid's significant
investment in New York is strong evidence that the policies of Governor
Pataki are working and will continue to foster economic growth throughout
the region.
The merger also provides recognition of the value inherent in Niagara
Mohawk's strong cash flow and strategic direction as a focused energy
delivery company.
GOVERNANCE ISSUES
Upon completion of the transaction, we will become a wholly owned
subsidiary of National Grid and be known as "Niagara Mohawk, a National
Grid Company." We will keep our operating headquarters in Syracuse, NY.
From a leadership perspective, I will continue as Chairman of Niagara
Mohawk and will also serve as Chairman of National Grid USA for a period
of two years following completion of the transaction. Rick Sergel will
continue in his role as President and CEO of National Grid USA.
An integration team comprised of representatives from both companies will
begin work immediately under Rick Sergel's direction to assure an
effective transition.
Upon completion of the transaction, I will also join Rick on the National
Grid board of directors as an executive director for a period of two
years.
FINANCIAL HIGHLIGHTS
I will now turn to the financial highlights of the transaction. Under the
terms of the merger agreement, Niagara Mohawk shareholders will receive
$19.00 for each Niagara Mohawk share held. The $19.00 value represents a
37% premium to our closing price of $13 7/8 last Friday.
We have agreed to a fixed price transaction structure with a collar
mechanism. Our shareholders will receive a fixed value of $19.00 per share
so long as the National Grid ADS price is between $32.50 and $51.00. This
represents a range of about 22% minus and plus around last Friday's
closing price of the National Grid ADS. If the ADS price moves outside of
the collar limits, our shareholders begin to share in the upside or
downside value of National Grid Group.
<PAGE>
Our shareholders will also enjoy the dividend payments on the National
Grid ADSs, which currently represent an annual yield of about 2.5%.
FORM OF CONSIDERATION
The total consideration being offered will be comprised of two-thirds new
National Grid ADSs and one-third cash.
Our shareholders will be able to elect to vary the consideration mix.
National Grid may, at their discretion, increase the cash proportion of
the consideration to satisfy the cash elections of our shareholders.
Otherwise, the cash elections of our shareholders will be settled on a
pro-rata allocation basis.
TIME TABLE
We expect the transaction to be completed by late next year, subject to a
number of conditions. Those conditions include
-regulatory and other governmental consents and approvals
-sale of our Nine Mile Point nuclear assets or implementation of other
arrangements satisfactory to National Grid
-the approval of National Grid and Niagara Mohawk shareholders
We will set out immediately to secure all necessary consents and
approvals.
I would now like to turn things over to Stephen Box to present National
Grid's rationale for the transaction and overall strategic outlook.
**************************************************************************
National Grid and Niagara Mohawk will be filing a proxy statement and
other relevant documents concerning the merger with the United States
Securities and Exchange Commission (the "SEC"). WE URGE INVESTORS TO READ
THE PROXY STATEMENT AND ANY OTHER RELEVANT DOCUMENTS TO BE FILED WITH THE
SEC, BECAUSE THEY CONTAIN IMPORTANT INFORMATION. Investors will be able to
obtain the documents free of charge at the SEC's website,
http://www.sec.gov or at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, documents filed with
the SEC by Niagara Mohawk will be available free of charge by contacting
Niagara Mohawk at the following address and telephone number: Investor
Relations, Niagara Mohawk Holdings, Inc., 300 Erie Boulevard West,
Syracuse,
<PAGE>
NY 13202, telephone: 315-428-3134. Documents filed with the SEC by
National Grid can be obtained by contacting National Grid at the following
address and telephone number: David Forward, National Grid Group plc, 15
Marylebone Road, London, NW1 5JD, telephone: 020-7312-5600.
PLEASE READ THE PROXY STATEMENT CAREFULLY BEFORE MAKING A DECISION
CONCERNING THE MERGER.
This document does not constitute a solicitation by Niagara Mohawk or its
board of directors of any approval or action of its shareholders. Niagara
Mohawk and its board of directors will be soliciting proxies from Niagara
Mohawk shareholders in favor of the merger. You can obtain more
information about Niagara Mohawk's directors and officers and their
beneficial interests in Niagara Mohawk's common stock and in the
transaction, which will constitute a "change in control" for purposes of
the employment agreements of certain Niagara Mohawk executives, by
accessing Niagara Mohawk's 2000 Proxy Statement available on the SEC's
website, http://www.sec.gov, and Niagara Mohawk's website,
http://www.niagaramohawk.com. Updated information with respect to the
security holdings of these individuals, and their interests in the
transaction and the solicitation, will be included in the final proxy
statement to be filed with the SEC.
CAUTIONARY STATEMENT -- Certain information in this document concerning the
transaction with National Grid is forward-looking, including statements
regarding the consideration per share that Niagara Mohawk's shareholders are
projected to receive from the transaction and Niagara Mohawk's expectation as to
the closing date of the transaction. Forward-looking information is based on
management's estimates, assumptions and projections, and is subject to
significant uncertainties, many of which are beyond Niagara Mohawk's control.
Important risk factors could cause the actual future results to differ
materially from those currently estimated by management. Risk factors that could
materially affect statements made concerning the National Grid transaction
include, but are not limited to: the timely receipt of necessary shareholder,
regulatory and other consents and approvals needed to complete the transaction,
which could be delayed for a variety of reasons related or not related to the
transaction itself; the fulfillment of all of the closing conditions specified
in the transaction documents; and the dollar equivalent of the market price of
National Grid ordinary shares.
