Energis on the block for pounds 9bn as Grid prepares to sell stake

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The Independent Online
ENERGIS, THE long-distance telecoms operator, was in effect put up for sale yesterday after its biggest shareholder, National Grid, indicated that it intends selling its remaining stake to a rival overseas operator.

Analysts said that an auction of Energis could put a price tag of at least pounds 9bn on the business, compared with a value of less than pounds 1bn when National Grid floated the company two years ago.

David Jones, National Grid's chief executive, said that it aimed to sell its remaining 46 per cent stake in Energis in the next three years, adding: "It might take place in a shorter time or it might take longer. Under normal circumstances we would expect to sell the stake to a strategic buyer because we would get a premium above the market price."

National Grid's stake is worth pounds 3.7bn while Energis overall is valued at just under pounds 8bn - giving it a bigger stock market capitalisation than its former parent company. So far, National Grid has raised pounds 1.4bn by floating chunks of Energis.

Mr Jones declined to say how many approaches National Grid had received about selling its stake. But he added: "Everybody is talking to everybody. For an international telecoms group wishing to get into the UK market, Energis is clearly a very attractive proposition."

The most likely bidders, analysts say, are Deutsche Telekom, which has already bought One2One and has an existing joint venture with Energis, and the two US telcos, SBC Ameritech and Bell Atlantic.

Another possibility is a merger with Colt Telecom, the fast growing telecoms group which, like Energis, has also concentrated on the business market but by building up local loops, not a long-distance network.

However, Colt would probably have to fund any deal with shares whereas National Grid would want cash for its shareholding in order to fund its own overseas expansion in electricity transmission and telecoms.

Energis shares closed 100p down last night at 2,549p. Dealers have put a target price of pounds 30 a share on the company, although the US investment bank Salomon Smith Barney believes it could be worth up to pounds 35 a share.

News of the planned Energis share sale came as National Grid said it aimed to make another major US acquisition in the next 12 months to add to its $3.8bn purchases of New England Electric System (NEES) and Eastern Utilities Associates (EUA) earlier this year.

Mr Jones said National Grid could afford another deal on the same scale as the NEES deal, which cost $3.2bn.

National Grid said it now expected to complete the NEES and EUA takeovers earlier than expected early in the new year. It received a further boost with the announcement that Massachusetts, the home state of NEES, is to switch over to a new long-term incentive-based regulatory regime which will give National Grid more scope to increase profits.

Under the new regime NEES will have to cut prices by 2 per cent in year one then by 1.5 per cent to 2 per cent in the following four years - very lenient by the standards National Grid is used to in the UK.

National Grid also aims to expand its overseas telecoms operations along the lines of the model established in Brazil, where it has entered a joint venture with Sprint of the US and France Telecom to build out a second long-distance telephone network.