National Grid plans £3bn masts spin-off

National Grid, the owner of Britain's gas and electricity transmission networks, yesterday unveiled plans to spin off its broadcast and mobile phone mast business into a separate company that could be worth up to £3bn.

The group also announced that it is returning £1bn to shareholders and selling off the world's longest electricity interconnector, linking Tasmania with the Australian mainland.

Shares in National Grid rose 7 per cent to 746p, valuing the company at £20bn. The demerger of the masts business, which hosts television and mobile transmitter equipment, is the second major disposal to be carried out by National Grid following the flotation of its Energis telecoms network in 1997.

Steve Holliday, the chief executive-designate of National Grid, said that it had decided to demerge rather than float the masts business precisely because of what happened to Energis, which was caught by the meltdown in the telecom sector in 2000 destroying the value of National Grid's remaining stake.

The demerger is expected to take about six months to complete, although National Grid is open to offers from private equity buyers. Analysts value the business at anywhere between £1.5bn and £3bn.

The decision to sell the business came as a shock since National Grid only beefed up its masts division two years ago with the £1.1bn purchase of Crown Castle, which specialises in broadcast transmission. It has since invested about £100m in the business.

Mr Holliday said that the board had decided the masts division was too small, accounting for only 3 per cent of the company, and was a distraction from its main gas and electricity transmission business.

The Australian interconnector is known as Basslink and is 225 miles long. It has a 25-year take-or-pay contract to transport electricity between the state of Victoria and Tasmania, which has the biggest windfarm in the world, and a number of hydro-electric stations.

National Grid could not say what the business might be worth, but it has invested £360m in Basslink since it began building the sub-sea link.

News of the demerger and disposals came as National Grid reported better interim results than expected, with pre-tax profits for the first half of the year up by 12 per cent to £872m.

The one part of the business which slipped was UK gas transmission, where profits fell 10 per cent to £77m because of the mild weather and the squeeze on demand caused by high prices.

The company is waiting to hear whether energy regulator Ofgem will allow it to increase gas and electricity transmission charges by more than proposed. National Grid wants a rate of return nearer to the 4.9 per cent which the electricity distribution companies have been allowed.