Outlook: Dangerous, but desirable

FROM a shareholder value perspective, it is hard to fault what the National Grid has achieved since the electricity industry was privatised in the early 1990s. Its business - distributing electricity in England and Wales - is an easy and predictable one on which it enjoys an absolute monopoly. But it is also a nil-growth and highly regulated one. Even so, the Grid has used its balance sheet well to maximise value, and more importantly in one of those strokes of luck or genius (depending on how you view these things), it decided to invest heavily in a state-of-the-art fibre optic telecommunications network which it runs along its electricity cables.

Less than a year ago, National Grid floated a chunk of this business, Energis, on the stock market. The shares have since soared and today the Grid's retained controlling stake in Energis is worth a third of its total stock market value of pounds 5.5bn. It was always a little bit of a mystery as to why Energis wasn't demerged from the Grid in its entirety for there is nothing that connects these two companies other than the national network of pylons that both use.

Executives provided a partial answer to that question yesterday. The Grid's soaraway value is to be used as a platform for a pounds 1bn-plus electricity acquisition in the US. Thus does management ambition and aggrandisement in the end always come to do battle with the higher calling of shareholder value. Any acquisition in the US, which Gerald Ronson once famously described as a "shark pool of a place", is always fraught with risk. In the electricity industry, it would seem a doubly problematic strategy, since American electricity companies are nearly all much more highly valued than British ones. But who are we to question the judgement of the vision that brought us Energis?

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