Outlook: National Grid

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The Independent Online
THE NATIONAL GRID is sitting on a fabulous windfall otherwise known as Energis. It finds itself in this enviable position by accident as much as design. When the Grid decided to string some fibre optic cable alongside its high-voltage electricity distribution wires, nobody dreamt that it would one day turn into a telecoms business worth pounds 3bn.

The Grid raised just pounds 200m from the partial sale of Energis shares a year ago, but the phenomenal performance of the stock since flotation means that its remaining 74.3 per cent stake is now worth pounds 2.3bn. That's equal to a third of the Grid's entire market capitalisation.

Success and wealth on such an extravagant scale can bring its own problems. One of them is that the tail tends to start wagging the dog, as Securicor has found with its 40 per cent stake in Cellnet.

So the Grid is being entirely responsible in announcing it will be offloading the rest of its holding over the next three to five years. The question then is what to do with the proceeds. One solution is to hand them back to shareholders, so that they can reinvest the cash appropriately or otherwise.

Alas the Grid's management takes a rather different view. As the custodian of this jewel in the crown, it thinks its duty is to invest the money itself on shareholders' behalf. So the company is lining up a pounds 1bn plus offer for a US electricity transmission business and, closer to home, a bid for National Air Traffic Control Services.

It scarcely needs saying that this is a wholly unacceptable approach. Why would shareholders want to swap their investment in a high-octane stock operating in a high-growth sector like telecoms for further investment in low growth public utilities?

They might also question the wisdom of investing in the US, a country that has proved a graveyard for countless UK companies before. As for air traffic control, don't the Grid's shareholders already have enough exposure to the pain of price-regulation? The obvious thing to do is what the Grid should have done at the start, a simple demerger of Energis in a way that allows investors to make their own choices.

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