ENERGY GIANT NATIONAL GRID EXPANDS WITH N.Y. UTILITY BUY  - Boston Globe; Boston, Mass.; Sep 6, 2000; Peter J. Howe

As expected, the British utility giant that bought the former New England Electric System continued its march westward, announcing plans yesterday to buy the New York electric and gas utility Niagara Mohawk Holdings Inc. for over $3 billion in cash and stock, plus assumption of $5 billion in debt.

The move by NEES's parent, National Grid USA, left many analysts underwhelmed. Several said it appeared the company was so eager to buy anything that it settled on a mediocre utility in an economically stagnant region.

Niagara Mohawk serves more than 1.5 million electric customers and about 540,000 natural gas customers, in a swath of New York State including areas around Albany, Syracuse, and Buffalo - only barely contiguous to the service area of National Grid's Massachusetts Electric operating unit.

"It's been a bailout case," consultant Steven Maloney of Devonrue Ltd. in Hingham said of "NiMo," as the utility is known.

"Their territory is a weak territory with no real growth opportunity, and it's a [hell] of a place to get power in and out of" from a transmission-line perspective, Maloney said. "It's not really a strategic move, in any sense."

Another Massachusetts utility executive said: "This looks a lot like the Brits wanted to do something - anything - to live up to all the talk they would use NEES as a springboard" to begin building a cluster of utilities across the United States.

National Grid's chief executive, David Jones, said, "This, our third acquisition in the United States, builds perfectly on our successful US strategy," which has included spending over $3.8 billion to buy NEES and Eastern Utilities Associates, owner of the old Eastern Edison, now part of Massachusetts Electric.

"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," Jones said.

National Grid is offering about a 37 percent premium over NiMo's Friday closing price. NiMo has lagged average utility stocks by 30 percent, according to a Reuters Securities 3000 analysis.

On the New York Stock Exchange yesterday, Niagara Mohawk rose $1.88 to $15.75; US shares of National Grid fell $1.13 to $40.63.

National Grid expects to eliminate about 750 of the combined companies' 10,000 jobs, probably chiefly through attrition, and reap $90 million in operating savings over four years.

National Grid expects to offer about $1 billion in cash to NiMo's owners, plus $2 billion in US-traded shares of National Grid Group PLC, the English parent. The deal leaves an option to increase the cash share.

It will also take on about $5 billion in debt, including looming payments on the Nine Mile Point nuclear plants NiMo has been trying to sell. It sold its fossil-fuel plants last month.

National Grid said it expects it will take 12 to 15 months to close the deal because of the multiple US regulatory approvals required, and predicted it will increase earnings per share, after goodwill expenses, in the first full year after the merger closes.

Based in Coventry, England, National Grid was created in 1990 by the privatization of the electric distribution infrastructure in England and Wales.