By Deimante Chailenko, Matilda Oculy, Zahra Malik (University of Manchester) and Edvard Bruu, Knut Orneus (SSE)
Overview of the deal
Acquirer: National Grid
Target: Western Power Distribution
Total Transaction Size: £7.8bn
Announcement Date: 18 March 2021
Expected Close Date: Q3 2021
National Grid has announced that it will acquire Western Power Distribution (WPD) for £7.8bn from the American utility PPL Corporation. As part of the deal, National Grid agreed to sell off its Rhode Island gas and electricity business to PPL for £2.7bn, making the net investment £5.1bn for National Grid. This divestment was not originally planned but was instead necessary to finalize the WPD-deal. The acquisition of WPD is part of a larger strategic shift for National Grid, pivoting towards its electricity business at a time when investors are becoming increasingly sceptical of investments in gas. Post-transaction the electricity business unit will make up 70% of National Grid’s portfolio, which can be expected to increase even further as the company, in conjunction with the WPD-acquisition, announced its intentions to divest its entire UK gas transmission unit by 2022. While the WPD-deal makes strategic sense from this perspective, it also decreases National Grid’s geographical diversification, leaving the company more exposed to the increased regulatory scrutiny in the UK energy sector.
“These transactions will be transformational for our UK portfolio. The acquisition of WPD is a one-off opportunity to acquire a significant scale position in UK electricity distribution. WPD has a high quality, fast-growing asset base and an excellent track record of customer satisfaction, operational performance and financial returns.” - John Pettigrew, CEO (National Grid)
Company Details: (Acquirer - National Grid)
As one of the world’s largest publicly listed utilities, National Grid transmits and distributes electricity and natural gas to customers and communities in the UK and the Northeastern United States. The company has a primary listing on the London Stock Exchange and a secondary listing on the New York Stock Exchange.
Founded in 1990, headquartered in London, United Kingdom
CEO: John Pettigrew
Number of employees: 23,000+
Market Cap: £31.5bn (as of 13/04/2021)
LTM Revenue: £14.8bn
LTM EBITDA: £4.7bn
LTM EV/Revenue: 4.2x
LTM EV/EBITDA: 12.9x
Company Details: (Target - Western Power Distribution)
Founded in 1999, Western Power Distribution is a subsidiary of PPL Corporation, a US energy company. WPD provides electricity to 7.9 million customers in the Midlands, Southwest, and Wales, securing its position as the largest electricity distribution company in the UK.
Founded in 1999, headquartered in Bristol, United Kingdom
CEO: Philip Swift
Number of employees: 6,500
LTM Revenue: £1.7bn
LTM EBITDA: £1.3bn
Net Income: £549m
RAV: £8.0bn (Regulatory Asset Value)
Projections and Assumptions
With the completion of the two deals, National Grid will secure a significant position in electricity distribution. Through the acquisition of WPD, the UK’s largest electricity distribution business, the group will gain 7.9 million new electricity customers and the proportion of the company’s electricity assets will increase from around 60 percent to 70 percent which highlights a significant step in the intended shift from fossil fuels usage. National Grid expects to maintain its geographic and regulatory diversity with about 40 percent exposure to the US.