National Grid and KeySpan Corporation have announced a definitive agreement under which National Grid will acquire KeySpan for US$42 per share in cash. The terms of the agreement value KeySpan at approximately $7.3 billion, with an enterprise value of $11.8 billion. The boards of both companies unanimously approved the acquisition. The transaction materially expands the size of National Grid's U.S. operations and creates the third-largest energy delivery utility in the United States, with well balanced electricity and gas businesses serving nearly eight million customers in the New York State and New England regions, according to the press release.

"KeySpan is an excellent operational and geographic fit and a natural extension of our business and our strategy," said Roger Urwin, National Grid Group chief executive.

Michael E. Jesanis will remain chief executive officer of National Grid USA. Robert B. Catell will become executive chairman of National Grid USA and deputy chairman of National Grid plc.

Said Robert B. Catell, chairman and chief executive officer of KeySpan, "This transaction will deliver significant value to shareholders and customers of both companies. KeySpan will become an important part of one of the largest and most efficient energy delivery companies in the world, and have access to additional financial resources to invest in our energy infrastructure and growth opportunities. Together, we can create an even more efficient company focused on controlling delivery costs and enhancing customer service. Further, we will continue to work with state regulators to structure long-term rate plans that benefit customers and shareholders and include incentives for cost control and superior customer service."

KeySpan operates Long Island Power Authority's transmission and distribution system under contract to LIPA. LIPA is a non-profit electric utility that owns the retail electric system on Long Island and provides electric service to nearly 1.1 million customers in Nassau and Suffolk counties, and the Rockaway Peninsula in Queens, New York. KeySpan and LIPA recently agreed to extend their existing relationship through 2013.

Upon completion of the transaction, KeySpan will become a wholly owned subsidiary of National Grid and will continue to operate as KeySpan. National Grid will continue to have customer-focused operations throughout its four-state service territory (Massachusetts, New Hampshire, New York and Rhode Island) and will maintain a significant corporate presence in Massachusetts, Brooklyn, New York and Upstate New York, as well as an operations center in Hicksville, New York.

National Grid will honor all labor agreements in effect with the KeySpan unions. Plans on combining operations, facilities and functions, including determination of the impact on total number of jobs, will be developed over the next year. Employee reductions are expected to be achieved through attrition and voluntary programs across the combined company.

The transaction is subject to customary closing conditions, including the approval of the shareholders of both companies, certain federal and state regulatory approvals and clearance under the Hart-Scott-Rodino Act. The transaction is targeted to close by early 2007.

Rothschild is serving as financial advisor to National Grid. Skadden, Arps, Slate, Meagher & Flom LLP is serving as legal advisor to National Grid. Lazard and Simpson Thacher & Bartlett LLP served as financial and legal advisors, respectively, to KeySpan.