National Grid Plc said on Friday it was in talks with U.S. natural gas distributor KeySpan Corp. , which sources familiar with the situation said could lead to a $7 billion takeover by the U.K. utility.
National Grid’s shares rose 2.5 percent to 612-1/2 pence by 1001 GMT after the announcement, valuing the group at around 18 billion pounds ($31.6 billion). A transaction could be agreed as early as next week, a source said.
U.S. operator Consolidated Edison is also seen as a lead bidder, but analysts have said it could face anti-trust hurdles.
“National Grid confirm that they are in discussions concerning a potential transaction with KeySpan, but emphasize that these discussions are yet to be concluded and that there is no certainty that they will lead to any definitive agreement,” it said in a statement.
KeySpan owns gas utilities in New York, Massachusetts and New Hampshire and would fit well with National Grid’s U.S. business, which is also focused in the U.S. northeast.
KeySpan also provides about a quarter of New York’s electricity capacity.
Analysts at JP Morgan said a deal at $42 per share would be neutral on earnings per share, before synergies.
National Grid said any transaction would be on an all cash basis, satisfied wholly from borrowings.
“It is clear that Consolidated Edison can not do a cash deal, so if they do an all-paper deal, they’d have to come in at around $45-46 a share,” said another London analyst, who declined to be named.
U.S. analysts have said Consolidated Edison might have to divest Ravenswood, KeySpan’s power plant in Queens, New York, to satisfy regulators.
Consolidated Edison previously owned that plant, but sold it to KeySpan when New York regulators forced it to separate its energy-generation and distribution assets.
