File No. 70-10066
United States Securities and Exchange Commission
Washington, D.C. 20549
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Pre-Effective Amendment No. 1 to
Form U-1
Declaration
Under the
Public Utility Holding Company Act of 1935
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National Grid Group plc
15 Marylebone Road
London NWI5JD
United Kingdom
(Name of company filing this statement
and address of principal executive offices)
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National Grid Group plc
(Name of top registered holding company)
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Kirk L. Ramsauer
Deputy General Counsel
National Grid USA
25 Research Drive
Westborough, Massachusetts 01582
Telephone: (508) 389-2972
Facsimile: (508) 389-3518
(Name and address of agent for service)
The Commission is also requested to send copies of any communication in
connection with this matter to:
Markian M.W. Melnyk
Thomas B. Reems
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
1875 Connecticut Ave., N.W.
Washington, DC 20009
Telephone: (202) 986-8000
Facsimile: (202) 986-8102
National Grid Group plc ("National Grid") hereby submits this Pre-Effective
Amendment No. 1 to its declaration on Form U-1. This amendment amends and
replaces in its entirety, with the exception of previous filed exhibits, the
previous filing in this file. National Grid requests that the Securities and
Exchange Commission ("Commission") permit it to become effective pursuant to the
Public Utility Holding Company Act of 1935, as amended, ("1935 Act" or "Act")
and the rules thereunder.
Item 1. Description of the Proposed Transaction
A. The Parties to the Transaction
1. National Grid Group plc
National Grid Group plc is a registered holding company under the 1935 Act.
In the United States, through its indirect subsidiary National Grid USA,
National Grid holds the voting securities of public utilities engaged in
electric distribution to residential, commercial, and industrial customers in
New England and electric and gas distribution in New York. National Grid USA
also directly and indirectly holds the voting securities of non-utility
companies engaged in businesses such as the construction and leasing of fiber
optic telecommunications systems and the provision of consulting services to
nonaffiliated utilities in the area of electric utility restructuring and
customer choice. National Grid's indirect subsidiary, National Grid Holdings
Limited, is a foreign utility company.
National Grid's ordinary shares are listed on the London Stock Exchange and
its American Depositary Receipts ("ADRs") are listed on the New York Stock
Exchange./1 As of April 19, 2002 there were 1,776,636,707 ordinary shares and
one special share outstanding./2
2. Lattice Group plc
Lattice Group plc ("Lattice") is incorporated in England and Wales and is
one of the three successor companies to what was formerly British Gas plc./3
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1 National Grid has a small number of American Depositary Shares ("ADSs") in the
U.S. which trade as ADRs and are principally held by U.S. institutions. ADSs, in
the aggregate, account for less than 1% of National Grid's publicly issued
shares.
2 The special share is a non-voting share owned by the U.K. government.
The special share, also referred to as the golden share, is a means for the
government to assure the continued independence of National Grid as a provider
of transmission services.
3 In February 1997, the shareholders of British Gas plc approved the spin off of
Centrica plc, a supplier of gas and electricity to residential, industrial and
commercial customers throughout Great Britain. British Gas plc was renamed BG
plc. In December 1999 BG plc completed a financial restructuring which resulted
in the creation of a new parent company, BG Group plc. On October 23, 2000 BG
Group plc completed the spin off of Lattice Group plc creating two separate
companies. BG Group plc continues to be engaged in gas and oil exploration and
production, the development and operation of infrastructure for the manufacture,
export, shipping and import of liquefied natural gas, gas transmission and
distribution, and power generation.
2
Lattice's ordinary shares are listed on the London Stock Exchange. As of April
19, 2002 there were 3,528,149,704 ordinary shares and one special share
outstanding.
For administrative and regulatory purposes Lattice is subdivided into two
subsidiary holding groups: Transco Holdings plc and Lattice Group Holdings Ltd.
Transco plc ("Transco"), Transco Holdings plc's principal subsidiary, is the
owner, operator and developer of the majority of Great Britain's gas
transportation and distribution system. The gas transportation and distribution
business in the U.K. is highly regulated and subject to price regulation by the
U.K. Office of Gas and Electricity Markets. Transco is ring-fenced for
regulatory purposes from the remainder of the Lattice group. The ring-fence is
designed to ensure the financial, organizational and managerial independence of
Transco, as a regulatory entity. Lattice Group Holdings Ltd. has two main
business areas (a) Telecoms and (b) Lattice Enterprises.
(a). The Telecoms division principally consists of SST which acquires,
builds, leases and manages sites for base stations and radio masts for U.K.
telecom operators in support of wireless networks in the U.K., and 186k, a U.K.
based telecommunications network operator that provides wholesale connectivity
services and Internet Protocol ("IP") services./4
(b). Lattice Enterprises consists of a portfolio of businesses which
principally provide expert services for infrastructure networks, or address new
markets based on the innovative application of Lattice's core capabilities.
Lattice will certify as a foreign utility company prior to consummation of
the merger.
B. The Proposed Transaction
On April 22, 2002, National Grid and Lattice agreed to the terms of a
merger of equals. This declaration seeks approvals relating to the solicitation
of proxies from National Grid shareholders in connection with the merger. On
June 7, 2002, in File 70-10067, National Grid submitted a separate
application/declaration seeking authority to finance the proposed merger.
The terms of the merger are based on the recent relative equity market
capitalization values of the two companies. The merger is intended to be
implemented by way of a Scheme of Arrangement ("Scheme"), pursuant to Section
425 of the Companies Act 1985 (U.K.). Under the Scheme, conditional
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4 The strategic options for 186k are being reviewed with a view to resolving the
future of the business over this fiscal year, which may include full or partial
sale.
3
on the merger becoming effective, Lattice's current issued ordinary share
capital will be cancelled and reissued to National Grid or another wholly owned
subsidiary of National Grid. National Grid will therefore become the listed
holding company of the merged group and retain its listings on the London and
New York stock exchanges. Further, National Grid will change its name to
National Grid Transco plc ("Grid Transco") and issue new Grid Transco shares to
Lattice shareholders on the basis of 0.375 new Grid Transco shares for each
Lattice share held at the relevant record date./5 The special share in Lattice
will be cancelled.
Upon completion of the merger, former National Grid shareholders will
hold approximately 57.3 per cent and former Lattice shareholders will hold
approximately 42.7 per cent of the issued share capital of Grid Transco. The
holdings and rights of holders of existing National Grid shares and of National
Grid ADSs will not be affected by the merger. However, following the issuance of
the new shares, their holdings as a percentage of issued share capital will
decrease. Grid Transco will have a combined market capitalization of
approximately $21.4 billion (based on the London Stock Exchange closing market
prices for the two companies as of April 19, 2002)./6
To implement the Scheme, Lattice will make an application to the High Court
of Justice of England and Wales (the "High Court") for the High Court to summon
a shareholders' meeting. After the High Court grants Lattice's application and
orders the shareholders' meeting, Lattice's shareholders will vote on the Scheme
at two meetings which will be held on the same day at a single location. The
first meeting, (the "Court Meeting") is ordered by the High Court. For the
Scheme to be effective, the Scheme must receive at the Court Meeting the
affirmative vote of a simple majority in number of those Lattice shareholders
present and voting (either in person or by proxy) representing not less than 75%
of the value of Lattice shares held by such Lattice shareholders who vote at the
meeting. At the second meeting, an Extraordinary General Meeting of Lattice, the
shareholders must pass a special resolution approving the implementation of the
Scheme. To pass this resolution, not less than 75% of the votes cast by Lattice
shareholders must be in favor of the resolution.
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5 Fractional entitlements to Grid Transco shares will not be issued to Lattice
shareholders but will be aggregated and sold for the benefit of the relevant
Lattice shareholder.
6 The calculation of the total market capitalization as of April 19, 2002, is
shown below:
-------------------- ------------------- ------------------- ------------------------------------------
As of April 19, Closing Price Per Shares Outstanding Market Capitalization
2002 Share (pence)
-------------------- ------------------- ------------------- ------------------------------------------
(pound)1=$1.44712 (pound) $
-------------------- ------------------- ------------------- --------------------- --------------------
National Grid 490.00 1,776,636,707 8,705,519,864 12,597,931,906
-------------------- ------------------- ------------------- --------------------- --------------------
Lattice 172.75 3,528,149,704 6,094,878,613 8,820,020,739
-------------------- ------------------- ------------------- --------------------- --------------------
Total 14,800,398,477 21,417,952,645
-------------------- ------------------- ------------------- --------------------- --------------------
4
After Lattice's shareholders have approved the Scheme, there will be a
further later hearing before the High Court to sanction the Scheme. All Lattice
shareholders are eligible to attend this hearing and express their views on the
Scheme. The Scheme is effective once the High Court order sanctioning the Scheme
has been delivered by Lattice to the Registrar of Companies in England and
Wales, and such Court order has been registered by the Register of Companies.
The High Court will sanction the Scheme once it is satisfied that the conditions
to the Scheme have been satisfied. Once the Scheme becomes effective, its terms
will be binding on all Lattice shareholders whether or not they voted in favor
of the Scheme.
The merger, as implemented through the Scheme, will require approval by an
ordinary resolution of National Grid shareholders to be proposed at the National
Grid Extraordinary General Meeting, which is scheduled to take place on July 23,
2002. Ordinary resolutions are passed if more than fifty percent of the votes
cast are in favor. Special resolutions to change the name of National Grid and
to alter its articles of association/7 will also be proposed at the
Extraordinary General Meeting. Special resolutions are passed if not less than
75% of the votes cast are in favor of the resolution. These and the other
resolutions to be proposed at the meeting are further described in Item C.
The merger is subject to a number of conditions, including regulatory
consents and approvals in the U.K. and the authorization of the financing of the
merger by the Commission as requested in File 70-10067, and the approval of the
shareholders of both National Grid and Lattice. The merger is subject to the
condition that the U.K. Office of Fair Trading indicating in terms satisfactory
to both National Grid and Lattice acting reasonably, that it is not the
intention of the Secretary of State for Trade and Industry/8 to refer the merger
or any matter arising therefrom or related thereto to the U.K. Competition
Commission. In addition, the merger is subject to the condition that the
Director General of U.K. Office of Gas and Electricity Markets and the Secretary
of State for Trade and Industry each indicating that they will not seek
modifications to any licenses held by National Grid or Lattice or their
subsidiaries under the Electricity Act 1989 or the Gas Act 1986 and subsequent
legislation, including the Utilities Act 2000 except, in each case, on terms
acceptable to both National Grid and Lattice acting reasonably; that they will
not seek undertakings or assurances from members of the National Grid or Lattice
groups except, in each case, on terms acceptable to National Grid and Lattice
acting reasonably; and that in connection with the merger, they will give such
consents and/or directions (if any) and/or seek
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7 To implement the merger, the articles of association of National Grid will
need to be amended to change the rights of the Secretary of State, principally
to reflect National Grid's ownership of Transco.
8 The Secretary of State for Trade and Industry is the special shareholder of
Lattice and National Grid.
5
or agree to such modifications (if any) as are, in the reasonable opinion of
National Grid or Lattice, necessary in connection with such licenses.
C. Proxy Solicitations
National Grid must distribute proxy materials to its shareholders in
advance of the meeting. National Grid will directly distribute three documents
to its shareholders: (1) a Circular, which is similar to a proxy statement under
U.S. securities law; (2) proxy cards; and (3) two letters to shareholders
addressing likely questions. In addition, National Grid will prepare a document
titled, "Listing Particulars," which is similar to a U.S. registration
statement. The Listing Particulars will not be distributed automatically to
shareholders, but will be available free of charge through a number of channels
as described in the Circular. All of these documents are attached to this
declaration as exhibits.
At the shareholder meeting, the shareholders will be asked to approve:
(1) an ordinary resolution to approve the merger, increase the authorized
share capital of National Grid and authorize the directors to allot the maximum
number of shares in the capital of National Grid that could be required to be
allotted under the Scheme;
(2) a special resolution to change National Grid's name to National Grid
Transco plc;
(3) a special resolution to adopt the National Grid Transco articles;
(4) an ordinary resolution to authorize the National Grid directors to
allot shares generally;
(5) a special resolution to authorize the National Grid directors to allot
shares for cash, otherwise than on a pre-emptive basis;
(6) a special resolution to authorize the National Grid directors to make
market purchases of National Grid Transco shares; and
(7) an ordinary resolution to approve the National Grid Transco Performance
Share Plan 2002.
As mentioned earlier, ordinary resolutions are passed if more than fifty percent
of the votes cast are in favor. Special resolutions are passed if not less than
75 percent of the votes cast are in favor of the resolution.
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D. Rule 54
Pursuant to Rule 54, in "determining whether to approve the issue or sale
of a security by a registered holding company for purposes other than the
acquisition of an exempt wholesale generator or a foreign utility company, or
other transactions by such registered holding company or its subsidiaries other
than with respect to exempt wholesale generators or foreign utility companies,
the Commission shall not consider the effect of the capitalization or earnings
of any subsidiary which is an exempt wholesale generator or a foreign utility
company upon the registered holding company system if Rules 53(a), (b) and (c)
are satisfied. National Grid currently meets all of the conditions of Rule
53(a), except for clauses (1) and (2)./9 Due to the level of National Grid's
aggregate investment in foreign utility companies ("FUCOs") and the lack of U.S.
GAAP books and records for its FUCO investments, National Grid cannot comply
with Rule 53(a) and consequently the Commission may consider the effect of the
capitalization or earnings of any subsidiary which is a foreign utility company
in connection with the authorization requested herein.
National Grid's aggregate investment, as defined in Rule 53(a), in FUCOs as
of September 30, 2001 was $3,092 million./10 National Grid has not invested in
exempt wholesale generators. As of September 30, 2001, National Grid's
consolidated retained earnings calculated in accordance with U.S. GAAP was
$3,549 million. Consequently, National Grid's aggregate investment in FUCOs as a
percentage of its consolidated retained earnings was 88% as of September 30,
2001. In Holding Co. Act Release No. 27490 (Jan. 16, 2002) (the "January Order")
National Grid was authorized to issue and sell securities for the purpose of
financing investments in FUCOs in an amount up to $5.406 billion. Prior to
issuance of the January Order, National Grid was authorized to invest up to
$4.406 billion in FUCOs. National Grid Group plc, Holding Co. Act Release No.
27154 (March 15, 2000) ("March Order"). In File No. 70-10067, the
application/declaration related to the proposed merger with Lattice, National
Grid has requested authorization to increase its authorized FUCO investment
amount. In File 70-9849, the application corresponding to the January Order,
National Grid represented that during the authorization period defined in the
January Order, any long-term debt or preferred stock issued by National Grid in
a public offering will, when issued, be rated investment grade by a nationally
recognized
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9 As the Commission noted in The National Grid Group plc, Holding Co. Act
Release No. 27154 (March 15, 2000), National Grid has preexisting foreign
operations and cannot at this time commit to maintain the books and records of
these interests in conformity with U.S. GAAP. National Grid will, however,
comply fully with the substantive provisions of Rule 53.
10 Aggregate investment is defined in Rule 53 under the Act to include all
amounts invested, or committed to be invested, in EWGs and FUCOs, for which
there is recourse, directly or indirectly to National Grid. This limit is
applied on a net basis and to the extent National Grid's previous investments or
guarantees have been repaid or have expired, those investments are netted from
the total aggregate investment.
7
statistical rating organization. National Grid has not proposed to modify that
representation in this declaration or in File No. 70-10067.
The lack of any adverse effect associated with National Grid's current
financing plan was fully demonstrated in National Grid's Application in File No.
70-9591 and confirmed by the Commission in the January Order. At March 31, 2000,
shortly after the issuance of the March Order, National Grid's capitalization
consisted of approximately 38% equity and 62% debt. A year later, the ratios
were 41% equity and 59% debt. As of September 30, 2001, the most recent reported
period at the time of the January Order, National Grid's pro-forma consolidated
capitalization consisted of approximately 40.9% equity and 59.1% debt, preferred
stock and minority interests. The capital structure of National Grid for
previous reported periods (in U.S. GAAP) was:
------------------------- ---------------------- ---------------------- --------------------
National Grid March 31, 2000 March 31, 2001 September 30, 2001
as at:
------------------------- ---------------------- ---------------------- --------------------
($ mm) (%) ($ mm) (%) ($ mm) (%)
------------------------- ---------- ----------- ----------- ---------- ---------- ---------
Debt, preferred stock 6,120 62.0 5,955 59% 5,936 59.1%
and minority interests
------------------------- ---------- ----------- ----------- ---------- ---------- ---------
Common stock equity 3,753 38.0 4,146 41% 4,106 40.9%
------------------------- ---------- ----------- ----------- ---------- ---------- ---------
Total 9,874 100% 10,101 100% 10,042 100%
------------------------- ---------- ----------- ----------- ---------- ---------- ---------
Since the January Order was issued in the very recent past and National Grid is
operating within its limits, National Grid's FUCO investments are complying with
Rule 53. National Grid will discuss its request for increased FUCO financing
authorization in greater detail in the separate application/declaration related
to the proposed acquisition.
The authority sought herein to solicit proxies from National Grid's
shareholders will have no direct effect upon National Grid's investment in
foreign utility companies. The solicitation of proxies also is not a financing
transaction. The Commission will have an opportunity to evaluate National Grid's
request for financing authority related to proposed merger in National Grid's
related application/declaration. Accordingly, the Commission should grant the
authority requested in this declaration.
Item 2. Fees, Commissions and Expenses
In the preparation and distribution of the proxy material, National Grid
will incur ordinary expenditures customary for this type of activity. These
expenditures include fees paid to its bankers, accountants, lawyers, printers
and other consultants. National Grid estimates that the fees and expenses
payable in connection with the proposed solicitation will be as follows:
8
Internal $219,000
Sponsors (Rothschild) $109,500
U.S. counsel $120,000
U.K. counsel $876,000
Printers $7,300
Reporting Accountants $478,000
Registrars $131,400
Depositary $14,600
Printers $584,000
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Total $2,539,800
Item 3. Applicable Statutory Provisions
Section 12(e) of the 1935 Act provides that any solicitation of any proxy
regarding any security of a registered holding company shall be unlawful if made
in contravention of such rules as may be promulgated by the Commission. The
financial transactions related to the proposed merger are subject to the
Commission's jurisdiction under the 1935 Act. Accordingly, this declaration is
being filed pursuant to Rule 62, which provides, generally that no solicitation
shall be made regarding transactions subject to the Commission's jurisdiction
under the 1935 Act, except pursuant to a declaration with respect to such
solicitation which has become effective. Rule 54 is also applicable.
Item 4. Regulatory Approval
The UK securities regulator, the UK Listing Authority ("UKLA"), will review
the disclosure in the Circular and the Listing Particulars. No U.S. state
regulatory authority and no Federal regulatory authority, other than the
Commission, has jurisdiction over the proposed proxy solicitation.
Item 5. Procedure
The proxy solicitation materials are being simultaneously reviewed by the
UKLA and National Grid requests that the Commission complete its review on a
schedule that meshes with the UKLA's schedule. Specifically, National Grid
requests that the Commission issue and publish by June 11, 2002 a notice with
respect to the filing of this declaration permitting this declaration to become
effective.
As mentioned above UKLA must approve National Grid's proxy materials. In
addition, the High Court of Justice ("High Court") must review Lattice's proxy
materials as part of its approval of the scheme of arrangement
9
through which the merger with Lattice will be accomplished./11 A significant
portion of the information provided in Lattice's proxy materials is replicated
in National Grid's proxy materials. Accordingly, after the High Court begins its
review, it is important for National Grid and Lattice to not significantly alter
the materials under review - Lattice submitted its circular to the High Court on
June 6. It is also important to give equal deference to both the Commission and
the UKLA and allow each regulator to concurrently review the proxy solicitation
materials so that each regulator has an opportunity to review the proxy material
in an inchoate state and neither regulator is required to re-open its review
after it has finished.
Accordingly, National Grid will submit two drafts of the proxy material to
the Commission and requests that the Commission issue the appropriate notice
after receipt of the second round of materials. The UKLA would approve the final
proxy materials soon thereafter. National Grid will provide the Commission with
a copy of the final versions along with its past-tense opinion of counsel letter
and warrant that any changes made to the documents after National Grid provides
the second version will be either: (1) in response to comments from the UKLA;
(2) mandated by applicable law; (3) non-material to National Grid's compliance
with the 1935 Act; (4) typographical, stylistic or formatting changes; (5)
updates of financial or narrative descriptive information or (6) variants of the
proxy cards required for different types of holders.
No recommended decision by a hearing officer or other responsible officer
of the Commission is necessary or required in this matter. The Division of
Investment Management of the Commission may assist in the preparation of the
Commission's decision in this matter. There should not be a thirty-day waiting
period between the issuance and the effective date of any order issued by the
Commission in this matter, and it is respectfully requested that any such order
be made effective immediately upon entry thereof.
Item 6. Exhibits and Financial Statements
Exhibit B-1(a) Draft Circular (to be filed separately in draft form under
confidential treatment request pursuant to Rule 104(b)).
Exhibit B-1(b) Final Circular (to be filed by amendment).
Exhibit B-2(a) Draft Listing Particulars (to be filed separately in draft form
under confidential treatment request pursuant to Rule 104(b)).
Exhibit B-2(b) Final Listing Particulars (to be filed by amendment).
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11 The scheme of arrangement is described more fully in National Grid's proxy
solicitation declaration.
10
Exhibit B-3(a) Draft proxy cards and answers to expected shareholder questions
(to be filed separately in draft form under confidential
treatment request pursuant to Rule 104(b)).
Exhibit B-3(b) Final proxy cards and answers to expected shareholder questions
(to be filed by amendment).
Exhibit F-1 Opinion of Counsel - National Grid Group plc.
Exhibit F-2 Past Tense Opinion of Counsel (to be filed by amendment).
Exhibit I-1 Form of Notice.
Item 7. Environmental Effects
The proposed proxy solicitation does not involve major Federal action
having a significant effect on the human environment. No federal agency has
prepared or is preparing an environmental impact statement with respect to the
proposed proxy solicitation.
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SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, Applicant has duly caused this declaration to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: June 12, 2002 By: /s/ Kirk L. Ramsauer
Deputy General Counsel
National Grid USA