National Grid has announced that it has entered into an agreement to sell a 61% equity interest in its UK gas distribution business (NGGD) to a consortium of long-term infrastructure investors.

The consortium comprises Macquarie Infrastructure and Real Assets (MIRA), Allianz Capital Partners, Hermes Investment Management, CIC Capital Corporation, Qatar Investment Authority, Dalmore Capital and Amber Infrastructure Limited/International Public Partnerships.

The terms of the transaction imply an enterprise value for NGGD of approximately £13.8 billion (US$17.5 billion). In consideration for the sale of its equity interest, on completion National Grid will receive a payment of £3.6 billion (US$4.6 billion) in cash from the consortium (subject to certain completion adjustments) and will own a 39% minority equity interest in a new holding company for NGGD (GasD HoldCo). In addition, National Grid will receive £1.8 billion from additional debt financing.

Following completion of the transaction, National Grid intends to return £4 billion (US$5.1 billion) of net proceeds to shareholders through the combination of a special dividend (together with a share consolidation) and share buy-backs. At least 75% of the net proceeds are expected to be returned via a special dividend in Q2 of calendar year 2017. Net proceeds are calculated after retaining £0.7 billion (US$0.9 million) of the additional debt financing, in order to maintain the equity value of our 39% interest in NGGD, and after deduction of costs of around £0.5 billion (US$0.6 billion). A further announcement regarding the nature and timing of the capital return will be made in due course.

Completion of the transaction is conditional on the receipt of merger clearance from the European Commission. Subject to satisfaction of this condition, National Grid expects that the Transaction will complete on or prior to 31 March 2017.

National Grid and the consortium have also expressed an interest in relation to the potential future sale and purchase of an additional 14% of equity in GasD HoldCo on broadly equivalent financial terms to the transaction. Further details will be announced if agreement is reached.

In conjunction with the transaction the Board has agreed a voluntary distribution of £150 million (US$190 million) for the benefit of energy consumers. National Grid takes very seriously the role it plays in people’s daily lives and believes it has a responsibility to ensure that our wider stakeholders benefit from the incremental value of the NGGD sale.

The transaction constitutes a class 2 transaction for the purposes of the UK Financial Authority’s Listing Rules and, as such, does not require National Grid shareholders’ approval.

Following completion, National Grid’s interest in GasD HoldCo will be accounted for under the equity method of accounting. Morgan Stanley, Robey Warshaw and Barclays acted as financial advisers to National Grid.