National Grid: Divestiture

National Grid (NG) plc's goal was to consolidate its business in Great Britain and take advantage of liberalized energy markets abroad. Accenture helped the company to use divestiture to reinvigorate and transform itself, setting it on the path to achieving continued growth—and high performance.

National Grid, one of the world's largest utilities, owns and operates Great Britain's gas transmission system, and owns (lower-pressure) gas distribution networks serving more than 11 million British customers. NG, headquartered in Warwick and London, also owns the electricity transmission grid in England and Wales, and operates the system throughout Great Britain. Its reach extends beyond its traditional market as it also distributes electricity in the northeastern United States to approximately 3.3 million customers, and gas to customers in upstate New York. NG also has developed businesses in related areas such as metering, liquefied natural gas and electricity inter-connectors, and in fields such as broadcasting and wireless infrastructure.

Related Research & Insights:
Find out more about the monthly online publication, Strategy in Action.

Need more information? Please contact us.

NG's goal is to be the world's premier network utility. To achieve its vision, the company wanted to consolidate its business at home and take advantage of liberalized energy markets abroad.

As part of its transformation plan, the heavily regulated company decided to explore the possibility of selling some of its gas distribution networks. As the incumbent integrated monopoly gas transporter in Great Britain, it faced several business restructuring and regulatory hurdles, including the need to demonstrate that separating gas distribution from gas transmission, and selling distribution assets to new owners, would diminish neither safety standards nor the economic welfare of consumers.

In 2002, NG hired Accenture to work with a steering committee examining the feasibility of a sale. Based on the resulting analysis, NG decided to proceed with the sale of four networks. The company set a challenging timetable, given the major obstacles that had to be overcome. Critics were skeptical that a monopoly could successfully carve out pieces of its core business, delivering both improved shareholder value and consumer benefits.

From inception in November 2002 until completion in June 2005, Accenture collaborated closely with NG on all phases of the divestment.

NG turned to Accenture because of Accenture's knowledge of the network utility industry and of NG; its experience in mergers and acquisitions (M&A) and divestments; its organizational design capabilities; and its management and facilitation skills. Accenture's work focused on three major areas: transaction management support, including preparing the businesses to be marketed; satisfying regulatory and commercial requirements; and implementing changes within NG and the sold distribution networks to ensure a successful divestiture and transition. Because the divestiture was without direct precedent, Accenture helped develop unique, innovative solutions to multiple challenges encountered throughout the process.

Accenture's merger and acquisition professionals worked closely with NG on the overall shareholder value case, and to assess the potential synergies for buyers; assisted with preparation of the Information Memorandum and the subsequent Data Room; supported the vendor due-diligence exercises; developed negotiation strategies; and oversaw buyer due diligence, which involved processing and answering over 10,000 questions from bidders.

To win regulatory approval, the Accenture team provided NG with critical support, helping design and implement changes to the regulatory and commercial framework of Great Britain's gas industry. In a detailed response to the regulator, Accenture helped the utility demonstrate that the divestiture would deliver benefits to consumers. In addition, the Accenture team worked closely with the client to collaboratively develop the operating model for a new company—xoserve—that now handles shipper billing for all Great Britain gas transporters, and supports the supplier switching process that underpins the competitive market in gas supply. The new company xoserve is jointly owned by NG and the four divested networks.

Finally, Accenture oversaw all aspects of the implementation, including assisting with a blueprint and business architecture for the divested and retained distribution networks; developing a program-level implementation plan; transferring knowledge to the spun-off networks to help ensure any capability gaps were closed; coordinating the cutover process; and supporting the engagement process with external stakeholders.

In August 2004, NG announced sales agreements that far exceeded expectations—buyers had agreed to pay £5.8 billion ($10.7 billion) for the four distribution networks, representing 120 percent of the Regulatory Value of the assets five months earlier.

NG's stock price had seen a 20 percent appreciation since the original announcement that a sales process was underway. The sales proceeds helped to fund a £2 billion special dividend to shareholders, and to underpin an up rating of the regular dividend by 20 percent, cementing NG's reputation as a solid-yield stock.

By leveraging Accenture's management capabilities, the utility was able to accelerate the divestiture process while also overcoming the numerous hurdles that threatened to kill the deal. The sales agreement and completion were both reached on schedule, disproving skeptics who had questioned whether such a groundbreaking divestiture and transition could be achieved by the formerly state-owned integrated national monopoly.

The sales transaction freed up capital, allowing NG to achieve its broader strategic goal of investing in new business markets that offered potentially higher shareholder returns. And, by selling some of its networks, NG has created a more compact distribution business in the United Kingdom, allowing it to access greater efficiencies and overcome some previous diseconomies of scale. For consumers, the divestiture is expected to result in lower gas bills over time as multiple natural monopolies "compete" with each other to achieve the most favorable commercial terms from the regulator.

High-performance businesses compete on competency, according to Accenture research. They focus on mastery, innovation and differentiation in strategically critical core competencies and achieve extended mastery by partnering in areas outside their core capabilities. By teaming with Accenture, NG took advantage of a situation that few companies exploit: using a divestiture to reinvigorate and transform the remaining entity, setting it on the path to achieving continued growth—and high performance.

Need more information? Please contact us.