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KeySpan confirms it's in talks on possible purchase

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February 17, 2006, 12:45 PM EST



NEW YORK (Dow Jones/AP) _ Power and gas utility KeySpan Corp. confirmed Friday that it's discussing a merger or takeover with multiple companies, but said it likely won't disclose details until its board either approves a deal or terminates the talks.

Shares of the Brooklyn, N.Y.-based company jumped $3.67, or 10 percent, to $39.85 of the New York Stock Exchange in midday trading.

In a statement Friday, Chief Executive Robert B. Catell said KeySpan believes that "it is appropriate to explore all alternatives that may be in the best interests of all our stakeholders, particularly the customers we serve."

The New York Times had reported Friday that KeySpan was up for sale and already received offers of more than $6.5 billion.

With few opportunities for earnings growth and little chance of getting rate relief from utility regulators, a merger with a larger utility would be a logical move for KeySpan.

KeySpan operates two utilities that distribute natural gas to customers in New York City and on Long Island.

News that KeySpan has put itself up for sale comes just a day after Southern Union Co. announced the sale of New England Gas Co., its Rhode Island local distribution company, to British-based National Grid PLC for $575 million, including the assumption of $77 million in debt.

Although KeySpan ultimately might go to the same buyer, the premium it fetches won't be anything near the multiple of 10 times earnings before interest, taxes, depreciation and amortization National Grid agreed to pay for New England Gas, said Craig Shere, an analyst at Calyon Securities.

Both utilities that Southern Union recently put on the auction block have opportunities for rate relief on top of the merger-related savings expected to be realized by the acquirers, Shere said.

Not only do KeySpan's utilities not stand a good chance of getting rate hikes approved by regulators, but the acquirer would have to share any resulting merger synergies with ratepayers, Shere said.

Copyright 2006 Newsday Inc.