The fit of skills, experience and resources of National Grid and Lattice are as near perfect as you can find.

Roger Urwin, National Grid

Lattice, formerly part of British Gas, runs Transco, which maintains the UK's gas pipelines, while National Grid operates most of the country's electricity network.

The merger will give the firms extra strength to build on National Grid's US presence, and offers the chance for growth outside the highly regulated UK market, a statement on Monday said.

"We shall deploy the combined resources and financial capacity of National Grid Transco to take advantage of the opportunities in the liberalising energy markets abroad, in particular extending National Grid's successful US strategy," said National Grid chief executive Roger Urwin.

National Grid derives about half its profits from the US, where it has bought three utilities.

In the City, investors warmed to the merger, with Lattice shares closing up 11.1% at 192p - the highest level since the stock was first listed in London 18 months ago - and National Grid stock ending up 3.1% at 505p.

Job losses

Mr Urwin said that the "fit of skills, experience and resources" between the two firms was "as near perfect as you can find".

But the companies admitted the deal would see jobs go, as functions duplicated across both firms are cut out, and cost savings estimated at �100m achieved.

"The combination of similar functions will necessarily lead to some staff reductions," a statement from National Grid said.

"So far as possible, job losses will be achieved by normal staff turnover, voluntary redundancy and early retirement."

Lattice has about 17,500 staff, with National Grid employing about 12,500.

Analyst Philip Hollobone, at SG Securities, said the merger would allow the firms to "accelerate cost cutting... and give investors a very large vehicle which will grow dividends by at least 5% a year".

Takeover flurry

Last year the energy regulator Ofgem set a target for Transco's operating costs below the amount it currently spends.

Transco said at the time that meeting the regulator's targets will mean major restructuring over the next two years at a cost of �230m.

The deal comes amid a flurry of takeovers in the European utility industry in recent years, with British firms often the target of larger operators on the continent.

Last month, UK electricity supplier Innogy agreed a �3.1bn takeover by Germany's RWE.