Fortis Inc. and ITC Holdings (NYSE:ITC) have agreed to a deal valued at US$11.3bn, in which Fortis will acquire ITC in a cash and stock transaction, the companies said early Feb. 9.
Assuming shareholder and regulatory approvals are received, the companies expected to close the deal by the end of 2016, with ITC owning 27% of the combined company, officials said during a Feb. 9 conference call discussing the deal with financial analysts.
The deal would combine the U.S. and Canadian utility assets of Fortis, which is based in St. John’s Newfoundland and Labrador, with the transmission asset business of ITC, which is based in Novi, Mich., the officials noted.
Under the terms of the transaction, ITC shareholders would receive US$22.57 in cash and 0.7520 Fortis shares per ITC share. At the Feb. 8 closing price for Fortis common shares on the Toronto stock exchange and the U.S./Canadian exchange rate, the per share consideration represents a premium of 33% over ITC’s unaffected closing share price on Nov. 27, 2015, and a 37% premium to the unaffected average closing price over the 30-day period prior to Nov. 27, 2015.
At the end of November 2015, ITC said its board of directors began a review of strategic alternatives, which “may result in the company’s possible sale or pursuit of other initiatives to maximize value for shareholders.”
In connection with the transaction, Fortis will apply to list its common shares on the NYSE, the companies said in a Feb. 9 statement.
On a pro forma basis, the deal would boost the consolidated mid-year 2016 rate base of Fortis by approximately US$6bn to about US$18bn.
"Fortis has grown its business through strategic acquisitions that have contributed to strong organic growth over the past decade," Barry Perry, president and CEO of Fortis, said in the statement. “Our performance in 2015 is a clear demonstration of the success of this strategy.”
"The acquisition of ITC – a premier pure-play transmission utility – is a continuation of this growth strategy,” Perry said in the statement. “ITC not only further strengthens and diversifies our business, but it also accelerates our growth. The predictable returns of a transmission business, with no commodity or fuel exposure, are very compelling.”
Joseph Welch, chairman, president and CEO of ITC, said in the statement, "From the very beginning of ITC, we have been focused on creating meaningful value for all stakeholders, including customers, investors and employees, by becoming the leading electric transmission company in the U.S."
He continued: "Fortis is an outstanding company with a proven track record of successfully acquiring and managing U.S. based utilities in a decentralized manner. This transaction accomplishes our objectives by better positioning the company to have a higher level of focus on pursuing our long-term strategy of investing in transmission opportunities to improve reliability, expand access to power markets and allow new generating resources to interconnect to transmission systems and lower the overall cost of delivered energy for customers.”
The financing of the deal has been structured to allow Fortis to maintain a solid investment-grade credit rating and is consistent with Fortis’ existing capital structure, the companies said. Financing for the cash portion of the acquisition will be achieved primarily through the issuance of approximately US$2bn of Fortis debt and the sale of up to 19.9% of ITC to one or more infrastructure-focused minority investors, according to the statement.
Fortis is confident in its ability to attract an infrastructure investment firm, Perry said during the call.
In addition to the necessary state approvals, the closing of the acquisition is subject to ITC and Fortis shareholder approvals, the satisfaction of other customary closing conditions, and certain regulatory and federal approvals including, FERC, the Committee on Foreign Investment in the United States, and the U.S. Federal Trade Commission/Department of Justice under the Hart-Scott-Rodino Antitrust Improvement Act.