The Public Service Commission of Wisconsin on Oct. 6 approved the joint application of Fortis Inc., ITC Holdings Corp. and ITC Midwest LLC for a holding company acquisition.
On June 1, Fortis Inc. – by and through its subsidiaries Fortis US Holdings Nova Scotia Ltd. (Fortis US Holdings), FortisUS Inc. (FortisUS), ITC Investment Holdings Inc. (ITC Investment) and Element Acquisition Sub Inc. (Element) – jointly applied with ITC Holdings Corp. and ITC Midwest for approval for the ITC family of companies to merge into the Fortis family, and, to the extent necessary, approval to “form a holding company” under Wisconsin code. Applicants sought a determination that Fortis will not be considered a “holding company” or part of a “holding company system” should the acquisition be approved.
The acquisition involves a change in ownership upstream of ITC, where Fortis will become a majority owner, and Finn will become a minority owner. The applicants do not expect ITC or ITC Midwest to change in any material respect.
Fortis is a publicly-traded utility holding company based in Canada. Approximately 96% of Fortis’s assets are regulated utilities, and the remaining 4% are unregulated electric generation and natural gas storage facilities. Fortis operates in the regulated North American electric and natural gas utility business, but owns no assets in Wisconsin.
ITC is the parent company of ITC Midwest, which is a transmission-owning member of the Midcontinent Independent System Operator (MISO). While neither ITC nor ITC Midwest own assets in Wisconsin, ITC is registered as a holding company in Wisconsin, and ITC Midwest is registered as a public utility in Wisconsin. ITC and ITC Midwest sought registration in Wisconsin to pursue the Cardinal Hickory Creek (CHC) Project, which, should it receive the required approvals, is expected to commence operation in 2023. If ITC Midwest does not own or construct the CHC Project, its registration in Wisconsin will expire.
The Wisconsin commission also conditioned ITC Midwest’s certification as a public utility on ITC Midwest continuing to satisfy the definition of “independent transmission owner” in Wisconsin code. The application stated that the acquisition does not seek to disturb any of the conditions the commission has previously imposed on ITC and ITC Midwest. In particular, the application states that, “the Acquisition does not involve any change to or reorganization of [ITC] or ITC Midwest, nor does it disturb any of the circumstances that formed the basis of the Commission’s 2014 Orders. Rather, the changes proposed by this Acquisition will occur entirely upstream of [ITC].”
Finn is an indirect, wholly owned subsidiary of GIC Ventures, which is affiliated with GIC Private Limitedand GIC Special Investments Pte. Ltd. GIC Private Limited is an investment company that manages the Government of Singapore’s foreign reserves, and GIC Special Investments Pte. Ltd. is the private equity arm of GIC Private Limited. These entities are wholly owned by the Minister for Finance, which owns and administers government assets, but does not interfere with investment decisions.
Under an Agreement and Plan of Merger of Feb. 9, 2016, Element will merge with and into ITC, and ITC will be the surviving entity. Afterwards, all of ITC’s outstanding shares of common stock will be cancelled. The consideration for the transaction is the exchange of Fortis Inc. shares and cash for ITC shares, amounting to $6.9 billion, plus the assumption of approximately $4.4 billion in ITC debt. The $6.9 billion that Fortis will pay for ITC stock comprises $22.57 in cash per ITC share ($3.7 billion in total) and 0.7520 shares of Fortis stock per ITC share (117 million Fortis shares in total; $3.2 billion in total). The $3.7 billion cash component will be financed through Finn’s investment, debt, and various equity issuances.
The commission’s Oct. 6 approval has conditions, including:
- Fortis shall provide full access to any book, record, document or other information of Fortis or its subsidiaries in the ITC Midwest chain of ownership which the commission staff believes is relevant to fulfill the commission’s statutory duties.
- Fortis shall submit all information the commission deems necessary for it to complete any holding company investigations and reports required under Wisconsin statute.
- Fortis shall seek commission approval prior to terminating its interest in ITC Midwest.
- ITC Midwest shall continue to maintain both standalone credit facilities and senior long-term debt instruments after the acquisition.
- ITC Midwest’s utility financing arrangements may not permit lending or guarantees by ITC Midwest in favor of Fortis or its affiliates.