Fortis Inc on Tuesday agreed to buy ITC Holdings Corp for US$6.9 billion in cash and stock, in what will be the largest Canadian takeover of a US utility.
Fortis, Canada’s largest utility owner, will pay the equivalent of US$44.90 for each ITC share, according to a statement. That is a 14 percent premium to Monday’s close. The offer, which totals US$11.3 billion including assumed debt, will comprise US$22.57 in cash and 0.752 Fortis shares apiece.
In an uncommon step, Fortis said it intends to finance the cash portion of the deal by marketing as much as a 19.9 percent stake in ITC to another investor.
“Fortis shareholders are concerned about equity potentially being diluted by the deal,” Stacy Nemeroff, an analyst at Bloomberg Intelligence, said by telephone on Tuesday. “If they can’t find a buyer they might have to issue more equity.”
Fortis shares fell 10 percent, the biggest one-day decline on record, to close at C$37.14 in Toronto. ITC shares fell 1.9 percent to US$38.65.
Fortis, based in St John’s, Newfoundland, and Labrador, bought Arizona utility owner UNS Energy Corp for US$2.5 billion in cash in 2014 and New York utility owner CH Energy Group Inc for about US$968.5 million in 2013. With ITC, Fortis expects to capitalize on construction of new high-voltage lines as the administration of President Barack Obama encourages development of wind farms and other sources of renewable energy.
“Transmission earnings are not dependent on usage, so there’s no risk from declining electricity consumption,” Nemeroff said. “They’re in the Midwest, where there will be a lot more wind-generation built so there will be increasing demand for new transmission.”
“Fortis has grown its business through strategic acquisitions,” chief executive officer Barry Perry said in the statement. “The acquisition of ITC — a premier pure-play transmission utility — is a continuation of this growth strategy.”
ITC earned an adjusted return on equity of more than 17 percent in 2014, above the 11 percent average of its peers including Consolidated Edison Inc and Sempra Energy, data compiled by Bloomberg show. It’s the only publicly traded US company that owns only transmission lines. Fortis anticipates a return on equity higher than 11 percent at ITC’s business, Perry said on a call with analysts.
Fortis intends to seek listing of its common stock on the New York Stock Exchange in connection with the acquisition. ITC will continue as a stand-alone transmission company and its shareholders will own about 27 percent of Fortis, according to the statement. Fortis plans to retain all of ITC’s employees and maintain corporate headquarters in Novi.
The deal is expected to close in late this year subject to shareholder and regulatory approvals.
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