- Lower premium, drop in Fortis stock contributed to ITC's fall
- Fortis wants to widen return on equity, expand in U.S. Midwest
For the most part, U.S. utilities have rallied in the last six months after becoming multibillion-dollar takeover targets.
Not ITC Holdings Corp., which attracted a smaller premium than four other U.S. utilities that agreed to takeovers in the past six months.
Shares of ITC Holdings slid as much as 5.7 percent on Tuesday after Fortis Inc. announced it planned to buy the power-line company for $6.9 billion. That’s because the price tag fell below the market’s expectations. The ensuing slide in Fortis shares also weighed on ITC, whose stock is now linked to its future owner.
“There was anticipation of a higher price,” Christopher Pultz, fund manager at Kellner Management LP in New York, said by phone Tuesday. “There’s a $4 spread on the deal and in order to adjust for the risk of the transaction and the time value of money that’s embedded in the spread, it’s backed off.’’ The spread suggests traders think the deal will close, he said.
When the stock and cash offer was announced, it represented a 14 percent premium to ITC’s closing price Monday.
That compared with a 48 percent premium from Emera Inc. for Florida utility owner Teco Energy Inc. in September, a 40 percent premium offered by Duke Energy Co. for Piedmont Natural Gas Co. on Oct. 26 and a 38 percent premium offered by Southern Co. on Aug. 24 for gas distributor AGL Resources Inc.
Algonquin Power & Utilities Corp. on Tuesday offered $34 a share in cash for Joplin, Missouri-based utility owner Empire District Electric Co., representing a 21 percent premium to Monday’s closing price.
Fortis rose less than a percent Wednesday to close at C$37.47 in Toronto. ITC rose less than a percent to close at $38.89 in New York.
Fortis, Canada’s largest utility owner, is buying ITC, an owner of high-voltage transmission lines, to widen the return on equity from its utility businesses and expand into the U.S. Midwest where it expects to build new lines delivering power from wind farms.
Fortis is offering $22.57 in cash and 0.752 a Fortis share for each ITC share. The value of the stock portion of the offer dropped with the shares.
ITC closed down 1.9 percent on Tuesday, while Fortis slid 10 percent in Toronto.