Electricity Network ITC Holdings Explores Sale Options

  • Michigan-based company is working with advisers to find buyer
  • National Grid, Iberdrola may be among interested bidders

U.S. electricity-transmission company ITC Holdings Corp. is exploring a sale, according to people with knowledge of the matter. Shares rose as much as 13 percent, the biggest intraday jump in more than a decade.

The Novi, Michigan-based power network is working with financial advisers to seek potential buyers, said the people, who asked not to be identified because the process is private. ITC’s shares closed up 9.3 percent to $36.88 in New York, lifting its market value to more than $5.6 billion.

Utilities companies including the U.K.’s National Grid Plc and Spain’s Iberdrola SA may consider bidding for ITC, according to other people familiar with the situation. The deliberations are at an early stage and may not lead to a sale, the people said.

Representatives for ITC, National Grid and Iberdrola declined to comment.

ITC could fetch as much as $45 a share, Citigroup analyst Praful Mehta wrote in research published Monday. That reflects a premium of as much as 37 percent over the 50-day average stock price, in line with other utility deals, according to the note. “Launching a sale process now would make sense,” Mehta wrote, initiating coverage with a buy rating.

Electricity Slowdown

U.S. and Canadian utility owners including Southern Co. and Duke Energy Corp. are acquiring utilities with growth prospects amid a slowdown in electricity sales. Almost 30 utility deals have been announced this year in the two countries, with total value of about $44 billion, according to data compiled by Bloomberg. They include Southern’s acquisition of AGL Resources Inc. for about $8 billion in cash and Duke’s pending purchase of Piedmont Natural Gas Co. for about $4.8 billion.

“They can get a lot of interest,” Stacy Nemeroff, a utilities analyst for Bloomberg Intelligence, said Monday by phone. Potential buyers may include U.S. and Canadian infrastructure funds seeking regulated, contracted cash flow, or European utility owners such as National Grid, according to Nemeroff. “They’re the only all-transmission company in the U.S. and that model is more common in Europe,” she said.

ITC’s high-voltage power lines are regulated by the Federal Energy Regulatory Commission. Because federal regulators allow more profit on those lines than state regulators typically do, ITC has the highest return on equity among U.S. utility owners, the data compiled by Bloomberg show.

Customers have asked FERC to cut the return on equity allowed to ITC, which operates 15,600 miles (25,000 kilometers) of lines in six Midwest states. A recommendation on that request by the commission’s chief administrative law judge is scheduled by mid-December, according to a filing. Although FERC probably will keep ITC’s returns above those allowed by state regulators, the pending decision has been a drag on the share price, Nemeroff said.

Transmission lines typically carry high-voltage electricity from power plants to cities. Distribution lines within cities are state-regulated and tend to earn lower returns.

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