Fortis Confident It Can Sell ITC Stake to Fund $6.9 Billion Deal

  • CEO Barry Perry says company will approach investors next week
  • Fortis vying for largest Canadian takeover of a U.S. utility

Fortis Inc., Canada’s largest utility owner, is confident it can find an investor to take a stake in ITC Holdings Corp. as part of its $6.9 billion takeover of the U.S. transmission line operator.

The St. John’s, Newfoundland-based company will begin reaching out to investors next week to gauge interest in as much as 19.9 percent of ITC to help fund the cash portion of the acquisition, Chief Executive Officer Barry Perry said in an interview at Bloomberg headquarters in New York Thursday. The company wants the process completed within 90 days, he said. ITC CEO Joe Welch participated in the interview.

Fortis announced plans Tuesday to buy high-voltage transmission line-owner ITC to add its high regulated returns in what will be the largest Canadian takeover of a U.S. utility. While the deal isn’t contingent on selling a stake in ITC, infrastructure funds, pension funds and Canadian funds have already shown an interest, Perry said.

"We’re highly confident we can get that money," Perry said. "These kinds of low-risk, core infrastructure deals is what these funds are looking for - stable returns, cash flows over time."

The ITC stake could bring in as much as $1.4 billion. Fortis also intends to sell $2 billion of debt to fund the deal.

Share Drop

Shares of both companies fell after the deal was announced, in part over questions about Fortis’ ability to sell part of Novi, Michigan-based ITC. Fortis is seeking to widen the return on equity from its utility businesses and expand into the U.S. Midwest where it expects to build new lines as President Barack Obama encourages development of wind farms and other sources of renewable energy.

"Anytime you look at a transaction, you have to come up with the most efficient way of financing it," Perry said. "It’s a large purchase."

The sale comes as power companies, grappling with flat electricity demand and rising capital costs, seek deals in other areas promising better growth. ITC’s transmission lines earned the highest adjusted return on equity of any U.S. electric network utility holding company. 

Fortis said it will pay the equivalent of $44.90 for each ITC share, a 14 percent premium to Monday’s close, and a 33 percent premium to the close on Nov. 27, before Bloomberg reported that ITC was exploring a sale

Track Record

Fortis "gave us a very good price," Welch said. "Some shareholders will say, ’Oh my God, they are a Canadian company.’ Look at their track record.”

Fortis plans to retain all of ITC’s employees and maintain corporate headquarters in Novi. ITC will continue as a stand-alone transmission company and its shareholders will own about 27 percent of Fortis, according to a statement issued when the deal was announced.

ITC owns and operates 15,600 miles (25,100 kilometers) of high-voltage lines in Michigan, Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma.

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