Fortis Makes Big U.S. Utility Play With ITC Deal

Canada's largest utility owner buys a Midwest electricity transmission provider for $6.9 billion.
Matthew HellerFebruary 9, 2016
Fortis Makes Big U.S. Utility Play With ITC Deal

Fortis said Tuesday it had agreed to acquire ITC Holdings for $6.9 billion in the largest Canadian takeover of a U.S. utility.

Michigan-based ITC claims to be the biggest independent electric transmission company in the United States. It earned an adjusted return on equity of more than 17% in 2014, above the 11% industry average.

Fortis, a power and natural gas distributor and Canada’s largest utility owner, will pay the equivalent of $44.90 for each ITC share, a 14% premium to Monday’s close. ITC shares closed at $38.64 on Tuesday, down nearly 2%.

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“Fortis has grown its business through strategic acquisitions that have contributed to strong organic growth over the past decade,” Fortis CEO Barry Perry said in a news release. “The acquisition of ITC — a premier pure-play transmission utility — is a continuation of this growth strategy. ITC not only further strengthens and diversifies our business, but it also accelerates our growth.”

The deal “comes as power companies, grappling with flat electricity demand and rising capital costs, seek deals in other areas promising better growth,” Bloomberg said.

With ITC, Bloomberg added, “Fortis expects to capitalize on the construction of new high-voltage lines as the administration of President Barack Obama encourages development of wind farms and other sources of renewable energy.”

ITC owns and operates high-voltage lines in Michigan, Iowa, Minnesota, Illinois, Missouri, Kansas, and Oklahoma. “They’re in the Midwest, where there will be a lot more wind-generation built so there will be increasing demand for new transmission,” Stacy Nemeroff, an analyst at Bloomberg Intelligence, said.

ITC’s transmission lines are regulated by federal authorities. According to the Toronto Globe and Mail, “such lines generally get a better rate of return than state-regulated networks, with an average 12 percent return on investment.”

The acquisition will make Fortis one of the top 15 North American public utilities on an enterprise-value basis, Fortis said. It bought Arizona utility owner UNS Energy for $2.5 billion in 2014 and New York utility owner CH Energy Group for about $968.5 million in 2013.

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