Deal Doubles Size, Reach Of Novi’s ITC Holdings

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NOVI — ITC Holdings Corp. (NYSE: ITC) Monday announced a deal with a New Orleans utility holding company that will roughly double the size and geographic reach of ITC’s electric grid assets.

Entergy Corp. (NYSE: ETR) and ITC announced an agreement under which Entergy will divest and then merge its electric transmission business into ITC.

Entergy’s electric transmission business consists of approximately 15,700 miles of interconnected transmission lines at voltages of 69 kilovolts or higher above and associated substations across its utility service territory in Arkansas, Louisiana, Mississippi, Tennessee and Texas.

Following the completion of the transaction, ITC will become one of the largest electric transmission companies in the United States, with more than 30,000 miles of transmission lines, spanning from the Great Lakes to the Gulf Coast.

“This transaction furthers ITC’s position as a preeminent electric transmission owner, operator and developer in the U.S. and also serves to validate the benefits of the independent transmission model,” said Joseph L. Welch, ITC chairman, president and CEO. “By combining these businesses, we will significantly enhance the scale of our operations and financial resources as we continue to invest in electric transmission infrastructure for the benefit of customers, resulting in improved reliability, reduced system congestion and greater access to competitive energy markets. The transaction will also strengthen our existing transmission platform through the addition of sizable new service territories, thus enhancing our ability to deliver long-term sustainable growth.

“This is an attractive and natural strategic fit for ITC that provides benefits for stakeholders, including customers, employees, local communities and shareholders. Customers in Entergy’s service territory will benefit from the commitment that ITC makes to the regions and communities we serve, which is the cornerstone of our business and furthers our mission to be a best-in-class transmission provider and good corporate citizen. We have a strong track record of efficiently and effectively integrating systems and anticipate a seamless transition for Entergy customers.”

Added Entergy chairman and CEO J. Wayne Leonard: “After careful consideration, we believe this transaction is without a doubt the right decision for our customers and other stakeholders. The transaction enables us to maintain the financial flexibility necessary to address the growing challenges our industry faces, including substantial infrastructure investment. We believe ITC’s independent transmission company structure is the best model to drive economic efficiency, achieve an open and robust market, and provide access for low-cost generation and efficient transmission use and expansion in the country.”

The terms of the transaction agreements call for Entergy to divest its electric transmission business to a newly-formed entity, Mid South TransCo LLC, and distribute this newly-formed entity to its shareholders in the form of a tax-free spin-off. Transco will then merge with a newly created merger subsidiary of ITC in an all-stock transaction called a Reverse Morris Trust. Prior to the merger, ITC expects to effectuate a $700 million recapitalization, currently anticipated to take the form of a one-time special dividend to its shareholders.

The merger will result in shareholders of Entergy receiving 50.1 percent of the shares of pro forma ITC in exchange for their shares of Transco, with existing shareholders of ITC owning the remaining 49.9 percent of the combined company.

The transaction is expected to be immediately value accretive to ITC shareholders. Rate base for pro forma ITC is projected to be approximately $7.1 billion by year-end 2013.

Entergy expects to receive gross cash proceeds of $1.775 billion from indebtedness that will be incurred in connection with the transaction, and this indebtedness will be assumed by ITC at the close of the merger. In addition, ITC anticipates issuing approximately $700 million of unsecured debt at the holding company.

The combination is expected to enhance the overall credit quality for pro forma ITC due to its increased size, scale and financial resources and has been structured to preserve ITC’s existing strong credit metrics. Entergy expects to utilize most of the cash proceeds to retire debt associated with the transmission business at its utility operating companies and the balance for debt reduction at the parent, Entergy.

The merger is expected to qualify for tax-free treatment for U.S. federal income tax purposes for both companies and Entergy’s shareholders.

Completion of the transaction is expected in 2013 subject to the satisfaction of certain closing conditions, including the necessary approvals of Entergy’s retail regulators, the Federal Energy Regulatory Commission and ITC shareholders.

By divesting its transmission business, Entergy is increasing its flexibility of investment alternatives and protecting the credit quality of Entergy and its operating subsidiaries. In turn, as a transmission-only utility, ITC will address the transmission system needs of the region to support efficient infrastructure investment by improving access to capital for the transmission business.

The addition of the Entergy transmission business expands ITC’s current business model and adds sizable new markets to its operating and development portfolio. This will serve to diversify and enhance ITC’s long-term growth prospects by providing additional avenues for investment in needed transmission infrastructure that will benefit customers in the Entergy region.

Combining the best operating practices of both companies, including the ITC transmission-only model and Entergy employees’ knowledge and experience, will benefit overall system performance. The transaction will allow ITC to bring its experience and track record of safe and reliable operations to the Entergy region. ITC’s commitment to operational excellence will ensure continued strengthening of overall grid performance while emphasizing safety, reliability, compliance and project execution. ITC will fully utilize Entergy’s world-class storm restoration process and leverage the combined expertise to ensure that customers in the Entergy territory receive the same quality storm response efforts they have had in the past.

This transaction will be seamless for Entergy’s retail customers, who will continue to be customers of Entergy utilities and will receive the same high quality service from their local utility. Entergy’s utility companies will continue to own and operate the local distribution and generation assets. Both companies are committed to ensuring that the necessary procedures and personnel are in place to maintain Entergy’s high standards in this area.

Increased local investments in the areas in which the companies operate should enhance the local and regional economies and stimulate job creation. Total annual investments for the Entergy transmission business are expected to range from approximately $400 million to $525 million through 2014. In addition, ITC brings a commitment to the local communities where it operates through partnerships and support for charities and other organizations that benefit residents. As part of a separate effort, Entergy continues to seek the necessary approvals to join the Midwest Independent System Operator (“MISO”) regional transmission organization.

Upon the closing of the merger, ITC’s Board of Directors will appoint two new independent directors who will have transmission industry knowledge and familiarity with the region in which Entergy operates. ITC’s management team will remain intact for the combined business, but will be supplemented with key leadership personnel from Entergy’s transmission business to ensure a successful integration and consistency of operations.

Following completion of the transaction, approximately 750 current Entergy positions will be integrated into ITC. In addition, ITC will assume operations of the Entergy transmission and transmission-related facilities throughout the region and further establish a regional presence within the Entergy footprint, including maintaining a regional headquarters in Jackson, Mississippi. ITC’s corporate headquarters are located in Novi, Michigan.

Webcast presentations and presentation slides are accessible at  http://investor.itc-holdings.com/events.cfm and www.entergy.com/investor_relations.

More at www.itc-holdings.com or www.entergy.com.

ITC also issued initial earnings guidance of between $3.90 and $4.05 a share for 2012, excluding any expenses associated with the transaction with Entergy Corp. announced Monday.

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