Canada's Fortis to buy ITC Holdings in $11.3B deal

Dive Brief:

Canadian company Fortis Inc. announced today an $11.3 billion deal to acquire Michigan based ITC Holdings in a bid to enter the United States transmission market, SNL Energy reports.
The deal combines $6.9 billion in cash plus Fortis Shares for ITC shareholders, while assuming $4.4 billion in debt. The combined companies would have an estimated enterprise value of $30 billion.
Fortis said that ITC's economies of scale and geographical situation positions it to take advantage of the "significant transmission investment opportunity."

Dive Insight:

This latest M&A deal in the utility sector follows a recent trend of Canadian companies snapping up U.S. assets in major acquisitions.

This isn't Fortis' first foray into U.S. utility deals, SNL reports. The company also acquired Arizona-based UNS Energy Corp. in 2014 and New York-based CH Energy Group in 2013 while seeing a bid for Central Vermont Public Service Corp. terminated in 2011.

The most notable recent deal is Canadian firm Emera's proposed acquisition of TECO Energy for $10.4 billion. The deal came as a surprise to many analysts, who expected major Florida utilities NextEra or Duke Energy to buy up TECO. Emera itself has been on a acquisition spree over the last few years, buying up assets in the Caribbean, Canada, and the U.S.

Another notable deal was when PPL Corp. merchant generation spinoff Talen Energy agreed last year to sell three of its power plants in Pennsylvania for a combined $1.51 billion to a TransCanada subsidiary.

Analysts at UBS Securities told Bloomberg during the Talen deal that Canadian power players are drawn to the U.S. market due to high demand growth in certain regions and the financially viable regulatory model for U.S. utility companies.

“Utility assets are more profitable in the U.S. and there are a lot more of them,” Rebecca Hazan, a fund manager at Leon Frazer & Associates, told Bloomberg. She added that Canadian utilities seeking growth are looking to mergers and acquisitions, "and there’s a lot more opportunity in the States.”

Both reasons appear to inform Fortis' decision to buy up ITC Holdings.

"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," Fortis CEO Barry Perry said in a statement.

Serving a total peak load over 26,000 MW, ITC Holdings owns and operates 15,600 miles of high-voltage transmission lines in Michigan, Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma.

Under the terms of the deal, ITC will become of subsidary of Fortis, with approximately 27% of common shares by Fortis held by ITC shareholders. The Canadian power player intends to keep the ITC employees and maintain its corporate headquarters in Novi, Michigan.

Before all is said and done, the deal still requires regulatory approval from FERC, the U.S. Committee on Foreign Investment, and the U.S. Federal Trade Commission.