Entergy Merger of Transmission Business with ITC to Create Investment Muscle in New Projects

Entergy Corp. last week agreed to divest and then merge its electric transmission business with the nation’s largest independent electric transmission company, ITC Holdings Corp. If the merger is completed, and ITC integrates Entergy’s 15,700 miles of interconnected transmission lines, that company could become one of the largest transmission companies in the U.S. with more than 30,000 miles of transmission lines from the Great Lakes to the Gulf Coast.

The merger will enable ITC and Entergy to increase investment flexibility and take a share of the growing U.S. utility industry, the companies said. Projected capital investment in the sector is forecast to be in the $2 trillion range over the next 20 years.

Under terms of the transaction agreements, Entergy will divest its 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 and into a newly created subsidiary of ITC in an all-stock, Reverse Morris Trust transaction.

“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,” ITC said in a statement. Completion of the transaction is expected in 2013, subject to approvals of Entergy’s retail regulators, the Federal Energy Regulatory Commission and ITC shareholders.

"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."

Entergy Chairman and CEO J. Wayne Leonard said the transaction would enable Entergy to “maintain the financial flexibility necessary to address the growing challenges our industry faces, including substantial infrastructure investment.” He said Entergy believes “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."

Sources: POWERnews, ITC, Entergy

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