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Fortis gets FERC nod to acquire ITC Holdings

FERC onSept. 23 approved Fortis Inc.'splanned $11.3 billion acquisitionof ITC Holdings Corp.

Under the deal,a Fortis subsidiary called Element Acquisition Sub Inc. will combine into ITC,with ITC as the surviving company. Each share of common stock of ITC will thenbe canceled. Additionally, Finn Investment Pte. Ltd. will acquire an indirect19.9% interest in ITC. Finn is wholly owned by GIC Ventures Pte. Ltd., which isaffiliated with an investment company that manages the government of Singapore'sforeign reserves.

Finn willpay $1 billion in cash for ITC common stock, as well as $200 million for notesissued by ITC. The cash portion of the overall transaction will be financed bythe issuance of approximately $2 billion in Fortis debt and a combination ofequity securities, equity-linked securities, first preference shares, secondpreference shares and/or hybrid debt-equity securities to be completed byFortis.

FERCconcluded that the transaction would not have an adverse effect on horizontalcompetition because ITC does not own any generating assets. There will be noadverse effect on vertical competition because neither Fortis nor its otherinvestment partners owns any generating assets or natural gas pipeline orstorage facilities in the MISO region, where ITC owns electric transmissionassets. While both parties have small interests in the PJM market, FERC notedtransmission service over ITC facilities would be governed by the PJM tariff.

Severalparties, mainly those in Iowa that rely on ITC for transmission service, raisedconcerns about the proposed acquisition's effect on rates, but FERC said theapplicants' pledge that "the ITC Operating Companies will not, at anytime, seek to recover transaction-related merger costs in rates" shouldassuage those concerns. The applicants' revised hold harmless commitment alsoexceeds the commission's recent policy statement, FERC noted.

Thetransaction will not have any impact on regulation, FERC said, and it will notresult in the cross-subsidization of a non-utility affiliate company by autility.

Upon dealclose, ITC will be an indirect majority-owned subsidiary of FortisUS, and eachof ITC's subsidiaries will be indirectly majority-owned by Fortis. The partiesfiled for FERCapproval on April 28. (EC16-110)

In a newsrelease, company officials emphasized ITC would remain autonomous. "Inkeeping with Fortis' operating model, ITC will remain a standalone transmissioncompany, led by their strong, experienced management team and employees,"Fortis President and CEO Barry Perry said, adding he expects the transaction toclose by the end of the year.

The dealhas also received approval from Illinois,Missouri, and regulators.

Approval inKansas is pending. Earlierin September, staff of the Kansas Corporation Commission recommended thethree-member panel approve ITC's acquisition as long as 13 specific conditionsare accepted. On Sept. 8, Fortis, ITC, the commission staff and intervenorssaid they had agreed to accept the conditions. (Docket No. 16-ITCE-512-ACQ)