Attached files
| file | filename |
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| 8-K - FORM 8-K - ITC Holdings Corp. | d265519d8k.htm |
| EX-99.2 - PRESS RELEASE - ITC Holdings Corp. | d265519dex992.htm |
| EX-99.3 - JOINT PRESS RELEASE - ITC Holdings Corp. | d265519dex993.htm |
 ITC
Holdings Corp. Transaction Overview
Entergy to Divest and Merge Electric
Transmission Business Into ITC
December 5, 2011
Exhibit 99.1 |
 Safe
Harbor Language & Legal Disclosure This
presentation
contain
certain
statements
that
describe
ITC
Holdings
Corp.
(“ITC”)
management’s beliefs concerning future business conditions and
prospects, growth opportunities and the outlook for ITC’s
business, including ITC’s business and the electric transmission industry based upon information
currently
available.
Such
statements
are
“forward-looking”
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Wherever possible,
ITC
has
identified
these
forward-looking
statements
by
words
such
as
“anticipates”,
“believes”,
“intends”,
“estimates”,
“expects”,
“projects”
and
similar phrases. These forward-looking statements are based upon
assumptions ITC management believes are reasonable. Such forward-looking statements
are subject to risks and uncertainties which could cause ITC’s
actual results, performance and achievements to differ materially from those expressed in, or
implied
by,
these
statements,
including,
among
other
things,
(a)
the risks and uncertainties disclosed in ITC’s annual report on
Form 10-K and ITC’s quarterly
reports
on
Form
10-Q
filed
with
the
Securities
and
Exchange
Commission
(the
“SEC”)
from time to time and (b) the following transactional factors
(in addition to others described elsewhere in this document and in
subsequent filings with the SEC): (i) risks inherent in the contemplated transaction,
including: (A) failure to obtain approval by the Company’s
shareholders; (B) failure to obtain regulatory approvals necessary to consummate the transaction
or to obtain regulatory approvals on favorable terms; (C) the ability
to obtain the required financings; (D) delays in consummating the transaction or the
failure to consummate the transactions; and (E) exceeding the expected
costs of the transactions; (ii) legislative and regulatory actions, and (iii) conditions of
the capital markets during the periods covered by the
forward-looking statements. Because ITC’s
forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive
uncertainties, many of which are beyond ITC’s control or are
subject to change, actual results could be materially different and any or all of ITC’s forward-
looking statements may turn out to be wrong. They speak only as of the
date made and can be affected by assumptions ITC might make or by known or
unknown risks and uncertainties. Many factors mentioned in this
document and the exhibits hereto and in ITC’s annual and quarterly reports will be
important in determining future results. Consequently, ITC cannot
assure you that ITC’s expectations or forecasts expressed in such forward-looking
statements will be achieved. Actual future results may vary materially.
Except as required by law, ITC undertakes no obligation to publicly update any of
ITC’s forward-looking or other statements, whether as a result
of new information, future events, or otherwise. The transaction
is subject to certain conditions precedent, including regulatory approvals, approval of ITC’s shareholders and the availability of financing.
ITC
cannot
provide
any
assurance
that
the
proposed
transactions
related
thereto
will
be
completed,
nor
can
it
give
assurances
as
to the terms on which such
transactions will be consummated.
2 |
 Safe
Harbor Language & Legal Disclosure ITC
and
Mid
South
TransCo
LLC
(“TransCo”)
will
file
registration
statements
with
the
SEC
registering
shares
of
ITC common stock and TransCo common
units
to
be
issued
to
Entergy
Corporation
(“Entergy”)
shareholders
in
connection
with
the
proposed
transactions.
ITC
will also file a proxy statement with the
SEC that will be sent to the shareholders of ITC. Entergy shareholders
are urged to read the prospectus and/or information statement that will be included in the
registration
statements
and
any
other
relevant
documents,
because
they
contain
important
information
about
ITC,
TransCo
and
the
proposed
transactions.
ITC’s
shareholders
are
urged
to
read
the
proxy
statement
and
any
other
relevant
documents
because
they
contain
important
information
about ITC, TransCo and the
proposed
transactions.
The proxy statement, prospectus and/or information statement, and
other documents relating to the proposed transactions (when they are
available)
can
be
obtained
free
of
charge
from
the
SEC’s
website
at
www.sec.gov.
The documents, when available, can also be obtained free of charge
from Entergy
upon
written
request
to
Entergy
Corporation,
Investor
Relations,
P.O.
Box
61000
New
Orleans,
LA
70161
or by calling Entergy’s Investor Relations
information line at 1-888-ENTERGY (368-3749), or from ITC
upon written request to ITC Holdings Corp., Investor Relations, 27175 Energy Way, Novi, MI
48377 or by calling 248-946-3000
This presentation is not a solicitation of a proxy from any security
holder of ITC. However, Entergy, ITC and certain of their respective directors and executive
officers
and
certain
other
members
of
management
and
employees
may
be
deemed
to
be
participants
in
the
solicitation
of
proxies
from
shareholders
of
ITC in
connection with the proposed transaction under the rules of the SEC.
Information about the directors and executive officers of Entergy may be found in its 2010
Annual
Report
on
Form
10-K
filed
with
the
SEC
on
February
28,
2011,
and
its
definitive
proxy
statement
relating
to
its
2011
Annual
Meeting
of
Shareholders
filed with the SEC on March 24, 2011. Information about the directors
and executive officers of ITC may be found in its 2010 Annual Report on Form 10-K filed
with
the
SEC
on
February
23,
2011,
and
its
definitive
proxy
statement
relating
to
its
2011
Annual
Meeting
of
Shareholders filed with the SEC on April 21, 2011.
3 |
 Transaction Overview
Joseph Welch, Chairman, President & CEO |
 Transaction Overview
5
Transaction Structure
•
Reverse Morris Trust -
Entergy’s transmission business merges into ITC
•
Prior to merger, Entergy to pursue tax free spin-off of transmission business
and ITC to effectuate a recapitalization, anticipated to be special
dividend of $700 million
•
100% stock consideration
•
Entergy to issue approximately $1.775 billion of debt, to be assumed by ITC
•
ITC to issue approximately $700 million of unsecured debt at holdings level
ITC Shareholders
Post-Merge
•
50.1% Entergy shareholders
•
49.9% ITC shareholders
ITC Senior
Mgmt & Board
•
Two new independent directors who have transmission industry knowledge and
familiarity with Entergy’s region
•
ITC’s management team will remain intact for combined business, supplemented
with key Entergy leadership personnel from Entergy’s transmission
business Headquarters
•
Regional headquarters in Jackson, MS
•
Corporate headquarters in Novi, MI
Expected Closing
•
In 2013, subject to timing of approvals
Approval Process
•
Entergy retail regulatory approvals
•
Federal Energy Regulatory Commission approvals
•
ITC shareholder approval
•
Certain other regulatory approvals |
 Transaction Rationale
•
Attractive and natural strategic fit
–
Validates independent transmission model and resulting benefits
•
Strengthens ITC’s leading transmission platform in the U.S.; combined business
enhanced by increased scale and reach
–
Largest electric transmission company in U.S. based on net PP&E and peak load
served –
Adds sizable new markets to operating and development business
–
Expands geographic reach
–
Enhances and diversifies meaningful growth prospects
•
Provides tangible customer and stakeholder benefits
–
Furthers objectives of independent transmission model: system reliability,
reduced congestion, and greater access to competitive markets
–
Solid track record of capital investment and O&M programs to support system
reliability –
Commitment to the communities and stakeholders served through corporate
citizenship and community support
•
Financially compelling
–
Immediately and sustainably value accretive to ITC shareholders
–
Natural extension of existing ITC business model
–
Diversification of ITC capital investment profile and resulting growth
portfolio –
Enhances overall credit quality, while credit metric neutral to ITC
6 |
 7
Attractive & Natural Strategic Fit
7
•
Highlights and supports the benefits and the
value of the independent model for all
constituents
•
Transformational to ITC size, scale, scope
and financial
strength
–
Expands
the
ITC
network
across
entire
middle of the country from Great Lakes to
Gulf Coast
–
Effectively doubles ITC’s asset base
•
Adds sizeable new markets to ITC’s operating
and development portfolio; diversifies and
enhances growth prospects through
expanded footprint
–
Provides additional avenue of sustainable
long-term growth through needed
upgrades of existing Entergy system
–
Accelerates growth and solidifies leading
transmission platform
–
Shifts growth drivers towards predictable
base capital investment
–
Diversifies growth portfolio and provides for
incremental development opportunities |
 8
Independent Model
8
Benefits of ITC independent
transmission model
Transparency
Improved
Reliability
Aligned with
Public Policy
Operational
Excellence
Improved Credit
Quality
Competitive
Markets
Reduced System
Congestion
Enhanced Generator
Interconnections |
 Leading Transmission Platform
9
•
Further establishes ITC as the leading transmission platform in the U.S.
Transmission Business
Network System Peak Load
26,100 MW
28,000 MW
Service Area
Seven states –
including
footprint in Michigan, Iowa,
Minnesota, Illinois,
Missouri, Kansas &
Oklahoma
Four states –
including
footprint in Arkansas, Texas,
Louisiana and Mississippi
Total Transmission Miles
Approximately 15,100
miles
Approximately 15,700 miles
9/30/2011 Net PP&E
$3.2 billion
$3.1 billion
RTO Membership
MISO & SPP
Currently Independent
Coordinator of Transmission
with anticipated full transition
to MISO by December 2013
Full Time Equivalent
Employees
Approximately 450*
Approximately 750*
* Excludes contract work force
** ITC, ETR & Pro forma ITC net PP&E as of 9/30/2011 based on GAAP, all
other amounts per June 30, 2011 FERC Form 1 –
Largest electric utility based on total transmission net PP&E & peak load
served Net transmission PP&E ($bn)** |
 Customer & Stakeholder Benefits
10
Furthers objectives of independent transmission model
•
Including the commitment to maintain strong reliability, reduce congestion,
enhance opportunities Facilitator of competitive markets
•
Building robust interconnections and related system upgrades to bring all
generation to market Culture of safety and proven safety performance
•
Top safety performance of all EEI companies
Investments
in
the
system
–
both
capital
and
O&M
•
Invested $2.3 billion in CAPEX and $640 million in O&M since inception to
support system Commitment
to
regions
and
communities
we
serve
through
corporate
citizenship
•
Ingrain company in communities and regions including supporting economic
development and for interconnecting generators and foster greater access to
competitive markets reliability and expansion
resulting jobs, community involvement and supporting charities
|
 Approvals & Timeline
Entergy Retail Regulators
(APSC, LPSC, MPSC,
PUCT, CCNO)
•
Change of control of transmission assets
•
Authorization to incur debt in some jurisdictions
FERC
•
Change of control of transmission assets
•
Establish new regulatory construct for new ITC subsidiaries
•
Authorization for operating company financings
Hart-Scott-Rodino Act
(DOJ / FTC)
•
Pre-merger notification to review potential antitrust and competition issues
IRS Private Letter Ruling
•
Ruling regarding tax-free treatment of the distribution of Transco Holdco
ITC Shareholders
•
Merger
•
Amendment to ITC Articles of Incorporation to increase the number of authorized
shares
•
Authorization for issuance of greater than 20% of outstanding shares
* Approvals may be required in Missouri and Tennessee due to limited assets in
those territories. Approval may be required in Oklahoma for ITC. 11
•
The transaction is targeted to close in 2013, subject to receipt of the following approvals and
closing conditions
•
Anticipated Approval Requirements* |
 Proven ITC Transaction Experience
12
ITC
Transmission
Acquired in 2003
FERC approval required;
foundation for company
METC
Acquired in 2006
FERC approval required; signaled
ongoing support of independent model
and resulting benefits
IP&L
Acquired in 2007
FERC approval and four state
jurisdictional approvals required;
achieved all approvals in support of
independent business model and
much needed transmission investment
for acquired system |
 Transaction
Structure & Financial Overview
Cameron Bready, Executive Vice President & CFO |
 $1.775b of newly-issued debt will
be raised at Entergy’s
transmission business, the
proceeds from which will be
distributed to Entergy
Entergy
shareholders
Entergy
Transmission
business
Entergy will create and
distribute new Transco (“Mid
South TransCo LLC “) to
Entergy shareholders
Entergy
Mid South
TransCo
LLC
ITC
shareholders
ITC
Prior to the merger, ITC will recapitalize,
currently anticipated to be a one-time
$700mm special dividend to existing
shareholders, funded by newly-issued senior
unsecured notes at ITC Holdings
Entergy
shareholders
Entergy
Mid South
TransCo
LLC
Entergy
shareholders
ITC
shareholders
ITC
ITC Merger
Sub
Mid South TransCo LLC will subsequently merge
with ITC Merger Sub; Entergy shareholders will
receive 50.1% ownership in the combined company
Entergy
shareholders
ITC
shareholders
Entergy
ITC
Holdings
Mid South
TransCo LLC
49.9%
100%
ITC
OpCos
6 OpCos
6 OpCos
6 OpCos
14
Transaction Key Steps
ITC Pro Forma Structure |
 Pro
Forma Ownership Structure 15
50.1% Entergy
Shareholders
49.9% ITC
Shareholders
6 OpCos
Mid South
TransCo
LLC |
 Financial Highlights
•
Final transaction value determined by ITC
share price at time of closing
–
Combination of ITC market capitalization,
post-recapitalization, and assumed debt
•
Natural expansion of current business
model
–
Enhanced due to diversified growth
prospects from the Entergy transmission
business and footprint
–
Expect to seek regulatory construct for the
Entergy operating companies similar to that
of ITC’s current regulated operating
subsidiaries
•
Combination of ITC’s strengthened earnings
power is expected to result in value
accretion for ITC shareholders
–
Including impacts of recapitalization
16
Projected Year-End Rate Base
($ amounts in billions)
$ 6.2
$ 7.1
•
Strengthened and improved earnings power
due to increase and diversification of rate
base |
 Development
35%
Generator
Interconnections
26%
Base Capital
Plan
39%
Development
< 25%
Generator
Interconnections
< 20%
Base Capital
Plan
> 55%
ITC Pre-Merge
ITC Post-Merge
Growth Profile
17
•
Diversification of ITC capital
investment profile and growth
portfolio
–
Diversifies overall growth portfolio
–
Long-term, sustainable growth
resulting from base capital
investments
–
Enhanced development portfolio
and opportunities
•
Combined platform better positions
company to achieve sustainable
growth
–
15 to 17% five-year EPS CAGR
remains intact
–
Incremental development
opportunities expected to provide
enhanced growth potential
•
2012 EPS guidance and long-term
EPS growth rate emphasize strong
focus on achieving growth
–
2012 EPS guidance of $3.90 to
$4.05 per diluted share
*
1
*Excludes transaction-related expenses |
 •
ITC expects to maintain its current solid investment grade credit ratings and
achieve similar investment grade credit ratings for the merged entities
Prior to close, ITC to put in place a conservative and prudent financing plan
•
Transaction expected to be credit metric neutral for ITC
Reaffirms strong investment grade credit metrics
Enhanced credit quality due to diversified growth platform and improved balance
sheet size / increased scale
•
Improved credit ratings will also strengthen credit quality for the Entergy
transmission business
ITC Holdings
Baa2
Stable
BBB-
Positive
ITCTransmission
A1
Stable
A-
Positive
METC
A1
Stable
A-
Positive
ITC Midwest
A1
Stable
A-
Positive
ITC Great Plains
Baa1
Stable
BBB
Positive
Credit Ratings & Quality
18 |
 •
Capitalization of pro forma business expected to enhance the overall credit quality
for pro forma ITC due to its increased size, scale and financial
resources –
Structured to preserve ITC’s existing strong credit metrics to remain
consistent with current levels •
Consistent with previous plan, total near-term cash requirements to execute on
capital investments for pro forma business will be supported through internal
operating cash flows and new debt issuances
–
New equity issuances are not anticipated to fund capital investments in the
near-term –
Overall capitalization and funding plans positions company well to maintain
current investment grade ratings
•
ITC to maintain current dividend policy, near-term and longer-term, for pro
forma business –
Continue to balance shareholder return with long-term funding requirements for
growth and maintain appropriate payout ratio given capital investment
requirements Current annualized dividend of $1.41 per share, annual yield of
approximately 2% and payout ratio just over 40%
Historical annual dividend increases average approximately 5%
Capitalization & Dividend Policy
19 |
 Value enhancing
to stand-alone
plan
•
Immediately and sustainably value
accretive to ITC shareholders
•
Increased flexibility in capital
deployment and enhanced growth
portfolio
Strategically
compelling
•
New system with identified need
for base capital investments
•
Large footprint supports
incremental development
opportunities
•
Transformational to size and scale
Maintains credit
quality
•
Credit quality enhancing through
diversified rate base and increased
scale
•
Credit metric neutral to stand alone
ITC
Stated M&A Philosophy
20 |
 •
Transaction ultimately benefits all
constituencies, through independent model and
overall best practices
–
Improved reliability, reduced congestion and
greater access to competitive energy
marketplace
–
Strong credit and ability to attract capital for
needed transmission investments
–
Highest objectivity for transmission planning
and operations; aligns with public policy
objectives
–
Maintains jobs and provides opportunities for
job creation and local economic development
–
Commitment to communities and customers
that ITC serves through corporate citizenship,
and community involvement
–
Value accretive to ITC shareholders, taking
into account recapitalization, and improves
position to execute on current growth plans
Transaction Closing
BENEFITS ALL STAKEHOLDERS
21
Transaction
Benefits |