) is moving ahead with its divestment plan for its electric
transmission business for gross cash of $1.775 billion. The
divested business would be merged with the operations of
ITC Holdings Corporation
). The planned spin-off and merger of the electric business into a
subsidiary of ITC involves a multi-state and federal regulatory
process. The company is making brisk progress in getting the
Taking the process to the next step, Entergy New Orleans Inc. and
Entergy Louisiana LLC, in conjunction with ITC and ITC Midsouth
LLC, have filed a joint application with the New Orleans City
Council. Entergy and ITC initiated the regulatory process with a
joint application filing with the Louisiana Public Service
Commission on September 5, 2012. Entergy is seeking approval to
transfer about 15,800 miles of interconnected transmission lines at
voltages of 69kV and above and the associated substations to ITC,
which will then be one of the largest electric transmission
companies in the U.S., with more than 30,000 miles of transmission
lines spanning from the Great Lakes to the Gulf Coast. Meanwhile,
Entergy's operating companies will continue to own and operate
their respective distribution and generation businesses.
New Orleans, Louisiana-based Entergy is an integrated energy
company engaged primarily in electric power production and retail
distribution operations. Entergy owns and operates power plants
with approximately 30,000 megawatts of electric generating capacity
and is the second-largest nuclear generator in the U.S.
Entergy delivers electricity to 2.8 million utility customers in
Arkansas, Louisiana, Mississippi and Texas. The company is the
second largest U.S. nuclear power generator after
Earlier, in December 2011, Entergy entered into a definitive
agreement with ITC Holdings under which the former will divest its
electric transmission business to the latter. The divested business
would be merged with the operations of ITC Holdings.
The transaction will require consent from Entergy's retail
regulators, the Federal Energy Regulatory Commission and ITC
shareholders. The company expects the transaction to complete by
AMER ELEC PWR (AEP): Free Stock Analysis Report
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ITC HOLDINGS CP (ITC): Free Stock Analysis
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Post-merger, ITC will become one of the largest electricity
transmission companies in the U.S. Its area of operations will
stretch from the Great Lakes to the Gulf Coast, with more than
30,000 miles of transmission lines.
Per the divestiture agreement, Entergy will divest its electric
transmission business to a newly formed entity known as Mid South
TransCo LLC ("Transco") which will be distributed to Entergy's
shareholders in the form of a tax-free spin-off. Then, under an
all-stock Reverse Morris Trust transaction, Transco will merge with
and into a newly created merger subsidiary of ITC.
Post-merger, Entergy will have an approximately 50.1% stake in ITC
in exchange for their shares in TransCo. The balance 49.9% stake of
the combined company will be with the existing shareholders of ITC.
Entergy plans to utilize most of the cash proceeds from the
transaction to redeem the debt at its utility operating companies
and at the parent, Entergy. It expects the transaction to meet the
criteria for tax-free treatment for U.S. federal income tax
The divestiture will provide more investment alternatives and
enhance the credit quality of Entergy and its operating
subsidiaries. It will allow the company to invest more in its
generation operations. Moreover, the transaction will not affect
its retail customers and they will continue to receive the same
high quality service as before.
In the past, the company spent much effort to create its own
independent grid. Currently, it is seeking to integrate its
transmission operations into the Midwest Independent System
Entergy presently retains a short-term Zacks #3 Rank (Hold) that
corresponds with our long-term Neutral recommendation on the stock.
The stock is now trading at a discount in terms of forward earnings
estimates versus its utility peers like
The AES Corporation
American Electric Power Company Inc.