Entergy Corporation
(
ETR
) 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
(
ITC
). 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
necessary approvals.
Taking the process to the next step, Entergy Arkansas Inc. along
with ITC Holdings Corp. and ITC Midsouth LLC, filed a request at
the Arkansas Public Service Commission to spin off the Arkansas
electric transmission business and merge it into a subsidiary of
ITC.
Entergy noted that this transaction is a significant step toward
meeting the challenges facing the entire electric industry driven
by the need to upgrade infrastructure, modernize equipment and meet
growing environmental and compliance requirements. Entergy is
seeking approval to transfer more than 15,800 miles of
interconnected transmission lines at voltages of 69kV and above and
the associated substations to ITC.
In Arkansas, ITC would serve wholesale customers including Entergy
Arkansas and other entities using Entergy's transmission lines such
as the Arkansas Electric Cooperative Corporation and the municipal
electric authorities of the cities of Jonesboro, Conway, West
Memphis, and Osceola, as well as independent power producers.
Entergy's operating companies will continue to own and operate
their respective distribution and generation businesses and will
provide customer service, billing, outage reporting and restoration
services to homes and businesses in the region.
The companies also noted that 750 Entergy employees, including key
leadership personnel from Entergy's transmission business, will
become employees of ITC. ITC will have offices and warehouses
throughout Arkansas and the rest of the Entergy service territory
to ensure a local presence and timely response to stakeholder and
system needs.
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
Exelon Corporation
(
EXC
).
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
2013.
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
purposes.
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
Operator.
Entergy presently retains a short-term Zacks #3 Rank (Hold) that
corresponds with our long-term Neutral recommendation on the
stock.
ENTERGY CORP (ETR): Free Stock Analysis Report
EXELON CORP (EXC): Free Stock Analysis Report
ITC HOLDINGS CP (ITC): Free Stock Analysis
Report
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