Entergy OKs agreement to divest transmission business

NEW ORLEANS — The boards of directors of Entergy Corporation and ITC Holdings Corp. have approved a definitive agreement under which Entergy will divest and then merge its electric transmission business into ITC.

Entergy’s electric transmission business consists of approximately 15,700 miles of interconnected transmission lines at voltages of 69kV and above and associated substations across its utility service territory in the Mid-South. Following the completion of the transaction, ITC will become one of the largest electric transmission companies in the U.S., with over 30,000 miles of transmission lines, spanning from the Great Lakes to the Gulf Coast.

“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.

“This is an attractive and natural strategic fit for ITC that provides benefits for stakeholders, including customers, employees, local communities and shareholders. Customers in Entergy’s service territory will benefit from the commitment that ITC makes to the regions and communities we serve, which is the cornerstone of our business and furthers our mission to be a best-in-class transmission provider and good corporate citizen. We have a strong track record of efficiently and effectively integrating systems and anticipate a seamless transition for Entergy customers,” Welch said.

Entergy chairman and CEO J. Wayne Leonard said, “The transaction enables us to maintain the financial flexibility necessary to address the growing challenges our industry faces, including substantial infrastructure investment. We believe 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.”

The terms of the transaction agreements call for Entergy to divest its electric transmission business to a newly-formed entity, Mid South TransCo, LLC (Transco), 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 merger subsidiary of ITC in an all-stock, Reverse Morris Trust transaction. Prior to the merger, ITC expects to effectuate a $700 million recapitalization, currently anticipated to take the form of a one-time special dividend to its shareholders. 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.

Entergy expects to receive gross cash proceeds of $1.775 billion from indebtedness that will be incurred in connection with the transaction, and this indebtedness will be assumed by ITC at the close of the merger. In addition, ITC anticipates issuing approximately $700 million of unsecured debt at the holding company. The combination is expected to enhance the overall credit quality for pro forma ITC due to its increased size, scale and financial resources and has been structured to preserve ITC’s existing strong credit metrics. Entergy expects to utilize most of the cash proceeds to retire debt associated with the transmission business at its utility operating companies and the balance for debt reduction at the parent, Entergy. The merger is expected to qualify for tax-free treatment for U.S. federal income tax purposes for both companies and Entergy’s shareholders.

Completion of the transaction is expected in 2013 subject to the satisfaction of certain closing conditions, including the necessary approvals of Entergy’s retail regulators, the Federal Energy Regulatory Commission and ITC shareholders.

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