Fortis to debut on NYSE after finishing major U.S. acquisition

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Newfoundland-based Fortis Inc. is set to take its place among leading continental energy companies as it closes an $11.3-billion (U.S.) acquisition of a U.S. transmission company and lists its shares on the New York Stock Exchange.

Fortis – which has roots in the St. John's Electric Light Company founded 130 years ago – expects to close its deal on Friday with ITC Holdings Corp., a Michigan-based company that owns transmission assets in seven Midwest states. At the same time, it will begin trading on the NYSE, a move that will boost the liquidity of its income-oriented shares.

With ITC, Fortis is completing its third major U.S. acquisition in the past four years, and 60 per cent of its assets will now be in the United States. ITC represents significant growth opportunities as state governments mandate greater reliance on renewable energy, which requires additional transmission lines to connect the new sources of power to the grid, Fortis chief executive officer Barry Perry said in an interview on Thursday.

"This asset really fits nicely with that move to cleaner power, and connecting different parts of the grid in the U.S.," Mr. Perry said. "So from that perspective, it is a good long-term asset for our shareholders."

The ITC acquisition will make Fortis the 13th largest transmissions and distribution company in North America. Investors were initially wary about dilution and added debt levels, sending Fortis shares down 11 per cent when the deal was announced last February.

The company has natural gas and electricity distribution and transmission assets across Canada, including British Columbia's largest gas company and a significant footprint in Alberta's power sector. It is also a partner with 22 First Nations and a renewable energy company in a $1.3-billion project to connect the grid to remote indigenous communities in northern Ontario.

With the acquisition of ITC, Fortis plans to spend about $3-billion a year over the next several years on capital projects, and will increase its regulated rate base by 4.5 per cent annually on a compounded basis to 2020.

Mr. Perry said the listing in New York is a key part of the company's growth strategy. He will visit the NYSE headquarters on Tuesday for the ceremonial ringing of the bell that starts the trading day. Even before the ITC deal, major shareholders were encouraging Fortis to list in the United States to broaden its pool of investors.

"Any time you open up the trading of your stock or your debt to a broader market, it's beneficial," he said. "It creates more liquidity," which can reduce the cost of capital. And while U.S. investors can buy shares through the Toronto exchange, they tend to trade "close to home," he added.

Like its Atlantic Canada counterpart, Halifax-based Emera Inc., Fortis has been a buyer in a continent-wide trend towards consolidation in the utility sector over the past several years. In 2012, the St. John's company bought central New York State's CH Energy Group for $1.5-billion (U.S.) and the next year bought Arizona's UNS Energy Corp. for $4.3-billion (U.S.)

"There's a real shortage of supply of income-oriented, dividend-paying stocks even in the U.S.," Mr. Perry said. "The utility industry is shrinking; there's a fair amount of consolidation happening. So we think this is a pretty opportune time to list Fortis in the U.S. and really try to encourage more U.S. ownership of the company."

Fortis has increased its dividend for 43 consecutive years – a record for a public company in Canada – and pledges to protect it as it continues to look for acquisitions and expansion. It has issued guidance that it expects to be able to boost its dividend by 6 per cent a year for the next five years.

"The dividend is part of every decision we make as we grow the company, making sure that [that growth] doesn't hinder our ability to increase our dividend on a year-over-year basis," he said.