What: Shares of electric transmission company ITC Holdings Corp. (ITC) jumped as much as 13% on Monday after Bloomberg reported that the company may be looking to sell itself.
So what: Bloomberg says that "people with knowledge of the matter" suggest ITC is looking for a potential buyer. The company's transmission assets may be a hot commodity for utilities looking to increase the amount of highly profitable, stable cash flows they own. For now, a sale is just a rumor so buying on the pop probably isn't a good move today.
Now what: ITC Holdings isn't exactly cheap at 18 times forward earnings estimates and that's in part because the company has highly prized assets compared to utilities who own assets that aren't getting regulated returns. That's what makes the company a prize for potential suitors, but it also limits the potential upside for a deal if management asks for more than a buyer would pay.
I wouldn't buy shares on today's rumor, but would use it as a reminder that ITC Holdings is one of the best positioned companies in the electric industry today. No matter what disruption comes from regulations, renewable energy, or distributed generation we'll need transmission lines and regulators effectively guarantee returns on those assets. That's worth owning long-term and a potential buyout should be seen as potential upside to that thesis, not an investment thesis on its own. Especially after the pop today.
