Dividends and How a New York hedge fund paved the way for Fortis share sale

For dividend investors, you have to look at utility companies because they have monopoly like competition and utility rate boards who tend to give the utility an increase in rates every year. For the companies, all utilities have an ongoing appetite for capital and one firm they all look towards is Zimmer Partners LP and its founder Stuart Zimmer. The firm Zimmer Partners is a $9 billion hedge fund and is focused on energy and utility companies.

The President and CEOs tend to meet the hedge funds at conferences and as large shareholders, each President and CEO needs to know what is the intention of the fund. One such case is a utility called Fortis which is headquarter in Newfoundland but owns utilities across North America including ITC Holdings in Michigan. According to Andrew Willis of the Globe and Mail, Zimmer Partners owned a large share of ITC and when Fortis bought the shares, Fortis pitched an exchange of ITC for Fortis. Zimmer said no.

Over the years, the relationship has grown through attending conferences and industry events and the respect of Zimmer Partners and how the utilities work has been strengthened. At one event, Mr. Zimmer said he was open to increasing his size of his position in Fortis.

Fortis’s goal was to take the risks of equity financing off the table over the next 5 years, by accelerating our equity needs today and presenting the market with one large deal. The way it worked was Fortis negotiated a $500 million stock sale to Zimmer Parners and then worked with a syndicate of 11 investment banks to sell $690 million of shares at the same price. Fortunately for Fortis the public offering sold quickly.

Fortis saved money on commissions with the sale to Zimmer and Fortis was able to cancel plans to raise $1 billion from what is known as at the market or ATM. An ATM allows a company to bring in cash constantly by quietly selling small amounts of equity on a daily basis.

Linking to dividend paying stocks, in the financing of companies there are many options and similar to the individual if a company can save money by using the resources to its advantages that is a good thing. Companies such as utilities have an on going capital requirements, they need to be well run and use hedge fund owners for the purposes the hedge fund owners find mutually agreeable for the long term term.

There are more questions than answers, till the next time – to raising questions.

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