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By Matthew Coffina, CFA and Jeremy Glaser | 01-07-2016 03:00 PM

A Company I Own Is Up for Sale--Now What?

Utility ITC Holdings is looking for a buyer. Here's what investors should consider when a company they own is up for sale.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. As utility ITC Holdings (ITC) continues to look for a buyer, I'm here with Matt Coffina--he's the editor of Morningstar StockInvestor newsletter--for his take on how investor should think about companies that are putting themselves up for sale.

Matt, thanks for joining me.

Matt Coffina: Thanks for having, Jeremy.

Glaser: Let's start with ITC, specifically. Why are they looking for a buyer right now?

Coffina: I think ITC is just looking around at the market and realizing this is a great time for a small or midsize utility to sell itself. We saw Duke (DUK) make a bid for Piedmont Natural Gas (PNY) at more than 30 times earnings. Southern Company (SO) made a bid for AGL Resources (GAS). In both cases, the premiums over the previous stock prices were about 40%. So, buyers are willing to really pay up for small and midsize utilities, and I think that's, in part, a function of the low-interest-rate environment. People want to take advantage of that while it lasts. Secondly, a lot of utilities are just looking for growth, and those larger electric utilities where you haven't seen a lot of load-demand growth are looking to natural gas infrastructure and electricity transmission--which is ITC's business--because there is a lot more growth in those areas.

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