Great Plains Energy, Westar Announce Proposed Merger
Westar Energy, Inc. (NYSE: WR) and Great Plains Energy Incorporated (NYSE: GXP) on Monday announced that both companies’ boards of directors have unanimously approved a revised transaction that involves no premium paid or received with respect to either company, no transaction debt, no exchange of cash, and is a stock-for-stock merger of equals, creating a company with a combined equity value of approximately $14 billion.
The new, combined company would provide electric utility service to approximately one million Kansas customers and nearly 600,000 customers in Missouri. The combined company would have a new name, yet to be established.
“The logic of combining these two companies is compelling. We are confident we have addressed the regulatory concerns with our originally-proposed transaction. We appreciate the Commission welcoming a different way to combine these two companies, preserving the unique value available only through this particular business combination,” said Mark Ruelle, president and chief executive officer of Westar Energy.
“This merger creates a stronger company for our customers and a much more valuable company for shareholders, with no additional acquisition debt, along with sustaining commitments to Topeka and Kansas. It is a win-win. For our shareholders, it means a large increase in their dividend. We also expect significant earnings accretion and a larger and stronger earnings growth platform than we could achieve on our own. The company and its utilities will continue to have strong investment grade credit ratings,” Ruelle stated.
Westar Energy and Great Plains Energy would merge to form a new holding company, which will operate regulated electric utilities in Kansas and Missouri. Operating headquarters will be in both Topeka, Kansas, and Kansas City, Mo. Corporate headquarters will be in Kansas City, Mo.
“We are pleased to announce a revised agreement with Westar Energy that we believe directly addresses regulatory concerns with our originally-proposed transaction, while increasing the long-term value and upside opportunity for our shareholders, customers, communities and employees,” said Terry Bassham, chairman, president and chief executive officer of Great Plains Energy.
“We power our communities – by generating energy, but also with the jobs we support, the value we create for shareholders, and the community support we provide. Combining Great Plains Energy and Westar Energy into one stronger, more diversified regulated utility has compelling strategic, operational and financial benefits. Together, we expect to deliver significantly more value to our shareholders than we can alone,” Bassham said.
Under the terms of the agreement, Westar Energy shareholders will exchange each share of Westar Energycommon stock for a share in the new holding company. Great Plains Energy shareholders will receive .5981 shares of common stock in the new holding company for each Great Plains Energy share. The transaction has a total equity value of approximately $14 billion. It is structured to permit a tax-free exchange of shares. No transaction debt will be incurred. The exchange ratio reflects the agreed-upon ownership split between the two companies.
Following completion of the merger, Westar Energy shareholders would own approximately 52.5 percent and Great Plains Energy shareholders would own approximately 47.5 percent of the combined company.
The agreement provides that, upon closing, the new holding company expects to set its initial common dividend at a level which maintains the current dividend for Great Plains Energy shareholders. This will result in approximately a 15 percent dividend increase for Westar Energy shareholders.
In connection with the agreement, Great Plains Energy will redeem all of the previously issued debt and convertible preferred stock it issued in contemplation of the previous plan to acquire Westar Energy. Due to the revised nature of this transaction, Great Plains Energy and the Ontario Municipal Employees Retirement System (OMERS) have agreed to terminate their preferred convertible equity commitment.
After these financial transactions are completed, the companies anticipate that Great Plains Energy will have not less than $1.25 billion in cash on its balance sheet. After the closing of the merger, the combined company anticipates repurchasing common stock to return excess cash to shareholders and maintain a balanced consolidated capital structure.
Upon closing, Ruelle would become the non-executive chairman of the new company board. Bassham would serve as president and chief executive officer of the new company and also serve as a member of the board of directors. Senior management roles would be shared by executives from both companies.
Among these are: Westar’s current senior vice president and chief financial officer (CFO), Tony Somma, would become executive vice president and CFO. Kevin Bryant, current Great Plains Energy senior vice president of finance and strategy and CFO would become executive vice president and chief operating officer.
Greg Greenwood, Westar’s senior vice president of strategy, including regulatory affairs, would become the new company’s executive vice president of strategy and chief administrative officer, responsible for regulatory affairs and merger savings, among other responsibilities.
The board of directors would consist of an equal number of directors nominated from each company, including Bassham from the Great Plains Energy board and Ruelle from the Westar Energy board. The lead independent director will be Charles Q. Chandler, IV, currently Westar Energy’s independent chairman of the board.