Great Plains and Westar to merge into Missouri Fortune 500 company
JEFFERSON CITY, Mo. – At a press conference in Kansas City, Great Plains Energy has announced that their proposed deal to buy Westar Energy has been revised, and will be a merger with the combined company being the latest Fortune 500 company based in Missouri.
Under the original acquisition deal, which was announced in May 2016, Great Plains planned to buy Westar in a deal valued at $12.2 billion, which was rejected by the Kansas Corporation Commission in late April, citing concerns about high pricing, capital structure, and merger savings, along with the effect on jobs.
The company announced Monday that the deal would now become a merger of equals, with no premium paid to either company. Instead, the deal now creates a Fortune 500 company with combined equity value of roughly $14 billion. The name of the new combined company has not been established at this time.
“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.”
Under the new agreement, there will be no exchanging of debt or cash, and instead, stockholders will trade their current shares in for equal shares in the new company, with each transaction being tax-free.
Westar shareholders will receive one share in the new holding company for each Westar share they own, while Great Plains shareholders will receive 0.5981 shares of the new company for each Great Plains share they own. That reflects the ratio agreed upon, splitting between the two companies, with Westar shareholders owning 52.5 percent and Great Plains shareholders owning 47.5 percent.
The new, combined company will provide electric utility service to approximately one million Kansas customers and nearly 600,000 customers in Missouri and will have operating headquarters in Topeka and Kansas City, with corporate headquarters also stationed in Kansas City.
And for the customers, the companies say that the shared generation assets and complementary service areas will help lead to more efficiency and that they expect to create cost savings and net operating efficiencies of about $35 to $45 million in 2018. They expect that number to grow to $140 to $170 million by 2021 and beyond.
But it also includes an immediate rate credit for the customers. The company will provide a minimum of $50 million in total rate credits for all customers at the closing of the transaction as a one-time reduction, which exceeds the expected net savings in 2018.
“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,” Mark Ruelle, president and chief executive officer of Westar Energy, said. “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.”
After the merger is completed, Ruelle will be non-executive chairman and Bassham will be the president and CEO of the new company. Westar’s current senior vice president and chief financial officer (CFO), Tony Somma, will become executive vice president and CFO. Kevin Bryant, current Great Plains Energy senior vice president of finance and strategy and CFO will become executive vice president and chief operating officer. Greg Greenwood, Westar’s senior vice president of strategy, including regulatory affairs, will 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 companies say the board of directors will be made up of an equal number of directors nominated by each company. The lead independent director will be Charles Q. Chandler, IV, currently, Westar Energy’s independent chairman of the board.
The transaction is expected to close in the first half of 2018, if both of the companies, the Missouri Public Service Commission, the Kansas Corporation Commission and the Federal Energy Regulatory Commission.