Stock in Westar Energy (WR) fell -5% today after disclosing a new deal to merge with Great Plains Energy (GXP).
Boards of directors for both companies approved a new merger deal that creates a holding company to be owned by Westar at 52.5% share and Great Plains at 47.5% share.
Stock in Westar fell because some shareholders are disappointed they aren't receiving a premium for their stock in the deal. A previous deal, rejected by the Kansas Corporation Commission, required Great Plains to pay $60 per share for Westar in a combination of cash and stock. The new deal includes no premium. In mid-morning trading, stock in Westar fell to $50.36 per share, down $2.80 per share.
A joint statement by the two companies says, "Under the terms of the agreement, Westar Energy shareholders will exchange each share of Westar Energy
common 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 will own approximately
52.5 percent and Great Plains Energy shareholders will 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."
The companies also said, "The new, combined company will
provide electric utility service to approximately one million Kansas customers and nearly 600,000 customers
in Missouri. The combined company will 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.”
Westar Energy and Great Plains Energy will 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, Missouri. Corporate headquarters will be in Kansas City, Missouri.
“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.
Upon closing, Ruelle will become the non-executive chairman of the new company board. Bassham will
serve as president and chief executive officer of the new company and will also serve as a member of the
board of directors. Senior management roles will be shared by executives from both companies. Among
these are: 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.