In a bombshell announcement, Great Plains Energy announced Tuesday that it will purchase Westar Energy in a cash, stock and debt transaction worth $12.2 billion.
Great Plains is the parent company of Kansas City Power & Light. Under the transaction, it will pay Westar shareholders $8.6 billion in cash and stocks and will assume $3.6 billion of Westar debt.
By merging with Westar, Kansas’ largest utility, Great Plains will create a major power company with 1.5 million customers and $14 billion in rate base straddling Kansas and Missouri.
Terry Bassham, CEO of Great Plains, said it’s a common-sense move for the two utilities, which already share three major power plants: the Wolf Creek nuclear plant and the La Cygne and Jeffrey Energy Center coal plants.
“Our complementary operations, adjacent service territories and shared ownership of generating facilities provides many opportunities to create a stronger, more efficient company,” Bassham said in a conference call Tuesday with utility analysts.
The combined company will be “one of the largest pure-play vertically integrated utility companies in the nation,” Westar CEO Mark Ruelle said in the conference call.
The companies said they expect to file for approval of the merger with the Kansas Corporation Commission in June or July, with approval expected in spring 2017.
Westar shareholders will get $51 cash per share, plus $9 worth of shares of Great Plains stocks with price protection.
“We’re pleased with this transaction on so many levels,” Ruelle said.
He said the transaction fulfills what Westar had hoped to do in a time of consolidation of utilities nationwide.
“That is that consolidation will continue, but eventually size matters, and considering whether to be a consolidator or among those consolidated, companies have to pick a side,” he said
Ruelle said Westar recognized that it would be more profitable for shareholders to sell than to try to buy other companies.
“The benefits for our shareholders are obvious and straightforward,” he said. “Great Plains has also stepped up and made the right commitments to our employees and our communities, and we’ve got a straightforward path to get regulatory approvals.”
Westar stock closed Tuesday at $56.33, up $3.41 per share. Great Plains dropped $1.82 to $29.18 per share.
Bassham said the combined company is expecting to achieve efficiencies through elimination of duplicated functions but plans to reduce its workforce primarily through attrition rather than layoffs.
Westar has about 687,000 customers. It is based in Topeka and employs 2,400 people in Kansas.
KCP&L has 800,000 customers.
Both KCP&L and Westar intend to proceed with rate increase proposals that are underway or planned soon on both sides of the Kansas-Missouri state line, Bassham said.
David Nickel, the recently hired consumer counsel for the Citizens’ Utility Ratepayer Board, said he learned of the transaction on Tuesday morning and hadn’t had time to analyze the impact.
He said CURB will, however, intervene in the case and work vigorously to ensure that the interests of residential and small-business customers are protected.
National utility stock analysis said they liked the move.
“A lot of people probably thought these two companies should have merged a long time ago,” said Tim Winter of Gabelli and Co.
Winter said it’s definitely a win for the Westar shareholders. “Sixty dollars per share is very nice, and Westar management should be congratulated,” he said.
Charles Fishman of Morningstar Equity said Great Plains is paying a high premium, “but that’s what we’ve been seeing. As far as the (Westar) stock price, it was trading high already, because this has been rumored for so long. It’s been out there for a while that it was for sale.”
He said the move could also benefit consumers.
“If there’s a utility merger out there the past few years that can provide cost savings, this would be it,” he said. “The territories are right next to each other. Certainly, there will be savings. This is probably a positive for consumers.”
KCP&L is already used to dealing with the same regulators as Westar.
“Sometimes, these mergers can get messy,” Fishman said. “But I don’t expect this one to be.”
Fishman said because the utilities have an aging workforce, Great Plains should be able to keep its promise of mostly reducing staffing through attrition.
“This thing won’t get done until the middle of next year anyway, and a lot of the downsizing will happen with people retiring or moving on to other jobs,” he said. “I don’t think the layoffs will be that brutal, but I suspect there will be some.”