Great Plains, Westar marriage will create major coal and wind player

When Great Plains Energy (NYSE:GXP) acquires neighboring Westar Energy (NYSE:WR), pending the necessary approvals,the combined company will still lean heavily on coal, but also be a major wind energy player as well.

During a May 31 conference call, CEOs of the two companies called the proposed deal a natural combination of two neighboring utility-holding companies that each has a long history in Kansas.

Both companies operate in the Southwest Power Pool and their respective headquarters are located only about 60 miles apart.

Where Great Plains Energy has an energy mix that is 54% coal-fired (and only 1% renewable), the acquisition of Westar will create a company that is 51% coal-fired and 5% renewable, according to slides that accompanied the May 31 announcement.

While the current Great Plains Energy is 27% natural gas-fueled, the expanded company will be 31% natural gas-fired.

Where Great Plains Energy currently has 72% of its holdings in Missouri and 28% in Kansas, Westar has all of its operations in Kansas. As a result, the combined company will be 60% Kanas and 40% Missouri.

Once the transaction is complete, Great Plains Energy will have more than 1.5 million customers in Kansas and Missouri, nearly 13,000 MW of generation capacity, almost 10,000 miles of transmission lines and over 51,000 miles of distribution lines. In addition, more than 45% of the combined utility’s retail customer demand can be met with emission-free energy, the companies said in a news release.

Currently, Great Plains Energy and Westar jointly own and operate the 1,100-MW Wolf Creek Nuclear Generating Station, as well as the La Cygne and Jeffrey coal-fired power plants.

With the addition of Westar’s generation fleet, Great Plains Energy will have a more diverse and sustainable generation portfolio. This will provide increased flexibility to mitigate the potential customer impacts from future carbon regulation, officials said.

In addition, among investor-owned utilities in the United States, the combined company will have one of the largest portfolios of wind generation in the country.

Great Plains CEO will remain at helm of expanded company

Upon closing, Westar will become a wholly owned subsidiary of Great Plains Energy. Great Plains Energy Chairman and CEO Terry Bassham will be at the helm of the expanded company. 

Great Plains the parent company of KCP&L, announced May 31 that it has reached a definitive agreement for Great Plains Energy to buy Westar in a combined cash and stock transaction with an enterprise value of approximately $12.2bn, including total equity value of about $8.6bn.

Terms of the agreement were unanimously approved by the boards of directors for both companies.

Westar shareholders will receive $60.00 per share of total consideration for each share of Westar common stock, consisting of $51.00 in cash and $9.00 in Great Plains Energy common stock, subject to a 7.5% collar based upon the Great Plains Energy common stock price at the time of the closing of the transaction, with the exchange ratio for the stock consideration ranging between 0.2709 to 0.3148 shares of Great Plains Energy common stock for each Westar share of common stock, representing a consideration mix of 85% cash and 15% stock.

Creation of what should be “a premier regional utility” should close in the spring of 2017.

The companies anticipate making the required regulatory filings with the Kansas Corporation Commission and other regulatory entities during June and July of 2016. In addition, Great Plains Energy and Westar will seek shareholder approvals later this year. The transaction is subject to approvals from the Federal Energy Regulatory Commission (FERC) and the Nuclear Regulatory Commission (NRC).

The transaction also is subject to the notification, clearance and reporting requirements under the Hart-Scott-Rodino Act by the Federal Trade Commission and the U.S. Department of Justice.

“Westar and KCP&L are trusted neighbors and have worked together for generations in Kansas. The combination of our two companies is the best fit for meeting our region’s energy needs,” said Great Plains CEO Bassham. “This is an important transaction for Kansas and our entire region. By combining our two companies, we are keeping ownership local and management responsive to regulators, customers and regional needs, while enhancing our ability to build long-term value for shareholders,” said Bassham.

“The transaction fulfills everything we’ve been saying about the future of M&A,” said Westar President and CEO Mark Ruelle. The Westar CEO said he has long thought that Westar was “more likely to being a seller than a buyer.”

Ruelle will remain in his current role with Westar until the closing of the transaction. In addition, Great Plains Energy will add one director from the Westar Board of Directors to the Great Plains Energy Board of Directors.

The officials also indicated there was much interest from companies that wished to acquire Westar during a competitive process.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.