The Kansas Corporation Commission (KCC) on May 23 denied the May 4 petition filed by Great Plains Energy (NYSE:GXP) (GPE) and Westar Energy (NYSE:WR), in which the companies requested reconsideration of the KCC’s April 19 order that denied the companies’ June 2016 joint application, which sought approval for GPE’s acquisition of Westar.
As noted in the KCC’s May 23 order, GPE in May 2016 announced that it had reached a definitive agreement to acquire 100% of the stock of Westar Energy Inc., and Kansas Gas and Electric (Westar) in a transaction then valued at about $12.2bn, including assumed debt. The joint application seeking approval for GPE’s acquisition of Westar was filed on June 28, 2016, the order noted.
The KCC noted that it issued its order on April 19 denying the proposed transaction and explaining that “[a]fter a thorough examination of its merger standards, the commission concludes the proposed transaction is not in the public interest. The proposed transaction fails not only to meet the majority of the merger standards, but it fails to meet the most important of the factors.”
Specifically, the KCC said that it reasoned that the proposed transaction was too risky because the excessive acquisition premium calls into question GPE’s ability to service the transaction-incurred debt, leaving GPE little margin for error to maintain its investment grade rating. The joint application, the KCC added in its May 23 order, did not give the KCC adequate assurances that GPE would be able to service the newly incurred debt without raising rates or reducing services.
The companies on May 4 filed their petition for reconsideration, and on May 9, regulatory staff filed its response to that petition, advising that the petition be denied because it contains no allegation of error.
“The commission reiterates its belief that the joint applicants are responsible companies that serve their communities well as evidenced by the outpouring of support from community leaders and elected officials,” the KCC added. “However, to promote the public interest, a proposed transaction must satisfy the merger standards. As the joint applicants acknowledge in their petition for reconsideration, they would have to substantially change their application and supply a wealth of new evidence to satisfy the merger standards.”
The companies’ petition for reconsideration fails to allege any specific defects with the April 19 order or that the order was in any way unlawful or unreasonable, the KCC said. Instead, by their own admission, the companies’ pleading merely seeks additional time to determine if it is possible to develop a new proposed transaction, the KCC said.
Since the companies’ petition does not meet the legal requirements for a petition for reconsideration, the docket (Docket No. 16-KCPE-593-ACQ) closed by operation of law 15 days after the KCC issued its order, the KCC said, adding that under state law, the only option available to the KCC is denial.
“The commission encourages the parties to continue working together to ‘revise the transaction to address the commission’s concerns related to purchase price, capital structure and other issues’ and welcomes the filing of a new application that can satisfy the merger standards and advance the public interest,” the KCC said.
In a May 23 statement posted on the companies’ websites, the companies said that they continue to work in a timely manner to explore the possibility of a revised transaction, and that if a new agreement to combine is reached, then the companies would file a new application under a new docket.
The companies said that while they have made progress, it will take more time to evaluate whether a new deal is possible.
The companies also noted that since filing the petition, they have had discussions with KCC staff and the Citizens’ Utility Ratepayer Board (CURB), and agree that if a new agreement can be forged between the companies, then a new application with the KCC would be the appropriate procedure to follow.
“It is important for all parties to the case to have adequate time and ability in which to review any revised proposal,” Terry Bassham, GPE chairman and CEO, said in the statement. “If we move forward, any revised transaction would have to be materially better than our standalone plan for both shareholders and customers, and it would have to have a high likelihood of success.”
Mark Ruelle, Westar Energy president and CEO, said in the statement: “If we reach an agreement, we agree a new KCC application would be the best route. The KCC staff and CURB have indicated they would discuss a procedural schedule following a review of a new application to determine whether the 300 days allowable will be necessary to review the revised transaction. From Great Plains Energy’s and Westar’s perspective, we believe the work we did in the earlier docket could shorten the new schedule to fewer than the 300 days allowable.”