Great Plains Energy and Westar Energy to Merge

Published: Jul 10 2017
Deal Summary

Great Plains Energy Inc, a power generation company, and Westar Energy Inc. a power generation, transmission and distribution company, have entered into an agreement to merge and form a new electric utility company. The transaction has been approved by the directors of both companies.

Both the companies will merge in a stock-for-stock transaction with no transaction debt, no exchange of cash, creating a company with a combined equity value of approximately USD14 billion. The new combined company will provide electric utility service to approximately one million Kansas customers and nearly 600,000 customers in Missouri with operating headquarters in both Topeka, Kansas, and Kansas City, Missouri, US and corporate headquarters in Kansas City, Missouri, US.

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 0.5981 shares of common stock in the new holding company for each Great Plains Energy share. 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% and Great Plains Energy shareholders will own approximately 47.5% 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% dividend increase for Westar Energy shareholders.

In connection with the agreement, Great Plains Energy will redeem all of the previously issued debt and convertible preferred stock it issued in contemplation of the previous plan to acquire Westar Energy. Due to the revised nature of this transaction, Great Plains Energy and the Ontario Municipal Employees Retirement System (OMERS) have agreed to terminate their preferred convertible equity commitment. After these financial transactions are completed, the companies anticipate that Great Plains Energy will have not less than USD1.25 billion in cash on its balance sheet. After the closing of the merger, the combined company anticipates repurchasing common stock to return excess cash to shareholders and maintain a balanced consolidated capital structure.

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.

The board of directors will consist of an equal number of directors nominated from each company, including Bassham from the Great Plains Energy board and Ruelle from the Westar Energy board. The lead independent director will be Charles Q. Chandler, IV, currently Westar Energy’s independent chairman of the board.

The merger agreement provides that in connection with the termination of the agreement under specified circumstances relating to a failure to obtain regulatory approvals prior to the end date, a final and nonappealable order enjoining the consummation of the mergers in connection with regulatory approvals or failure by Great Plains Energy to comply with its obligations under the agreement to consummate the closing of mergers once all of the conditions have been satisfied, Great Plains Energy may be required to pay Westar Energy a termination fee of USD190 million. In addition, in the event that the merger agreement is terminated by Westar Energy under certain circumstances to enter into a definitive acquisition agreement with respect to a superior proposal or by Great Plains Energy or by Great Plains Energy as a result of Westar Energy’s board of directors changing its recommendation of the mergers prior to the Westar Energy shareholder approval having been obtained, Westar Energy may be required to pay Great Plains Energy a termination fee of USD190 million. Similarly, in the event that the merger agreement is terminated by Great Plains Energy under certain circumstances to enter into a definitive acquisition agreement with respect to a superior proposal or by Westar Energy as a result of Great Plains Energy’s board of directors changing its recommendation of the mergers prior to the Great Plains Energy shareholder approval having been obtained, Great Plains Energy may be required to pay Westar Energy a termination fee of USD190 million. Additionally, if the merger agreement is terminated by either Great Plains Energy or Westar Energy as a result of the Great Plains Energy shareholders not approving the merger agreement, Great Plains Energy may be required to pay Westar Energy a termination fee of USD80 million.

Goldman Sachs & Co. LLC is acting as lead financial advisor while Barclays Capital Inc and Lazard are serving as financial advisors and Bracewell LLP is acting as legal advisor to Great Plains Energy while Guggenheim Securities, LLC is acting as exclusive financial advisor and Baker Botts L.L.P. is acting as legal advisor to Westar Energy with respect to the transaction.

Earlier on May 29, 2016, Great Plains Energy agreed to acquire Westar Energy for a purchase consideration of USD12.2 billion including total equity value of approximately USD8.6 billion. Later on April 19, 2017, KCC found the transaction not to be in the public interest; denied the transaction. On May 4, 2017, companies filed a petition for reconsideration, requesting additional time to allow further discussions to resolve concerns identified in Commission’s April 19, 2017 order. On May 23, 2017, the KCC denied the petition but encouraged the parties to continue working together to revise the transaction to resolve the KCC’s concerns and welcomed the filing of a new application.

The transaction is subject to the satisfaction of customary closing conditions, including approval by Great Plains Energy’s shareholders and Westar Energy’s shareholders and the receipt of regulatory approvals, including the Federal Energy Regulatory Commission, the Missouri Public Service Commission, the KCC, the Nuclear Regulatory Commission and clearance under the Hart-Scott-Rodino Act. The transaction is expected to complete in the first half of 2018.

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