TOPEKA, Kan. (CN) – Westar Energy and Great Plains Energy announced an equal-merger deal Monday that would create a new $14 billion utility serving Kansas and Missouri.
The announcement comes two months after Kansas regulators shot down Missouri-based Great Plains’ proposal to acquire the Kansas utility in a $12.2 billion sale.
“The logic of combining these two companies is compelling,” Mark Ruelle, president and CEO of Westar said in a statement. “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.”
The Kansas Corporation Commission denied the earlier acquisition due to concerns that Great Plains offered too much for Westar with an acquisition premium that was $4.9 billion higher than Westar’s assets, and that the new company might not be able to maintain credit-worthiness or afford proposed savings to customers.
David Nickel, consumer counsel for the state’s consumer advocate agency Citizens’ Utility Ratepayer Board, said his group opposed the earlier acquisition for largely the same reasons.
“Our interest, of course, is the public interest and the rates that affect residential and small business customers,” Nickel said. “We were concerned about the acquisition premium, financial structure of the deal and the lack of commitment to keep call centers in the state.”
While the previous deal would have cut more than 600 jobs in Kansas, Monday’s announcement revealed those jobs will be kept for at least five years and no layoffs will occur as part of the merger.
Nickel said the two companies have openly communicated with his agency and others in order to address the concerns.
“They appear to take the concerns seriously,” Nickel said. “They’ve related to us what they want to accomplish with a lot of openness and candor.”
Although Nickel praised the companies for their straightforwardness, he said the new merger proposal still needed examination.
“We want to see the merger standards,” Nickel said. “Our test is to determine whether or not this is good for the customers.”
Under the merger agreement, the new company will provide electric utilities to about 1 million customers in Kansas and 600,000 in Missouri. Westar stockholders will receive a one-for-one share exchange in the new company, while Great Plains stockholders will receive about 60 percent for their shares in a tax-free exchange.
Scott Hempling, a utility regulatory expert for 33 years, said he couldn’t comment on the merger since he served as an expert witness for the Kansas Corporation Commission for the previous acquisition case.
Back in February, however, Hempling argued against the acquisition.
“Let’s accept for the moment that everything they (Great Plains) have said about the savings is provable, accurate, and you can depend on it,” Hempling said. “You’re still faced with this struggle, which do I choose, a merger that is priced too high or the loss of those savings. And I guess what I want to say to you candidly is the reason that you’re in that position is because your merger standards don’t define what is a price too high.”
Corporate headquarters for the combined company would be in Kansas City, Missouri. Great Plains Energy president and CEO Terry Bassham would head up the new company.
If approved, Westar shareholders will own about 52.5 percent and Great Plains shareholders will own 47.5 percent of the new utility. A Kansas Corporation Commission representative said the organization had no comment since the proposal had not yet been submitted.