Great Plains’s $8.6 Billion Deal May Face Missouri Reviewby
State agency staff calls for review of Westar takeover
Evidence shows deal isn’t in the public’s interest: staff
Great Plains Energy Inc.’s $8.6 billion takeover of Westar Energy Inc. should be subject to the approval of Missouri regulators, according to the state’s utility commission staff, which described the deal as “detrimental to the public interest.”
Kansas City, Missouri-based Great Plains should be ordered to seek approval from the state Public Service Commission as a condition to the merger’s closing, the agency’s staff said in a report filed Monday. It warned that the transaction, as proposed, may lead to higher electricity rates. In addition, employees at Great Plains’ Kansas City Power & Light Co. utility may be distracted by the possible takeover, cutting operational efficiency, the staff said.
“At this time, staff maintains that all of the known evidence supports a determination that the proposed transaction is detrimental to the public interest and ought not to be permitted to go forward,” staff said in the report.
A state review would threaten to hold up a transaction that Westar and Great Plains have been expecting to close by the middle of next year. The companies have argued that Missouri doesn’t have authority to rule on the deal because Great Plains, unlike its utility, isn’t subject to the commission’s jurisdiction. Utility buyers who have faced state reviews in recent years, including Exelon Corp. and Macquarie Group Ltd., have had to offer up concessions to get their takeovers approved, and Great Plains may face similar challenges.
Westar fell about 1.1 percent to $55.49 at 11:05 a.m. Tuesday in New York. Great Plains declined 0.6 percent to $30.15.
“There’s lots of water to flow under this bridge,” Kit Konolige, a utility analyst at Bloomberg Intelligence in New York, said by phone. “Potentially, it could mean the companies might be called on to sweeten the deal for customers or something like that.”
The deal was first announced in May amid a flurry of mergers and acquisitions in the industry as utilities grapple with rising capital costs and weak demand. Great Plains’ acquisition of Topeka, Kansas-based Westar would be one of the sector’s richest in recent history based on the premium paid, amounting to at least 23 times Westar’s expected earnings next year, according to SunTrust Robinson Humphrey Inc. and Evercore ISI. Great Plains would almost double its electricity customers with the deal.
Kansas City Power & Light Co. spokeswoman Katie McDonald said the company disagrees with the staff’s report and plans to file a response with the state.
“By combining Westar and Great Plains Energy, we will create significant operational efficiencies and cost savings that will benefit all our customers,” she said by e-mail Monday. “We remain on track to complete the transaction in the second quarter of 2017.”
A spokeswoman for Westar declined to comment, referring questions to Great Plains.
When the commission ordered the staff’s investigation in June, it didn’t rule on whether it had jurisdiction over the takeover, the report shows.