Westar Plunges After Kansas Blocks Takeover by Great PlainsBy
Kansas regulators say deal isn’t in the public’s interest
Follows Texas’s rejection of NextEra-Oncor merger last week
The Kansas Corporation Commission voted unanimously to reject the utility merger, finding that it wasn’t in the public’s interest. The agency’s denial halts a transaction that Great Plains was willing to almost triple it’s debt to close. The state commission called the deal price “excessive” and warned that it would’ve put the company’s credit ratings at risk.
Wednesday’s denial ends a yearlong battle for Great Plains and Westar, which drew fire from both Kansas and Missouri regulators over their proposed tie-up. They now join the growing ranks of utility owners that have seen their multibillion-dollar takeovers rejected by state regulators. Only last week, NextEra Energy Inc.’s $18.4 billion plan to buy Oncor Electric Delivery Co. fell afoul of Texas regulators.
“The debt that Great Plains had to take on to buy Westar was just a bridge too far,” Paul Patterson, an analyst at Glenrock Associates, said in an interview. “It’s a reminder that utility deals like this are by no means risk-free.”
“We are obviously disappointed with the order,” Katie McDonald, a spokeswoman for Great Plains, said by email. “We will review the order and consider next steps.” Westar is also reviewing the details of the order, company spokeswoman Jana Dawson said by email.
Westar plunged as much as 7.7 percent on Thursday, the steepest intraday loss since May 2010, and traded 7 percent lower at $51.25 at 9:40 a.m. in New York. Great Plains added 0.7 percent.
Chance for Appeal
The companies have 15 days to ask for reconsideration. According to Kansas’s order, the utilities had told the commission that any significant safeguards established to protect consumers, such as maintaining an independent Westar board, would halt the transaction.
“It is not uncommon to have mergers be denied, only to later have them be reconsidered and completed, but there is no assurance of that,” Dawson said.
In 1996, Westar, then called Western Resources, tried to buy Kansas City Power & Light Co. from Great Plains in a hostile takeover. The $2.5 billion merger was scrapped in 2000. The latest combination was announced in May as utilities grapple with rising capital costs and weak demand. Great Plains, the Kansas City, Missouri, utility owner, stood to almost double its electricity customers with the deal.
Both companies had originally hoped to complete the transaction in the spring.
Great Plains’s debt was set to increase from more than $4.2 billion at the end of 2015 to $12.2 billion after assuming Westar’s obligations and issuing $4.4 billion of new debt to finance the deal, Chief Financial Officer Kevin Bryant said at the time it was announced.
“The size of the acquisition premium calls into question Great Plains’s ability to service the transaction incurred debt,” the commissioners wrote in Wednesday’s order.