Having felt the stick from regulators, two area utilities giants have dangled plenty of carrots in a renewed bid to merge.
Great Plains Energy Inc., the parent company of Kansas City Power & Light, and Topeka-based Westar Energy Inc. announced their new merger plan Monday just months after Kansas regulators rejected their earlier bid in April.
This new deal comes with promises of no layoffs for employees, a guarantee of 500 jobs in downtown Topeka, credits of $50 million for customers’ bills, millions of dollars in cost savings for value-hungry shareholders and no new debt to meet the Kansas Corporation Commission’s earlier objections.
“It appears to us that the companies have taken very seriously the commission’s past order,” said David Nickel, consumer counsel for the Kansas Citizens’ Utility Ratepayer Board. “They’re working diligently and genuinely toward attempting to meet the merger standards.”
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Executives of the two companies ironed out what they’re calling a merger of equals rather than the original plan for Kansas City-based Great Plains to buy Westar in a $12.2 billion deal.
The Kansas Corporation Commission had rejected the buyout deal, first proposed in May 2016, as involving too much debt and threatening too many jobs in Kansas.
Both utilities have maintained that they’re better off as one company with local employees and executive staffs rather than running the risk of being acquired by an out-of-town concern.
The new merger plan, valued at $14 billion, would involve forming a new company to hold all of the current pair’s operations. It would take on a new name, as yet undecided, and install Great Plains CEO Terry Bassham as its CEO. It would have about 1 million customers in Kansas and nearly 600,000 in Missouri.
Neither company would spend any cash to acquire the other, nor would either take on more debt to make the merger happen.
Shareholders of each would swap their existing shares for shares in the new company with the idea that neither set of shareholders would receive a premium. The new company would be more than half owned by the current shareholders of Westar, according to the announcement Monday.
Nickel said the companies have met with not only the ratepayer board but also the Kansas Corporation Commission staff. He praised their “openness and candor” as they worked toward the new deal.
The details, however, will make the difference. State regulatory boards in Missouri and Kansas will receive formal filings seeking approval for the new merger plan, setting aside the old deal.
Other regulatory steps, including a federal review, put the merger on a path toward completion next year.
If approvals come, customers of the companies could see $50 million in credits on their bills perhaps next summer. Those credits are an advance on how much money the companies expect to save by merging.
Some cost savings come now from steps the companies already took in anticipation of their original deal. Each utility has left job openings vacant as employees have voluntarily left for other jobs or other reasons or retired in the normal course of their lives.
“Both companies already have a lot of vacancies,” said Westar CEO Mark Ruelle, who will be chairman of the merged company.
And the companies will continue to refill only essential jobs as they work toward the new merger expected next year.
It means the firms can save money on payroll, operate efficiently for customers and shareholders but without a disruptive round of layoffs common in corporate mergers.
“We’re committed to families and jobs so we don’t run into the situation where we have to make an abrupt change,” Bassham said.
The announcement said the new company will be based in Kansas City but that Topeka and Kansas City would be operational headquarters. Moreover, the downtown Topeka headquarters of Westar would continue to have at least 500 employees for five years after the merger, the announcement said.
Bassham had said during a conference call with investors that after the merger both cities would “have the kind of jobs you would expect to find in a headquarters.”
Combined, the companies have about 5,120 employees, including about 2,900 represented by unions. Their combined total is 110 fewer than a year earlier.
Additional benefits from merging should push cost savings to about $35 million to $45 million next year, plus $140 million to $170 million a year by 2021. Ratepayers would expect to benefit from future cost savings by possibly avoiding future rate increases, the companies said.
The deal won immediate approval from one institutional investor. Because investors are simply swapping their shares for shares in a new company, there will be no taxes to pay.
“My clients love a tax-free deal,” Mario Gabelli, founder of GAMCO Investors Inc., told executives of the companies during a conference call Monday. “I figured someway you guys would figure something clever out.”
The news lifted shares of Great Plains 56 cents to $29.81, a 1.9 percent gain Monday. Shares of Westar fell $2.72, or 5.1 percent, to close at $50.41.