Great Plains Energy looking at up to $500 million in breakup fees on Westar deal

As Great Plains Energy negotiates a revised deal to buy Westar by May 31, a hefty figure lurks in the background for the parent company of Kansas City Power & Light: $500 million.

That’s the amount that Great Plains Energy could be on the hook for if the agreement to acquire Westar fails. When both utilities agreed to a $12.2 billion merger acquisition in 2016, the terms included a provision that Great Plains Energy pay a $380 million termination fee if the deal fails to earn regulatory approval.

Great Plains officials disclosed during an earnings call last week that additional breakup costs include $40 million to redeem debt issued for the transaction and a separate $80 million cost to unwind the deal.

Great Plains’ net income for 2016 was $290 million, according to its annual report.

A spokesman for Great Plains said he could not disclose how much the company has paid to pursue the acquisition of Westar to date.

The Kansas Corporation Commission on April 19 rejected Great Plains’ bid for Westar. The Kansas regulatory commission sided with its staff and other critics of the deal when it concluded that Great Plains was paying too much to buy Westar and that the deal would leave the buyer with too much debt, among other concerns.

Great Plains and Westar have asked the KCC to reconsider its decision, adding that both utilities would try to come up with a revised acquisition that would address the regulatory agency’s concerns and still result in a good deal for shareholders.

Both companies have said that a combined utility company would result in cost savings and fend off the possibility of an out-of-area concern buying up one or both of the utilities.

While it’s not common for the KCC to grant reconsiderations of its decisions, there is precedent. In 2014, the KCC granted reconsideration of its decision to reject Atmos Energy’s request to amend its purchased gas adjustment schedules and add a demand service charge.

Great Plains chief executive Terry Bassham said on a conference call with analysts last week that, based on conversations with Westar, both companies think there might be room to strike a revised plan that addresses KCC concerns and still provides meaningful benefits for shareholders.

He said those key concerns included the purchase price, the resulting capital structure for Great Plains and staffing levels at Westar’s Topeka headquarters.

“That said, our negotiations with Westar are ongoing and no new agreement has been reached,” Bassham said.

Analysts pressed Bassham on whether a revised deal would result in a lower purchase price and more equity in the transaction.

Bassham acknowledged that a lower purchase price would be part of the deal, but could not offer details on equity.

“I don’t know, it could,” Bassham said when asked about the equity involved in a revised deal. “Obviously, if you had additional equity issued to make a deal go forward, it would have to make sense to (earnings per share) growth and credit perspective. So I can’t answer the second question yes or no, given that we don’t have an agreement yet.”

This story was originally published May 9, 2017 at 2:08 PM with the headline "Great Plains Energy looking at up to $500 million in breakup fees on Westar deal."