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Regulator rejects GPE/Westar merger
Posted on Thursday, 20 April 2017 13:57
Great Plains Energy (GPE) and Westar are considering their next steps after the Kansas Corporation Commission (KCC) rejected a USD 12.20 billion deal to create an entity with 950,000 customers in the state alone.
The regulator said it is not opposed to mergers, after all, it has already signed off on two acquisitions within the past six months alone, namely Liberty Utilities taking over Empire District Electric and Fortis of ITC Holdings.
In this case GPE, when combined with Westar, would have 1.50 million customers in Kansas and Missouri, generation capacity of 12,713 MW and almost 10,000 miles of transmission and over 51,000 miles of distribution lines.
However, critics argued this merger is not one of equals but rather one with “an excessive purchase price” requiring GPE taking on significant debt of roughly USD 3.60 billion.
In order to pay the USD 8.60 billion price tag, the company intends to take on a finance package comprising 50.0 per cent equity and 50.0 per cent debt.
Furthermore, the USD 4.90 billion premium exceeds GPE’s USD 4.80 billion market capitalisation by USD 100.00 million.
The critics noted the combined company would have very little financial flexibility and very little margin of error to keep its investment rating and as such regulators may be forced to boost rates to keep the fragile utility stable.
In addition, GPE has not included any plans to deleverage; there are no examples of reduced spending through procurement cut-backs or that the customers will see any savings.
KCC did not reject the merger on competition grounds though it noted the two presented the tie-up as a take it or leave it proposal as they said any significant safeguards to protect consumers would halt the deal.
The companies are reviewing the written order before contemplating the next steps in the process and have 15 days to appeal the decision, though they also have an option of asking the appellate court to look at the verdict.
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