Utility executives face volatile energy markets, skyrocketing fuel prices, and changing federal energy policies. How are utilities benefiting from the turnaround in energy trading?
Managing the Merger: The View from Corporate Counsel
a strategic alliance in December that gave OneOK control of the gas business and Western a 45 percent equity interest in the resulting company, the eighth-largest natural gas utility in the country.
Two other strategic events took place in December: Western purchased the $370 million home security unit of Westinghouse Electric and announced an unsolicited tender offer worth $3.5 billion for the remaining stock in ADT.
Finally, in February 1997, Western and KCPL reached a merger agreement, beginning a regulatory approval process that normally lasts more than a year. That agreement was renegotiated in March 1998, after months of discussion about the structure of the new company and a substantial change in valuation of the transaction. A revised merger application was submitted to the Federal Energy Regulatory Commission in August, describing formation of a new holding company that would retain the name Western Resources Inc. It will own a single public utility subsidiary, known as Westar Energy. The regulatory process will likely extend well into 1999.
In the meantime, however, Western's offer for ADT had been topped rather dramatically by Tyco International, an industrial conglomerate, raising the value of Western's stake in ADT to well over twice its cost. Finally, Western had agreed to merge its home security business with Protection One Inc., for 84 percent of the outstanding Protection One stock, creating the second-largest home security company in the country. The OneOK and Protection One transactions both closed during Thanksgiving week, 1997.
Throughout this period, Western continued to make smaller acquisitions and investments ranging in value from a few million dollars to well over $100 million. None of these many transactions were laid out in the original planning document, although acquisitions certainly were contemplated as one means of growing the company. The KCPL merger and the ADT transaction, in particular, were products more of unforeseen circumstances than a long-range plan. But management's openness to each transaction was undoubtedly influenced by the strategic planning process it had undergone. Of equal importance, however, was executing the program - getting each project done in the best interests of the company.
Calling in the Outside Counsel
Needless to say, the energy and commitment needed to maintain such a transformation were extraordinary. Staying focused and organized became the most essential part of the job. From a legal point of view in particular, the complexity of this program posed unprecedented problems for Western. An outline of most of the legal issues would look something like this:
Rates & Certification
Kansas Corporation Commission
Missouri Public Service Commission
Federal Energy Regulatory Commission
Nuclear Regulatory Commission
Securities and Exchange Commission
Public Utility Holding Company Act
General disclosure requirements
Federal and state income tax
State property tax
Employee Retirement Income Security Act
The diagram at the end of this article suggests the interrelationships among these projects and the issues they raised.
Many of these issues not only applied to most or