Government policies and the industry’s response has increased the risk factors affecting the quality of earnings at U.S. electric utilities. Deferred taxes and ballooning pension obligations...
Managing the Merger: The View from Corporate Counsel
A tale of three deals - ADT, Westinghouse, KCPL - at Western Resources.
Sensing changes in the utility industry, Western Resources Inc. in 1994 began to examine what it was and what it needed to be - to customers, to investors and to other constituencies. Through an extended exercise in strategic planning, we produced a rather typical end product: a document outlining a hypothetical future of growth, financial strength and customer satisfaction. What followed often appeared more like a "Chinese fire drill." But the end result, if one can call it an end, was a completely new look, orientation and structure-along with a substantially improved stock price.
The story of how Western Resources set about recreating itself is long and complex. I played a role in that story, as I served as general counsel at Western Resources from 1987 to 1998. This discussion, however, deals with only one element of that process, the coordination of a wide array of legal and regulatory issues among and across several major, simultaneous transactions.
The object, when a transaction was selected, was to get it done, preserving the benefits for the company with minimum difficulty for the other transactions in progress. Given the number of issues and the number of simultaneous transactions, this coordination effort became a discipline in itself.
Planned, but Unforeseen
In 1995, Western Resources, a $5 billion electric and gas utility with a small unregulated subsidiary engaged in various related businesses, began to diversify into other types of business in a small way. Its first decisive step into a new business came near the end of 1995, when it acquired several small home security companies and set up Westar Security (a name it subsequently relinquished).
As the process continued, in came a new development. Kansas City Power & Light Co. (KCPL), a neighboring utility often confused with Kansas Power and Light (the trade name for Western's own utility division), announced in January 1996 that it had reached an agreement to merge with Utilicorp United Inc. This announcement, in light of a long history of discussions between Western and KCPL, appeared illogical to Western's management because of the greater potential benefits we perceived for shareholders and customers from a merger of KCPL and Western. Western immediately shifted focus. In April of that year we announced a $2 billion tender offer for all of KCPL's common stock, thereby launching a proxy contest that set a precedent for the industry.
Not all of management's attention was focused on KCPL, however. In this same period Western acquired approximately 25 percent of the outstanding stock in ADT Ltd., the country's largest home security company. While this acquisition in itself was not particularly complicated, the subsequent relationship with ADT's management posed an increasingly distracting influence.
As 1996 wore on, our tender offer led KCPL shareholders to reject a merger with Utilicorp. The issue of KCPL's control heated up that fall. Concurrently, Western's management had concluded that the company's best interests required the transfer of the natural gas business. After several months of negotiation, OneOK Inc. and Western entered into