Utility to Buy Control of Protection One
Western Resources Inc. on Wednesday agreed to acquire an 80.1% stake in Culver City-based Protection One Inc. for $320 million in cash and assumed debt, creating the No. 2 U.S. provider of security for homes and businesses.
Western Resources’ security business is the nation’s third-largest, with 440,000 customers in 48 states. Protection One ranks seventh. Its combined security operations will have 670,000 customers and $1 billion in sales.
The Topeka, Kan.-based utility said it will pay Protection One shareholders $117 million through a $7-a-share dividend. It will also pay off $250 million of the electronic-security company’s debt and shift $47 million of its own debt to a new company, which will also be called Protection One.
The addition of Protection One, the largest security company in the West with 230,000 customers, will put Western Resources into 3.2 million households nationwide as a provider of electricity, natural gas or electronic security. That will give it a large customer base to expand those services as the nation’s utility industry is eventually opened to competition.
“Brilliant idea,” Edward Tirello, a NatWest Securities Ltd. analyst, said of the acquisition. “That [3.2 million households] is miles ahead of anybody else.”
The move follows Western Resources’ failed hostile bid for ADT Ltd., the No. 1 provider of burglar- and fire-alarm monitoring. Tyco International Ltd. bought ADT for $7 billion this month.
Shares of Protection One rose $2.75 to close at a 52-week high of $18 on trading on Nasdaq. Western Resources’ shares rose 44 cents to close at $34.56 on the New York Stock Exchange.
The transaction, which requires the approval of Protection One shareholders, is expected to be completed this year. Protection One headquarters will remain in Culver City.
With its pending $2.7-billion stock-and-debt acquisition of Kansas City Power & Light Co., Western Resources will extend its presence to 3.35 million homes, said John Hayes, chief executive and chairman.
Each of those customers will provide monthly, recurring revenue to Western Resources, he said.
“We want to continue to grow that base of customers nationally to whom we will sell security services, energy or other consumer products and services,” Hayes said.
Western Resources was in talks with Protection One before ADT shareholders rejected its bid, he said.
“This is not an alternative strategy; this is a continuation strategy to build a strong, national, branded presence,” Hayes said.
Western Resources’ Westar Security, valued at $480 million, will go to new Protection One. Western Resources will receive 67.5 million newly issued Protection One shares worth $1.2 billion at the closing price of $18, the utility said.
Western Resources in December bought Westinghouse Electric Corp.’s home-security business for $425 million in cash and assumed debt.
A number of utility companies are delving into services such as home security, betting a broader offering of products will help improve profits and attract customers as the industry is opened to competition.
