Kansas City Power Cancels Merger With Western
Kansas City Power & Light Co. on Monday canceled its $2.5-billion merger with Western Resources Inc., citing Western’s plunging stock price, which has been dragged down in part by its troubled Culver City-based Protection One Inc. home-security unit.
Western Resources, Kansas’ largest utility, tried for almost four years to buy Kansas City Power, which has about 450,000 electricity customers in Kansas and Missouri. Their merger agreement allowed either company to opt out if they didn’t complete the transaction by Jan. 1.
Western’s shares slid 49% last year as the purchase was delayed and its investments in Protection One and natural-gas producer Oneok Inc. declined in value.
Kansas City Power needs to find a new merger partner to help it compete in deregulated markets, analysts said.
“The company some time ago determined that it was not of critical size to be a stand-alone company,” said Daniel Ford, an analyst at ABN Amro Inc. “The basics behind that original decision haven’t changed.”
Western, with 1998 sales of about $2 billion, owns 85% of Protection One, the second-largest U.S. monitored-security company. Protection One shares fell 77% last year and the Securities and Exchange Commission has questioned the accuracy of its financial reports.
In addition, service glitches at Protection One have resulted in an exodus among its 1.6 million customers, pushing the annualized attrition rate up to 16%.
Western has installed its own executives to run the unit, has offered to buy up to $50 million of its $700 million in bonds and is restructuring the way the firm prospects for customers.
At its Oneok unit, of which Western owns 45%, shares fell 30% in 1999 because of low natural-gas prices and delays in its $1.8-billion buyout of Las Vegas utility Southwest Gas Corp.
Kansas City Power, whose shares fell 26% last year, is considered an attractive takeover target because most of its power is produced from inexpensive coal, and it’s in the Midwest, where power supplies are tight and demand is growing rapidly.
In New York Stock Exchange trading, Western shares fell 44 cents to close at $16.50, Protection One was unchanged at $1.94, and Oneok fell 31 cents to close at $24.81. Kansas City Power rose 38 cents to close at $22.44, also on the NYSE.
The merger’s collapse “was not unexpected,” as it faced opposition from regulators, politicians and consumers, said Edward Tirello, an analyst at Deutsche Banc Alex. Brown. In February, Western threatened to cancel the buyout because Kansas executives asked for steep rate cuts. Still, Western said it was disappointed by Kansas City Power’s decision.
