TOPEKA — The purchase of Westar Energy by Great Plains Energy isn’t expected to close for a year, but the chief executive officers of both companies are on the road, answering questions and attempting to allay investor concerns about the $12.2 billion deal.
Terry Bassham, CEO of the Kansas City, Mo.- based Great Plains, told the Topeka Capital-Journal editorial board Thursday he has been talking with shareholders for the last three weeks after his company took what he said was an expected stock dip when the Westar acquisition was announced in late May.
Great Plains stock dropped from its May 27 price of approximately $31 to a low of $28.35 on June 6, and has slowly edged back up to $29.47 to close out the week last Friday.
Bassham and Mark Ruelle, Westar Energy CEO, met with the board to answer questions about the proposed acquisition, including an inquiry about the announced $60 per share — $51 in cash and $9 in stock — that Great Plains will pay. Unlike Great Plains, Westar’s stock jumped from almost $53 on May 27 to $55.72 on Friday.
“So, what traditionally happens to stock in a deal like this is the acquiree will pop up towards what the price was,” Bassham said. “The deal’s not closed yet, so it will lay a little below that until they see where it’s headed. Our stock performed as we expected, which is our stock dropped right off the bat. Ours even might have been a little more pronounced because I don’t think anybody expected us to be the winner. The guessing, the rumor-mongering, had other folks involved, so it was a little bit of a surprise to our shareholders.”
Bassham said he expects the stocks to hover around where they are until “the process develops.”
Utility transactions, Ruelle said, answer to regulatory agencies and the process of approval through the Kansas Corporation Commission, which means the deal won’t close until next year.
“But as we close the transaction, we would expect the Westar price to converge to the transaction price of $60,” he said. “But because there’s some uncertainty and there’s some time value to the money, we’re not troubled that we’re not trading closer to that today.”
“As you can imagine, there are all kinds of speculators too that are trying to weigh in as to how quickly it might happen or the off risk that it couldn’t happen,” Ruelle said.
Although other utility transactions have fallen apart, Ruelle said he can’t imagine that might happen with such a “straight-forward transaction” as that between Westar and Great Plains.
While Bassham couldn’t make any comments about potential layoffs from the merging of their two companies, he assured the board the downtown Topeka location is an asset and that its operations will look much like they do now after the acquisition is completed. Ruelle said the lease for the building, 818 S. Kansas Ave., comes up for renewal this year.
“But our obligation is not based on the building lease,” Bassham said. “Our desire is that we want to continue to operate in downtown Topeka.
“Talk is cheap. You’re going to have to ultimately see what we do. This is not a shell game. We’re not talking about, ‘We’re going to keep the building, and there’s going to be 25 people in there.’ We expect to have a vibrant downtown presence with people.
“Again, what departments, what areas ... if I told you that we were going to have the same number of employees that our two companies that exist today (do), you probably wouldn’t believe me. We’ve got to put these companies together and be more efficient. Officer-wise, we haven’t worked through that. Obviously, we want leadership throughout our service territory. We will have leadership here in one form or another.”
Bassham said he immediately instituted a hiring freeze at Great Plains after the announcement it would buy Westar. He pointed to his company’s acquisition of Aquila Inc.
During the acquisition, of the 2,200 Aquila employees, just 84 positions were eliminated, and employees given severance packages. The utility industry has a 4 percent to 5 percent attrition rate that can take care of some of the job duplications between Westar and Great Plains.