Westar Energy And Great Plains Energy Step Closer To Merger

Westar Energy, Inc. (NYSE:WR) and Great Plains Energy Incorporated (NYSE:GXP) , the parent company of Kansas City Power & Light (“KCP&L”), announced that shareholders of both companies have approved the merger proposal worth $15 billion.

Deal So far

Westar Energy and Great Plains Energy submitted a revised proposal in the month of July to the Kansas Corporation Commission (“KCC”) following the refusal of its original request. The companies took necessary steps with the regulators and authorities of the states to further the proposal for the newly revised merger deal.

Per the revised filing, the deal will have no transaction debt, no exchange of cash, and a stock-for-stock merger of equals.

In the month of August, Westar Energy and Great Plains Energy filed for a request with the KCC to approve the proposed merger. The merger is anticipated to close by the first half of 2018, once approvals from the KCC, Missouri Public Service Commission (“MPSC”) and other regulators are received

Benefits of the Merger

The new entity is expected to sell electricity services to approximately 1 million Kansas customers and nearly 600,000 in Missouri.

Both the companies are expecting certain integration and strategic benefits from the merger of equals. Notably, they have identified initial savings of about $28 million in 2018, and anticipate it to grow to $160 million per year by 2022. The deal is further anticipated to benefit both the parties through better infrastructure programs and improved customer service.

Toward this, the merger is expected to benefit the customers and shareholders as well. The companies have committed to maintaining charitable contributions to community and anticipate no involuntary job losses due to the merger. Both companies expect the merger savings to be reflected in future electricity rates, they also intend to share $50 million in form of customer bill credits to retail customers in Missouri and Kansas after the merger. Additionally, the merger is expected to be accretive to shareholders of both companies, with Westar Energy anticipating a dividend increase for its shareholders.

On the legislative front, modernizing Missouri’s regulatory framework remains a long-term priority for Westar Energy.

Our View

With no cash premium and transaction debt, the combined entity is likely to be financially strong. This will enable it to provide reliable service to customers and attractive returns to shareholders. Further, we expect the merger to result in a larger entity in the industry that will aid in creating a healthy competitive market for other players as well.

Toward this, such mergers and acquisitions have been in trend in the same sector. Another utility, Avista Corporation (NYSE:AVA) announced on Nov 21, 2017, that the shareholders had approved its proposed acquisition by Hydro One Limited. The buyout is expected to conclude in the second half of 2018.

Notably, another utility provider Sempra Energy (NYSE:SRE) confirmed its plan to buy Texas’ electrical giant Oncor Electric Delivery Company, LLC (Oncor). The deal is expected to be concluded by the first half of 2018. (Read more: Sempra Energy to Acquire Oncor for $18.8B, Beats Buffet)

Price Movement

In the last 12 months, Westar Energy has outperformed the industry. The company’s shares gained 58% compared with the industry’s growth of 37%. However, Great Plains shares underperformed, gaining 34.3% compared with the industry’s gain.

Zacks Ranks

Great Plains Energy Inc. currently carries a Zacks Rank #3 (Hold), while Westar Energy Inc, carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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