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Posted on Feb. 2, 2007
By STEVE EVERLY
The Kansas City Star
Aquila to Take Buyout
$1.7 BILLION DEAL | 90-year saga ending
Parent company of KCP&L moves to purchase company, then sell off many parts.
Aquila Inc. on Wednesday abandoned its tumultuous five-year struggle to salvage the remnants of a once high-flying energy concern - agreeing to be bought by its crosstown rival.
Great Plains Energy Inc., the parent of Kansas City Power & Light Co., announced plans to buy Aquila in a cash and stock deal valued at $1.7 billion. The deal came about a decade after Aquila, then known as UtiliCorp United Inc., tried and failed to acquire KCP&L.
Great Plains plans to keep Aquila's Missouri electric utility and its 300,000 customers. But it will sell the rest of Aquila's operations to Black Hills Corp., a South Dakota energy and utility company, for $940 million. In the deal, Black Hills will acquire an electric utility in Colorado and gas utilities in Colorado, Kansas, Nebraska and Iowa.
If shareholders and regulators approve the deal, Aquila will effectively call it quits - ending a four-generation, family-run presence on the Kansas City business scene since 1917.
The sale, which comes just a few years after Aquila peaked at No. 33 in the Fortune 500 list of the nation's largest companies, marks a dramatic fall for a company whose confidence once was such that it discussed its 'intellectual capital' on a Web page plastered with a photo of Albert Einstein.
But Aquila never recovered from the aftermath of fellow energy company Enron Corp.'s demise and its own missteps in losing billions of dollars in energy trading and other unregulated businesses. Aquila shed thousands of jobs as it struggled to recover, and left investors with shares worth a fraction of their former value.
The sale to Great Plains could be good news for Aquila's customers, in part, because the company's bad credit rating drove up costs that customers had to pay.
"Ratepayers should benefit," said James Zakoura, an attorney for several large Aquila customers, noting KCP&L's experience in operating electric utilities and its investment-grade debt rating.
For investors, however, the outlook isn't as bright. The buyout price offers them no premium and will pay roughly $4.54 per share, slightly less than the stock's $4.67 closing price on Tuesday. Indeed, disappointment in the deal drove Aquila's price down Wednesday to $4.34.
Tom Hudson, head of the Pirate Capital hedge fund, which owns about 5 percent of Aquila, announced during a conference call with analysts that 'we will vote against' the deal.
Most of Aquila's roughly 3,000 employees are expected to keep their jobs with new employers. But about 250 to 350 positions that handle administrative chores largely at its downtown Kansas City headquarters eventually will be eliminated.
Aquila chief executive Richard Green Jr. will not have a role at KCP&L after the transaction.
'This is an acquisition, not a merger,' said Great Plains chief executive Michael Chesser.
Green and a cadre of the company's senior executives, however, will receive ample severance and benefit packages. Green, for instance, will receive a severance check of at least $3 million and a pension worth $909,000 per year, in addition to about $3.2 million for his Aquila shares. His brother, Robert Green, who left the company in 2002, will be eligible for a $300,000 annual pension.
There's something wrong with that picture, said Dick Hull, a longtime Aquila investor who noted that the once-profitable company had lost billions of dollars and had not even paid a dividend for four years.
"Those boys just took that company down as far as I'm concerned," Hull said.
Richard Green, appearing at a press conference at Great Plains on Wednesday, declined to discuss his pension or severance, saying there was public information available about them. Asked about those who believe he is to blame for the company's fate, Green declined to answer, saying only that he was there to discuss the 'positives' about the sale of the company.
'We at Aquila are excited about this transaction,' Green said.
Green told shareholders last May that by relying on its remaining gas and electric utilities it would again be profitable. He said the suspended dividend would eventually return as well.
On Wednesday, though, Green said that the company began considering selling the rest of the company last spring. Aquila, which had sold some of its other utilities in a bid to restructure, hired an adviser in May to review its options.
By midsummer, Aquila was quietly being shopped to potential buyers. The number of interested companies was not disclosed.
Chesser said that when he saw that Aquila's Missouri electric utility was available he instantly knew it was a 'natural deal' to combine it with KCP&L's 500,000 customers.
Chesser described the $1.7 billion price tag as 'prudent,' reflecting potential liabilities shadowing Aquila, such as the ongoing legal battle over whether it had the legal authority to build its South Harper power plant in Cass County. Other lawsuits involve whether employees were encouraged to buy company stock even as its prospects dimmed and allegations that Aquila sought to manipulate energy prices.
Great Plains plans to save $500 million over the first five years - just over $300 million after expenses - when the two companies are combined.
Aquila's headquarters are in the historic New York Life Building at 20 W. Ninth St. in Kansas City. Chesser said he currently is against moving into the building and using it for Great Plains headquarters, though that hasn't been ruled out.
Various regulatory approvals are expected to take about a year. But the most difficult obstacle may come from disgruntled Aquila investors seeking a higher price. Aquila investors are being offered $1.80 in cash and 0.0856 of a share of Great Plains stock for each of their Aquila shares.
Green said he had plans to visit major Aquila shareholders to discuss the deal, which he believes has real 'value' for them.
For most of its corporate life, Aquila's predecessor companies were home to quiet and steady utilities. But in the 1980s, with Green at the helm, things began to change. A holding company was formed and it began to buy up utilities in states like Michigan and West Virginia. A Canadian utility, its first international venture, was added in 1987.
In the 1990s, the company was transformed. It still had utilities, but deregulation was seen as the future. Energy trading, independent power plants and other unregulated businesses took center stage. Its international presence also grew to Australia, New Zealand and the United Kingdom.
'He had visions of grandeur,' Leo Pink, a former vice president of properties at Aquila, said of Richard Green.
In 2002, it all turned sour. The troubles of Enron and missteps by Aquila pummeled the unregulated businesses. The stock, which reached $37.55 in 2001, fell to $1.58 a share by the end of 2002.
The next few years were spent selling off its various businesses as Aquila sought to return to its roots as a regulated utility company.
That effort ended Wednesday.
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Aquila Inc.
Headquarters: Kansas City
Stock value: $1.62 billion
Customers: Nearly 1 million gas or electric customers in Kansas, Missouri, Colorado, Iowa and Nebraska.
Other operations: Aquila's main remaining wholesale operation is a 340-megawatt generating station in Mississippi.
Great Plains Energy
Headquarters: Kansas City
Stock value: $2.58 billion
Customers: 500,000 Kansas City Power & Light electricity customers in the Midwest.
Other operations: Strategic Energy subsidiary is a competitive electricity supplier in unregulated wholesale markets.
Black Hills Corp.
Headquarters: Rapid City, S.D.
Stock value: $1.3 billion
Customers: 137,000 electric or gas customers in S.D., Wyoming, Montana; 33,000 gas customers in Wyoming.
Other operations: Produces and sells wholesale electric capacity as well as natural gas and crude oil; mines coal in Wyoming; markets and transport fuel products.
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TIMELINE
Aquila began in 1917 as the Green Light and Power Co. and was renamed West Missouri Power in 1922, UtiliCorp United in 1985 and Aquila - the name of its energy trading operation - in 2002.
1996: Tries to buy Kansas City Power & Light but is edged out by Western Resources, whose deal also eventually falls through.
1999: Acquires U.S. gas storage and coal handling facilities, more assets in Australia and New Zealand, and a stake in Quanta Services, which installs and services cable. Aquila Energy moves operations from Omaha to Kansas City, opens offices in Scandinavia, Germany and Spain to compete in deregulating energy markets in Europe.
1999: Record annual sales of $18.6 billion and third straight year of 8 percent growth in earnings per share.
2000: Acquires St. Joseph Light & Power, GPU International, TransAlta electric company in Canada.
2001: UtiliCorp tops the Star 50 list of publicly traded area companies, with revenue of nearly $29 billion, up 56 percent, nearly $207 million in earnings, and more than 8,000 employees, including 1,600 in the KC area.
2001: IPO of 20 percent of Aquila subsidiary; groundbreaking on wholesale power generation plants in Illinois and Mississippi.
2002: Based on 2001 revenue of $40.4 billion, UtiliCorp zooms to No. 33 on the Fortune 500. But spin-off of Aquila is reversed, and UtiliCorp changes name of whole company to Aquila. Suspends dividend, gets out of energy trading, sells nearly $1 billion in assets in U.S., U.K. and New Zealand, starts series of hundreds of layoffs.
2003: Drops to No. 477 on Fortune 500, based on 2002 revenue of $3.2 billion. Sells remaining interests in Australia and Quanta Services.
2004: Sells 12 independent power plants, U.K. electric company, Canadian utilities.
2005: Agrees to sell four U.S. utilities for $896.7 million total.
2006: Sells Everest, its local cable, telephone and Internet service. Has a profitable quarter, its second in five years.
2007: Announces sale to Great Plains Energy, parent company of Kansas City Power & Light, and to Black Hills Corp.
To reach Steve Everly, call (816) 234-4455 or send e-mail to severly@kcstar.com.
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