SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. __)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of
the Commission Only
[ ] Definitive Proxy Statement (as permitted by Rule
14a-6(e)(2))
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
WPL HOLDINGS, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-
11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on
which the filing fee is calculated and state how it was
determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
1) Amount Previously Paid: $500,063
2) Form, Schedule or Registration Statement No.: Preliminary proxy
materials of WPL Holdings, Inc., IES Industries Inc. and
Interstate Power Company, Joint Registration Statement on
Form S-4 of WPL Holdings, Inc. and Interstate Power Company
(Registration No. 333-07931) and Joint Registration Statement on
Form S-4 of WPL Holdings, Inc. and Interstate Power Company
(Registration No. 333-10401).
3) Filing Party: WPL Holdings, Inc., IES Industries Inc. and
Interstate Power Company.
4) Date Filed: January 18, 1996, July 11, 1996 and August 19,
1996.
<PAGE>
[The following News Bulletin is being sent to all WPL Holdings, Inc.
employees and retirees on August 21, 1996]
[Logo] WPL Holdings, Inc. News Bulletin
From WP&L's Corporate Communications Dept. - 608/252-3187
For employees and retirees of WPL Holdings, Inc., Heartland
Development Corp. and Wisconsin Power and Light Co.
NB5-96 August 21, 1996
BAIRD RECOMMENDS APPROVAL OF THREE-WAY UTILITY MERGER
Citing its "superior long-term returns," Robert W. Baird & Co., Inc.
today recommended shareowner approval of a proposed three-way business
combination involving IES Industries, Inc., Interstate Power Co. and WPL
Holdings, Inc.
The three companies announced plans in November 1995 to combine as
Interstate Energy Corp. On August 4, MidAmerican Energy Corp., of Des
Moines, made an unsolicited offer to acquire IES. Last week, the
MidAmerican offer was unanimously rejected by the IES board of directors,
and a new stock exchange ratio for IES shareowners was announced by the
three merger partners.
Baird, a regional investment banking firm, has released an analysis
that supports the three-way combination.
"We recommend that IES shareholders pass up the potential near-term
benefits offered by MEC's team and join IEC, a team we believe offers
superior long-term returns to shareholders and has the higher probability
of receiving regulatory approvals in the next eight months," Baird
concludes.
The new IEC will be a strong and viable supplier in the competitive,
regional energy marketplace of the future, according to officials from the
three merger partners.
Once shareowner and regulatory approvals are received, IEC will form
the 34th-largest utility holding company in the United States, with more
than one million electric and natural gas customers in four states.
IES, IPC and WPLH will hold separate shareowner meetings on Sept. 5,
at which shareowners will vote on the three-way combination to form
Interstate Energy Corp. MidAmerican already has launched a proxy fight in
an effort to convince IES shareowners to vote against the Interstate
Energy Corp. proposal.
ATTACHMENT: Baird report (4 pgs.)
<PAGE>
BAIRD/ A NORTHWESTERN
MUTUAL COMPANY
ROBERT W. BAIRD & CO. INCORPORATED FIRSTAR PLAZA 9TH FLOOR ONE SOUTH
PINCKNEY STREET P.O. BOX 392 MADISON, WI 53701 608-251-2351
R.W. BAIRD & CO. INC. WPL Holdings Inc. Page 1
BARRETT L. BROWNING
=======================================================
CR - August 19, 1996 - 4:05 PM - 31.750 - WPH006.CW6 Parker x3728
*========*========*========*========*========*========*
IES RECEIVES COUNTER BID, WE SUPPORT THREE-WAY
<TABLE>
<CAPTION>
.........EPS......... ........P/E.......
52 Wk Shs
Price Range FY 1995 1996E 1997E 1996E 1997E DIV YLD (Mils)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
31.75 33-28 DEC 2.33A 2.35 2.15 13.5 13.0 1.97 6.2 30.8
</TABLE>
ent Rating: 2 Lower Risk S&P 500: 622.280
The Shaq. Neon Deion. IES Industries' (IES) shareholders. What do these
people have in common? They all have found themselves in the enviable
position of being courted by two different teams and have realized that
the bottom line is enhanced monetary rewards. The bids offered to entice
IES to join a new Midwest utility team have leaped from $32 per share to
$36 - $39 per share in the past several weeks. That's a tidy 12.5% to 22%
increase. Not bad, especially when you consider the S&P 500 is up 7.5%
for the entire year.
Like Shaq and Neon, IES shareholders must decide which new utility team
offers the best overall package. While the up-front money is a very
important factor, playing for the right team and the chances of actually
receiving the amount offered over the long term are very important
considerations as well. If you are on IES shareholder, the deadline for a
decision is September 5, 1996.
Evaluating The Offers:
The Contract Terms:
MidAmerican Energy (MEC) has proposed to purchase IES Industries for cash
and MEC's common stock. MEC's proposal is for 2.34 MEC common shares for
each IES share (currently valued at $37 _) or $39 cash per share.
Receiving either cash or MEC stock is an option of the IES shareholder.
If an IES shareholder elects MEC stock, his effective dividend rate jumps
to $2.82 per share from $2.10.
Interstate Energy (IEC) is a proposed merger of WPL Holdings (WPH),
Interstate Power (IPW) and IES Industries. IES Industries shareholders
would receive 1.14 shares of WPL Holdings stock with a current value of
$36.00 peer share. IES shareholders' new dividend rate will increase to
$2.23 per share from $2.10.
The Offer Score Card
Bid Stock Stock Value Dividend
MEC $39 or 2.34 MEC shares $37 3/4 $2.82
IEC 1.14 WPH shares $35 3/8 $2.23
So, we now know what money is on the table, what about the teams. Will I
join a world champion team? A strong contender? Or a struggling
franchise?
The Teams
The key fundamentals we used to evaluate the utility teams IES may
potentially join include: competitive position, earnings and dividend
growth, financial strength and regulatory environments.
We expect that the Interstate Energy team will be a very strong player in
the coming competitive environment. Low rates that are expected to go
lower puts this new team in an excellent position to take advantage of new
opportunities. Limited assets, if any, are at risk of becoming stranded.
An excellent management team, constructive regulatory environment, strong
financial fundamentals and slightly above-average growth in communities
currently served, promise to result in above-average earnings growth long
term.
We estimate that IEC's base earnings (pre-merger related savings) to be
$2.45 per share. We expect the dividend payout ratio (DPR) to initially
be 80%. First-year merger savings and revenue growth are expected to
boost earnings to $2.55 per share with an associated dividend payout ratio
of 77%. In year two, the expected EPS is expected to improve to $2.60 per
share and the DPR declines to 75%. Reaching this DPR level is important
since it opens the door for resumption of dividend growth by 1999. In
year three we assume IEC's dividend begins to grow at about 1% a year.
Electric utilities with excellent competitive positions, earnings growth
of 3% per year and dividend growth of 1% currently trade at 13.0x EPS
resulting in a current expected price per Interstate Energy share of $32.
IES' equivalent would be $36 per share.
MidAmerican Energy is also expected to be competitive. However, its
roster (as well as many other utilities' rosters) lacks the bench strength
of WPH. IEC's projected financial fundamentals are much stronger than
MEC's, assuming an IES acquisition. MEC's average residential rates
combined with IES' would be 15% higher than the IEC combination; however,
MEC's proposed rate settlement package would reduce that differential over
the next several years.
MidAmerican post-merger earnings are expected to be $1.35 per share. The
resulting dividend payout ratio would be 90%. In year one we expect the
EPS to increase to $1.40. In year two, EPS increases to $1.45 and in year
three, EPS climbs to $1.50. By year four, MEC's DPR is still in the 80%
range, well above the company's target range of 70-75%. Dividend growth
is not expected to occur until year five or in 2002. Electric utility
teams with above-average competitive positions, earnings growth of 3% per
year and limited dividend growth currently trade at 11x EPS resulting in a
price per MEC share of $15. IES shareholders equivalent would be $35 per
share. We believe the appropriate trading range for MEC assuming the IES
acquisition, is $15 - $16.
The recent decline in MEC's common stock price to $16 from $17-7/8
reflects the markets change in growth assumptions due to its proposed IES
acquisition. An investment rule of thumb is: The sooner the money is in
hand the better. By joining the MEC team, financial returns to IES
shareholders essentially come from the much higher dividend income in the
near-term. This larger dividend check is expected to come at the expense
of future growth opportunities. Further growth from acquisition
opportunities will be limited by MEC's high DPR, which limits use of MEC's
stock as acquisition currency. Additionally, given the high DPR, any MEC
earnings erosion could pressure the common dividend level. At this time,
however, we believe MEC has the financial wherewithal to maintain it.
Valuation Summary
EPS Growth DPS Growth Share Price IES Value
MEC 3% 0% $15 $35
IEC 3% 1% $32 $36 1/2
Getting the Deal Done
Both deals would require state and federal approvals. Since IEC's service
territory spans several more states, there are more regulatory hurdles.
However, IEC's filings have been pending for over six months in some
states. While it appears on the surface that these filings are going
nowhere fast, we believe that progress has been made with the Wisconsin,
Iowa and FERC commissions. There has not been significant opposition to
the IEC merger to date. The IEC merger does not raise market power
concerns in any of the states it would serve. We continue to expect that
IEC would receive final regulatory approvals by the second quarter 1997.
We expect MEC's acquisition would receive regulatory approvals no earlier
than the fourth quarter of 1997. Unlike the IEC merger, creating an Iowa
mega-utility may raise market power concerns with Iowans and the Justice
Department. The key uncertainty is whether the Iowa Utilities Board (IUB)
will adopt a regional or state view of market power issues. If the IUB
does not look beyond the state boundaries, the MEC acquisition will face
stiff opposition. In recent discussions with several state senators, city
mayors and other Iowa politicians, it appears that Iowans will focus on
the state. As IES' recent disappointing rate order demonstrates, local
politics play an important role in IUB orders. As a result, we expect a
MidAmerican/IES Industries combination faces the real possibility of not
receiving regulatory approval from the IUB.
The Agent's Recommendation
As you have noted from the discussion and tables previously mentioned, the
bottom line for the two compensation packages are similar over the
long-term. MEC's gives investors the near-term returns, IEC's the good
long-term play. Given the considerable uncertainty surrounding the Iowa
political scene, we recommend that IES shareholders pass up the potential
near-term benefits offered by MEC's team and join IEC, a team we believe
offers superior long-term returns to shareholders and has the higher
probability of receiving regulatory approval in the next eight months.
Our individual recommendations for WPL Holdings stock continues to be a
BUY 2. With or without an IES combination, this utility is expected to
offer shareholders above-average total returns. While an IES acquisition
would move an expected dividend hike for MEC shareholders into the next
century, the current stock price reflects this negative and we are
maintaining a BUY 2 on MEC as well.
WPH** is a low-cost provider of electricity in a low-cost region. Given
its competitive position, excellent management, constructive regulatory
environment, and above-average total return prospects, our recommendation
is BUY 2 - Lower Risk.
WPL Holdings is the holding company for Wisconsin Power and Light (WPL),
which supplies electric, gas and water service to some 386,400 customers
in a 16,000 square-mile service area located in 35 counties in
south-central Wisconsin and four counties in northern Illinois.
MidAmerican Energy Company, Iowa's largest utility, serves 635,000
electric and 600,000 natural gas customers in Iowa, Illinois, Nebraska and
South Dakota. MidAmerican has two nonregulated subsidiaries: InterCoast
Energy Company and Midwest Capital Group.
** Baird was a manager or co-manager of an offering.
Further Baird Commentary
** No 48 Hour Policy Applies **
Parker (WPH006.CW6)
* * * * * * * * * * * * * * * * * * * *
This is not a complete analysis of every material fact regarding any
company, industry or security. A complete report is available upon
request. The opinions expressed here reflect our judgment at this date
and are subject to change. The information has been obtained from sources
we consider to be reliable, but we cannot guarantee the accuracy. Baird
may function as a market maker in any of these securities trading in the
over the counter market. Our company or its officers, employees or
customers may have a position long or short in the securities mentioned
and buy or sell the securities from time to time.
MEMBER NEW YORK STOCK EXCHANGE, INC. AND OTHER PRINCIPAL EXCHANGES
