SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
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240.14a-12
KANSAS CITY POWER & LIGHT COMPANY
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Drue Jennings' Speech
July 9, 1996
Hello, thank you for listening in.
My name is Drue Jennings, and I am the Chairman and Chief
Executive Officer of Kansas City Power & Light Company. I would
like to provide you with an update of the events that have
transpired around our proposed merger with UtiliCorp United.
The May 22, 1996 shareholder vote to approve the strategic
merger of equals transaction with UtiliCorp was canceled in order
to present KCP&L shareholders with a transaction that offered
even better economics and a revised merger structure. The new
structure has been revised to increase the value to KCP&L
shareholders by increasing their ownership in the combined
company (KCP&L shareholders are expected to own 57%, instead of
the 55% they would have owned under the original agreement, and
UtiliCorp shareholders will own 43% instead of 45%). KCP&L
shareholders would continue to hold their existing KCP&L shares,
and UtiliCorp shareholders would receive one share in the merged
company for each UtiliCorp share owned. The revised terms of the
merger agreement provide for a new structure pursuant to which a
new KCP&L subsidiary will be created and merged into UtiliCorp,
and UtiliCorp will then merge with KCP&L. At the time the
mergers are completed, the combined company will change its name
to Maxim Energies, Inc. Additionally, the affirmative vote of
KCP&L shareholders required to approve the transactions has
changed from two-thirds of all outstanding shares to a majority
of the shares voting. A Special Meeting of KCP&L shareholders is
scheduled for August 7, 1996 to vote upon the issuance of KCP&L
shares to be issued in the mergers. Under Missouri law, a
separate vote of the KCP&L shareholders is not required to
approve the mergers; however, since it is a condition of the
closing of the mergers that KCP&L shareholders approve the share
issuance, in essence, a vote for the share issuance is a vote for
the mergers.
On June 17, 1996, Western Resources, a Topeka, Kansas-based
utility, revised its proposal to acquire KCP&L and announced its
intention to commence an unsolicited exchange offer for KCP&L
common stock. Shortly after receipt of this second unsolicited
proposal from Western Resources, the KCP&L Board of Directors
reviewed and deliberated the Western proposal and reaffirmed its
belief that a merger with Western Resources was not in the best
long-term interest of KCP&L shareholders and rejected the Western
proposal and reiterated its unqualified support of our strategic
merger with UtiliCorp. Western Resources has formally commenced
its unsolicited exchange offer, and it was rejected by KCP&L's
Board of Directors on July 9, 1996.
I would like to provide you with some information related to
the rationale and benefits of our proposed merger with UtiliCorp.
Also, I would like to address the reasons for our Board's
rejection of the Western offer, as well as to touch on certain
aspects of their public campaign which we feel are misleading and
require some clarification.
Let me now address for you several of the significant
benefits which our Board views as the underlying rationale for
our proposed merger with UtiliCorp.
First, the UtiliCorp transaction provides KCP&L shareholders
with regulatory and geographic diversity given UtiliCorp's
widespread presence in both national and global markets,
including for example UtiliCorp's interests in Australia, Canada,
and New Zealand. Secondly, the merger brings together what we
see as the complementary strengths of KCP&L's operating and
financial expertise with UtiliCorp's unique marketing focus and
entrepreneurial spirit. UtiliCorp has a clearly articulated
strategy and demonstrated track record in non-regulated
businesses which are the areas that we have told our shareholders
will provide the greatest future growth. They have a strong and
well-respected Independent Power business through their UtilCo
subsidiary, a significant international presence which I have
referred to above; they are rolling out and have had success with
their national brand name strategy under the EnergyOne label. We
anticipate the newly formed company resulting from this merger
will be a low-cost, marketing-oriented, diversified energy
products and services company with national and global scope.
Additionally, through joint study by both companies and our
advisors, we have included as part of our merger filings a
documentation of synergies totaling over $600 million over a 10-
year period. We are confident that these are substantiated,
deliverable savings which will benefit both shareholders and
ratepayers. Furthermore, through joint study by both companies
and our advisors as described in detail in KCP&L's proxy
materials, we have identified and quantified revenue enhancements
that result from the mergers ranging from $0.20 per Maxim share
in the first year of the merger to $0.44 per Maxim share in the
fourth year of the merger. We project that, as detailed in our
proxy materials and subject to the assumptions therein, the
combination of synergies and revenue enhancements will provide
aggregate added value ranging from $0.38 per Maxim share in the
first year of the merger to $0.75 per Maxim share in the fourth
year of the merger.
Now let me address the Western Resources proposal and what
we feel are some issues which our shareholders should understand
as they consider how they will vote in the UtiliCorp transaction.
Unlike the UtiliCorp transaction, Western would not
provide geographic and regulatory diversity given that Western's
operations are concentrated in Kansas. Furthermore, a Western
deal would result in significant asset concentration at Wolf
Creek, our jointly owned nuclear power plant. We question
certain rate disparities and other regulatory issues involving
Western's proposal and we feel that, unlike UtiliCorp, Western's
unregulated business strategy, an area of great importance to us,
is unproven and questionable in value.
Having covered these points, I would like to now address
Western's hostile campaign and its unwarranted claims.
Western has stated to the public that its offer is for $31
per KCP&L share. Unfortunately, if one reads the fine print, one
will realize that their offer contains a collar mechanism which
limits the risks to Western shareholders of subsequent stock
price declines, placing the risk of such declines on KCP&L
shareholders. Given the long time period pending closing, perhaps
as long as two years, and all the things that can occur during
such time, this is not a minor issue. As stated in our proxy
materials and letter to shareholders dated July 5, 1996, we also
believe that Western overstated its synergies estimates and faces
significant rate reductions which could imperil Western's ability
to deliver promised dividends to KCP&L shareholders and could
have an adverse impact of Western's stock price, and thus, the
value to KCP&L shareholders. Furthermore, Western's future share
price performance will be based on the market's willingness to
accept the reasonableness of their claimed $1 billion in
synergies over the next 10 years. Western does state that this
figure is based exclusively on public information about KCP&L, as
compared to our use of confidential information with UtiliCorp.
We have reviewed their public filing relating to the proposed
synergies and cannot determine how they believe they can achieve
such savings. Just one year ago, after some preliminary
discussions between ourselves and Western, they had stated in a
letter to me, a preliminary synergy estimate of over $500
million over 10 years. Nothing could have changed that
dramatically that would cause us to believe that this figure
could double in a one year period.
Another prominent aspect of Western's proposal includes an
assumption regarding the proposed split of synergies savings
between ratepayers and shareholders. Western, in our view, has
imprudently assumed 70% of their proposed and questionable $1
billion savings will go to shareholders. It is industry practice
to assume 50% of such savings to go to shareholders, which is the
position taken by us in our proxy disclosure. The net effect of
this difference in assumptions is that Western is advertising
economics to shareholders which we believe a reasonable person
would not and should not assume.
Finally, Western has made great press about the apparent
short-term dividend accretion to our shareholders should they
accept the Western proposal. I would like to point out the use
of the word short-term, because if Western is unable to achieve
both its proposed synergies number and the retention of those
savings to shareholders coupled with potentially significant rate
reductions, we believe such proposed dividend payments in the
future would certainly be at risk, as their dividend payout would
be well in excess of prospective gross industry norms.
I know that there has been a lot of back and forth between
ourselves and Western regarding their proposed hostile
transaction. I think it is critical that your clients and our
shareholders understand the benefits of the proposed UtiliCorp
merger and, what we believe to be, the risks involved with
Western's proposal.
We are extremely excited about our proposed merger with
UtiliCorp and feel strongly that this will provide long-term
growth in revenue, income and share value for KCP&L shareholders.
