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Drue Jennings Speech
April 25, 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. As you know this past January,
the Board of Directors of Kansas City Power & Light approved a
strategic merger of equals transaction with UtiliCorp United, a
leading international energy services company also located in Kansas
City. The shareholders of both of our companies are scheduled to vote
on this important merger transaction on May 22, 1996. On April 14,
Western Resources, a Topeka, Kansas-based utility, made public its
intent to offer our shareholders, on an unsolicited basis, a stock-for-
stock transaction which they value at $28 per KCPL share. Shortly
after receipt of this unsolicited proposal, the KCPL Board of
Directors reviewed and deliberated the Western proposal and determined
that it was in the best long-term interest of KCPL shareholders to
reject the Western proposal and to continue its unqualified support of
our strategic merger with UtiliCorp.
I am speaking to you today for two reasons. First, I would like to
provide you with some information related to the rationale and
benefits of our proposed merger with UtiliCorp United. And secondly, 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.
It is critically important that all shareholders of KCPL have full
information regarding the proposed UtiliCorp transaction and Western's
unsolicited competing proposal. Our by-laws require a two-thirds
affirmative vote of all outstanding shares to approve the UtiliCorp
merger. Any failure to vote would have the same effect as a vote
against the UtiliCorp transaction and we feel it is crucial that our
shareholders and your customers have the ability to express their
views given the important decision with which they are being
presented.
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 KCPL 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 the complementary strengths of
KCPL'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 IPP 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. The Wall Street analyst community
views their marketing strategies as the new wave of energy marketing
in the coming deregulated environment. The newly formed company
resulting from this merger will be a low-cost marketing-oriented
diversified energy products and services company with national and
even global scope. Additionally, through joint study by both companies
and their 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.
The KCPL Board of Directors deliberated over the UtiliCorp merger
after comprehensive financial, legal and regulatory due diligence
which included, among other things, the exchange of non-public
information. We are extremely excited about this transaction and feel
strongly that this will provide long-term growth in revenue, income
and share value for KCPL shareholders.
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.
Our belief is that Western is pursuing this transaction because our
merger with UtiliCorp creates strategic issues for Western on a
standalone basis. Unlike the UtiliCorp transaction, Western will not
provide geographic and regulatory diversity given that Western
operations are concentrated in Kansas. Furthermore, a Western deal
will result in significant asset concentration at Wolf Creek, our
jointly owned nuclear power plant. These two factors, in our mind, are
very much like "all eggs in one basket". We question certain rate
disparities and other regulatory issues resulting from a merger and we
feel that, unlike UtiliCorp, Western's unregulated business strategy,
an area of great importance to us, is unproved and questionable in
value.
Having covered these points, I would like to direct your attention to
Western's hostile campaign and its unwarranted claims.
Western has stated to the public that its offer is for $28 per KCPL
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 to subsequent stock price declines, placing the
risk of such declines on KCPL 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. 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 KCPL, 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 synergy
estimate of $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. Perhaps we should wait a year and
see what the figure looks like then.
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 unsubstantiated $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, 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. In addition, I personally would like to point out that
both UtiliCorp and KCPL have not addressed the issue of dividend
policy for the newly formed entity, and it is my belief that the
apparent Western short-term dividend accretion will be less of an
issue to KCPL shareholders once that policy has been addressed.
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
ramifications and benefits of the proposed UtiliCorp merger and the
illusory nature of Western's proposal. Furthermore, the Western
proposal is a proposal and just that. It contains conditions and other
requirements which clearly cause the consummation of this proposed
transaction to be at risk. Therefore, everyone should understand that
a vote for the UtiliCorp transaction is a positive move toward, what
our Board feels, is the new future in the energy industry whereas
voting against this transaction in all probability is a vote to do
nothing. Western's proposal is not an alternative since in our
judgment, is illusory and has a low probability of success. Their
goal is obvious - to prevent the consummation of a merger between KCPL
and UtiliCorp (a merger that our Board feels strongly is in the best
interest of the KCPL shareholders) and to prevent the formation of a
formidable competitor on its border.
