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Filed by Western Resources, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: Western Resources, Inc.
Commission File No. 001-3523
On May 11, 2000, Western Resources, Inc. distributed a presentation to
participants in the Edison Electric Institute Annual Finance Committee
Conference in New York, New York. The text of the presentation is set forth
below.
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Creating Shareholder Value
May 11, 2000
Western Resources
[GRAPHIC]
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Disclaimer
The exchange offer of Westar Capital shares for Western Resources shares has not
yet commenced. This presentation does not constitute an offer to sell or
exchange any securities. Any offer will be made pursuant to a registration
statement and a tender offer statement to be filed with the Securities and
Exchange Commission. Western Resources shareholders are urged to read the
registration statement, and the tender offer statement when they are available
because they will contain important information relating to the offer. A
prospectus relating to the offer will be disseminated to all Western Resources
shareholders. Shareholders will also be able to obtain the registration
statement, the tender offer statement and other filed documents for free at the
Internet website maintained by the Securities and Exchange Commission at
http://www.sec.gov. In addition, Western Resources will make the filed documents
available for free to Western Resources shareholders.
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Agenda
I. Creating Shareholder Value
II. Westar Energy
III. Westar Capital
IV. Summary
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Creating Shareholder Value
. Significant trading discount exists in Western Resources' stock
. Discount likely to persist
- Protection One Earnings continue to depress consolidated EPS
- Continuing holding company discount
. Separation of the Utility (Westar Energy) and non-electric utility assets
(Westar Capital) will allow the market to more accurately value these
separate companies
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Creating Shareholder Value
. Western Resources will be split into two publicly traded entities through a
non pro rata exchange offer
- Westar Energy - Pure play electric utility consisting of KPL and KGE
- Westar Capital - Consists of Protection One Security Businesses, ONEOK,
and Unregulated Generation.
. Advantages
- Unlocks value by creating a pure play Electric Utility
- Allows investors to invest in Westar Capital, which owns approximately
85% of Protection One, the 2nd largest residential provider of monitored
security, and 45% owner of ONEOK, one of the nation's largest natural
gas distribution companies.
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Creating Shareholder Value
. What does this mean for Shareholders?
- Reduces confusion in earnings
- Value in Westar Capital revealed
- Protection One becomes the driver for Westar Capital
- The utility (Westar Energy) pays down debt and grows earnings
- Eliminates drag of Protection One losses at Utility
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Creating Shareholder Value
. What does this mean for Bondholders?
- All of Western Resources' debt remains at Westar Energy
. Bonds cannot be transferred or assigned to another entity.
. Westar Capital does not have the financial history to support any
debt.
. All of the debt issued by Western Resources has been approved by
orders from FERC or the KCC.
- Utility has ability to pay down debt over time with free cash flow
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Exchange Parameters
. Exchange offer
- Split is expected to be achieved through a non pro rata exchange offer.
- Up to approximately 37 million shares of Westar Capital will be offered
to the shareholders with a minimum of approximately 29 million shares
outstanding, subject to the terms in the final exchange offer.
- Westar Energy issues approximately $300 million in equity, following
close of transaction.
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Exchange Parameters
. Taxes
- The receipt of Westar Capital stock by shareholders will likely be
treated as a capital gain or loss for tax purposes.
. Westar Energy grants Warrant to Westar Capital
- In conjunction with the exchange offer, Westar Capital receives
warrant to acquire 19.9% of the common stock of Westar Energy.
- The Warrant expires in 12 years.
- The exercise price will be equal to the estimated trading value of
Westar Energy at the time the exchange offer commences.
- The implied valuation of the Warrant is $30 - $40 million.
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New Westar Energy Pro Forma Fact Sheet
Westar Energy (dollars in millions, except per share amount)
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Electric Customers 3/31/00 634,000
Generation 3/31/00 5,458 MW
Assets 3/31/00 $ 4,603
LTM Revenues 3/31/00 $ 1,452
LTM EBITDA 3/31/00 $ 498
LTM Pro Forma Net Income to Common 3/31/00 $ 86
Debt 3/31/00 $ 2,975
Anticipated Common Dividend per Share $ 1.20
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Westar Energy Strategic Vision
. Residential rates below industry average
. Safely provide reliable electric service to regional customer base
. Niche player with sizable generation potential
. Strong player in wholesale markets
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Westar Energy and the Deregulated Wholesale Market
. Kansas does not have retail competition at this time
. The Wholesale Power Market is essentially deregulated today
. Westar Energy is well positioned with:
- Reliable existing generation
- Access to additional new capacity under construction
- Wholesale marketing group to maximize the value of these resources
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Westar Energy -Energy Centers
No. of Units Capacity % of Total
Energy Center Operating (WR Share-MW) Capacity Fuel
- --------------------------------------------------------------------------------
Jeffrey 3 1,870 34.26% Coal
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LaCygne Station 2 681 12.48% Coal
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Wolf Creek 1 550 10.08% Nuclear
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Lawrence 3 572 10.48% Coal
- --------------------------------------------------------------------------------
Gordon Evans 2 527 9.66% Gas/Oil
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Tecumseh 4 284 5.20% Coal
- --------------------------------------------------------------------------------
Murray Gill 4 332 6.08% Gas/Oil
- --------------------------------------------------------------------------------
Hutchinson 9 501 9.18% Gas/Oil
- --------------------------------------------------------------------------------
Abilene 1 70 1.28% Gas/Oil
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Neosho 1 67 1.23% Gas/Oil
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Wichita Diesel 1 3 0.05% Oil
- --------------------------------------------------------------------------------
Westar Wind 2 1 0.02% Wind
- --------------------------------------------------------------------------------
System Total 33 5,458 100%
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Westar Energy -Capacity Profile
Projected Year 2001 Ideal (MOKAN Study)
[PIE CHART] [PIE CHART]
Base Intermediate Peaking Base Intermediate Peaking
61% 24% 15% 55% 25% 20%
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Westar Energy
Generation Equivalent Forced Outage Rate (1)
vs. NERC 5-yr avg.
[LINE GRAPH]
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
Genco 8.97 6.78 9.15 10.63 5.27
NERC 11.08 10.91 10.89 10.11 10.11
12-Mo-Ended 02/2000 5.23
(1) Equivalent Forced Outage Rate is defined as the probability that a unit will
not be able to perform at full load when called upon. EFOR is an indicator of
the time the unit was forced out due to unplanned problems or equipment repairs,
but also considers those periods when the unit is in service, but cannot reach
full capability due to unplanned component or equipment repairs. These full
forced outages and the equivalent full outage hours of the forced deratings are
summed and compared to the actual time the utility wanted the unit in service.
The resulting statistic is the EFOR.
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New Generation Under Construction
. Gordon Evans Combustion Turbines
- Two 74 MW Simple Cycle CT's -June 2000
- One 150 MW Simple Cycle CT -June 2001
. State Line Combined Cycle Plant (Joint Ownership with the Empire District
Electric Company)
- 200 MW (40% of a 500 MW Combined Cycle Facility) expected to be in
service in June 2001
- Installation includes
. Two 150 MW Combustion Turbines
. Two Heat Recovery Steam Generators
. One 200 MW Steam Turbine
- Expected heat rate of 7000 BTU/KWh in Combined Cycle mode
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Wholesale Power Marketing Group
. Front, Mid and Back office functions
. Value created
- Increased knowledge of surrounding markets, one result of which is to
reduce our purchased power costs during contingencies
- Leveraging our Generating Assets
- Markets our "as available" energy to more distant markets than typical
utility dispatchers can reach. Results in deeper and more profitable
markets.
- Possibility to swap out our power against other trading transactions
to minimize transmission expense
- Creates volume in across system transactions that can be short-stopped
here if we lose a generating unit.
- Optimize transmission purchases
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Westar Energy - Estimated System Peak Responsibility and Generating Capacity
Comparisons
System Peak System Capacity Minus Peak
Year Responsibility (MW)(1) Capacity (MW) Responsibility (MW)
2000 4,712 5,237 525
2001 4,805 5,542 737
2002 4,933 5,542 609
2003 4,906 5,554 648
2004 5,036 5,554 518
2005 5,156 5,554 398
(1) Includes Interruptible Load of 191 MW
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Potential Additional Westar Energy EPS
. Potential EPS from selling "As Available" energy In the Wholesale Markets
EPS Impact(1)
As Available Energy(2) $500 / MW $750 / MWH $1000 / MWH
200 MW $0.10 $0.15 $0.20
400 MW $0.20 $0.30 $0.40
600 MW $0.30 $0.45 $0.60
800 MW $0.40 $0.60 $0.81
(1) Assumes sales duration of 8 hours on peak for 10 days (80 hours) during
summer peak periods. Assumes tax rate of 40% and shares outstanding of 47.7
million (post equity issuance)
(2) As Available Energy - Dependant upon availability of generation and system
responsibility.
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Westar Energy - Pro Forma Valuation
(dollars in millions, except per share amounts)
Assumes
Midpoint of Midpoint Plus
Subscription $300 Million
Westar Energy Valuation Level Equity Issuance(1)
LTM Pro Forma Net Income 3/31/00 (2) $93.63 $108.48
Other Pro Forma Adjustments (3) ($8.05) ($8.05)
Net Income $85.58 $100.43
Shares Outstanding - millions 34.6 48.7
EPS $2.47 $2.06
Adjusted Earnings per Share (4) $3.23 $2.29
Cash Flow per Share (5) $7.52 $5.34
Anticipated Dividend ($1.20) ($1.20)
Cap Ex per Share (6) ($4.34) ($3.08)
Free Cash Flow $1.99 $1.06
(1) Assumes 14.11 million shares sold @ $21.26 per share (11x multiple of EPS,
or 83% of Industry average)
(2) LTM 3/31/00 Pro Forma Net Income assumes $2.975 billion in debt. Post
Equity issuance debt of $2.675 billion
(3) Costs associated with new generation
(4) Adjusted Earnings per Share is defined as Net Income + Goodwill
Amortization
(5) Cash Flow per Share is defined as Net Income + Depreciation + Amortization
(6) Assumes capital expenditures of $150 million
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Westar Energy -Current Multiples
Average Industry Multiples(1)
S&P Electric Index P/E 12.9
Dividend Yield 5.4%
Everen Index P/E 13.1
Dividend Yield 5.5%
Philadelphia Index P/E 13.7
Dividend Yield 5.1%
P/E Average 13.2
Average Yield 5.3%
(1) Current Industry Average Multiples (as of 05/05/00)
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Where Does the Stock Trade? - Westar Energy
Westar Energy - Post Offering(1)
Shares New Shares EPS Price @
Subscribed(2) Issued Post Offering 11x multiple
30.60 12.48 $2.33 $25.65
34.60 14.11 $2.06 $22.68
38.60 15.74 $1.85 $20.33
(1) Assume Westar Energy trades at 11.0 x multiple post offering
(2) Shares Subscribed and new shares issued in millions
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Westar Capital Pro Forma Fact Sheet
(dollars in millions)
LTM EBITA
Assets(1) 3/31/00 (3)
Protection One $154.3 $157.4
Protection One Europe $225.0 $ 39.6
Total $379.3 $197.0
Assets(2) LTM Net Income
3/31/00 (4)
ONEOK $566.6 $42.8
Paradigm Direct 35.4 1.3
Unregulated Generation 84.7 -3.0
Investment Securities (net of tax) (5) 52.6 6.1
Due from Protection One 37.0 2.5
Value of Warrant 35.0 -
Total $811.3 $49.6
(1) Protection One calculated using 05/05/00 market price. Protection One
Europe calculated using 3/1/00 purchase price.
(2) ONEOK calculated using 05/05/00 market price. Paradigm, unregulated
generation, amount due from Protection One and marketable securities calculated
using 3/31/00 book value. Warrant valuation based upon binomial valuation
method.
(3) EBITDA calculated using results for 12 months ended 3/31/00.
(4) Net Income calculated using results for 12 months ended 3/31/00.
(5) Portions currently being liquidated
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Westar Capital Strategic Vision
. 2000 - Complete turnaround at Protection One
- Customer service
- Common IT platform
- Back-office integration
- Customer acquisitions
. 2000 and beyond - Focus on Integrating Security Strategy based around
Protection One, Protection One Europe and Paradigm Direct
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Westar Capital - Pro Forma Asset Valuation
(dollars in millions, except per share amounts)
Westar Capital
Westar Capital Valuation Investment Value
Protection One (1) $154.3
ONEOK (1) 566.6
Protection One Europe 225.0
Paradigm 35.4
Unregulated Generation 84.7
Investment Securities (net of tax)(2) 52.6
Due from Protection One 37.0
Value of Warrant(3) 35.0
Net Assets $1,190.6
Shares Outstanding (4) 33.0
Theoretical Stock Price $36.1
Holding Company Discount
30% $25.3
40% $21.6
50% $18.0
(1) Based on Market Prices as of 05/05/00.
(2) Portion currently being liquidated
(3) Warrant valuation based upon binomial valuation method.
(4) Assumes midpoint of subscription range of 29 to 37 million shares of Westar
Capital
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Where Does the Stock Trade? - Westar Capital
Westar Capital (1)
Shares(2) Share Price
Subscribed @ 40% Discount
37.0 $19.31
33.0 $21.65
29.0 $24.63
(1) Assumes asset value of $1,191 million
(2) Shares Subscribed in millions
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Summary
. Transaction Advantages
- Unlocks value by creating a pure play Electric Utility
- Reduces confusion in earnings
- Allows investors to invest in Westar Capital, which owns approximately
85% of Protection One, the 2nd largest residential provider of monitored
security, and 45% owner of ONEOK, one of the nation's largest natural
gas distribution companies.
. Transaction Timing
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Forward-Looking Statements
Forward-Looking Statements: Certain matters discussed in this presentation are
"forward-looking statements." The Private Securities Litigation Reform Act of
1995 has established that these statements qualify for safe harbors from
liability. Forward-looking statements may include words like we "believe",
"anticipate," "expect" or words of similar meaning. Forward-looking statements
describe our future plans, objectives, expectations, or goals. Such statements
address future events and conditions concerning capital expenditures, earnings,
litigation, rate and other regulatory matters, achievement of anticipated cost
savings, possible corporate restructurings, mergers, acquisitions, dispositions,
liquidity and capital resources, interest and dividend rates, environmental
matters, changing weather, nuclear operations, ability to enter new markets
successfully and capitalize on growth opportunities in nonregulated businesses,
events in foreign markets in which investments have been made, and accounting
matters. Our actual results may differ materially from those discussed here. See
the company's and Protection One's 1999 Annual Reports on Form 10-K as amended
and quarterly reports on Forms 10-Q and current reports on Form 8-K for further
discussion of factors affecting the company's and Protection One's performance.
Western Resources disclaims any obligation to update any forward-looking
statements as a result of developments occurring after the date of this
presentation.
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