UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITES EXCHANGE ACT OF 1934
Date of Report (Date of earliest events reported) November 9, 2000
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November 9, 2000
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PUBLIC SERVICE COMPANY OF NEW MEXICO
(Exact name of registrant as specified in its charter)
New Mexico 85-0019030
--------------------------- Commission ----------------------
(State or Other Jurisdiction File Number 1-6986 (I.R.S. Employer
of Incorporation) ------ Identification) Number)
Alvarado Square, Albuquerque, New Mexico 87158
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(Address of principal executive offices) (Zip Code)
(505) 241-2700
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
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Item 5. Other Event
Public Service Company of New Mexico ("PNM") and Western Resources (NYSE:WR)
today announced that both companies' boards of directors have unanimously
approved an agreement under which PNM will acquire the Western Resources
electric utility operations in a tax-free, stock-for-stock transaction.
Under the terms of the agreement, PNM and Western Resources, whose utility
operations consist of its KPL division and KGE subsidiary, will both become
subsidiaries of a new holding company to be named at a future date. Prior to the
consummation of this combination, Western Resources will reorganize all of its
non-utility assets, including its 85 percent stake in Protection One and its 45
percent investment in ONEOK, into Westar Industries which will be spun off to
its shareholders.
The new holding company will issue 55 million of its shares, subject to
adjustment, to Western Resources' shareholders and Westar Industries. Before any
adjustments, the new company will have approximately 95 million shares
outstanding, of which approximately 42.1 percent will be owned by former PNM
shareholders and 57.9 percent will be owned by former Western Resources
shareholders and Westar Industries. Westar Industries will receive a portion of
such shares in repayment of a $234 million obligation currently owed by Western
Resources to Westar Industries.
Based on PNM's average closing price over the last ten days of $27.325 per
share, the indicated equity value of the transaction is approximately $1.503
billion, including conversion of the Westar Industries obligation. In addition,
the new holding company will assume approximately $2.939 billion of existing
Western Resources' debt, giving the transaction an aggregate enterprise value of
approximately $4.442 billion. The new holding company will have a total
enterprise value of approximately $6.5 billion ($2.6 billion in equity; $3.9
billion in debt and preferred stock).
The transaction will be accounted for as a reverse acquisition by PNM as Western
Resources shareholders will receive the majority of the voting interests in the
new holding company. For accounting purposes Western Resources will be treated
as the acquiring entity. Accordingly, all of the assets and liabilities of PNM
will be recorded at fair value in the business combination as required by the
purchase method of accounting. In addition, the operations of PNM will be
reflected in the operations of the combined company only from the date of
acquisition.
The companies expect the transaction to be completed within the next 12 to 15
months. The new holding company will serve over one million retail electric
customers and 400,000 retail gas customers in New Mexico and Kansas and will
have generating capacity of more than 7,000 megawatts. The transaction exceeds
PNM's stated goal of doubling its generation capacity and tripling its power
sales more than three years ahead of schedule. The transaction will also make
the new company a leading energy supplier in the Western and Midwestern
wholesale markets.
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The rationale for this transaction is the acceleration of PNM's proven growth
strategy, consistent with its targeted 10 percent annual average earnings
growth. PNM expects only modest cost savings and does not have a present
intention to have involuntary workforce reductions as a result of the
transaction. The new holding company will seek to minimize any workforce effects
through reduced hiring, attrition, and other appropriate measures. All existing
labor agreements will be honored.
In the transaction, each PNM share will be exchanged on a one-for-one basis for
shares in the new holding company. Each Western Resources share will be
exchanged for a fraction of a share of the new company. This exchange ratio will
be finalized at closing, depending on the impact of certain adjustments to the
transaction consideration. Since Western Resources and Westar Industries remain
committed to reducing Western Resources' net debt balance prior to consummation
of the transaction, they have agreed with PNM on a mechanism to adjust the
transaction consideration based on additional equity contributions. Under this
mechanism, Western Resources could undertake certain activities not affecting
the utility operations to reduce the net debt balance. The effect of such
activities would be to increase the number of new holding company shares to be
issued to all Western Resources shareholders (including Westar Industries) in
the transaction. In addition, Westar Industries has the option of making
additional equity infusions into Western Resources that will be used to reduce
its net debt balance prior to closing. Up to $407 million of such equity
infusions may be used to purchase additional new holding company common and
convertible preferred stock.
At closing, Jeffry E. Sterba, present chairman, president and chief executive
officer of PNM, will become chairman, president and chief executive officer of
the new holding company, and David C. Wittig, present chairman, president and
chief executive officer of Western Resources, will become chairman, president
and chief executive officer of Westar Industries. The Board of Directors of the
new company will consist of six current PNM board members and three additional
directors, two of whom will be selected by PNM from a pool of candidates
nominated by Western Resources, and one of whom will be nominated by Westar
Industries. The new holding company will be headquartered in New Mexico.
Headquarters for the Kansas utilities will remain in Kansas.
Shareholders of the new holding company will receive PNM's dividend. PNM's
current annual dividend is $.80 per share.
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The successful spin-off of Westar Industries from Western Resources is required
prior to the consummation of the transaction. The transaction is also
conditioned upon, among other things, approvals from both companies'
shareholders and customary regulatory approvals from the Kansas Corporation
Commission, the New Mexico Public Regulation Commission, the Federal Energy
Regulatory Commission, the Nuclear Regulatory Commission, and the Department of
Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The new
holding company expects to register as a holding company with the Securities and
Exchange Commission under the Public Utility Holding Company Act of 1935.
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Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This filing contains forward looking statements within the meaning of the "safe
harbor" provisions of the United States Private Securities Litigation Reform Act
of 1995. Investors are cautioned that such forward-looking statements with
respect to revenues, earnings, performance, strategies, prospects and other
aspects of the businesses of PNM and Western Resources and with respect to the
benefits of the transaction are based on current expectations that are subject
to risk and uncertainties. Such statements are based upon the current beliefs
and expectations of the management of PNM and Western Resources. A number of
factors could cause actual results or outcomes to differ materially from those
indicated by such forward looking statements. These factors include, but are not
limited to, risks and uncertainties relating to: the possibility that
shareholders of PNM and/or Western Resources will not approve the transaction,
the risks that the businesses will not be integrated successfully, the risk that
the benefits of the transaction may not be fully realized or may take longer to
realize than expected, disruption from the transaction making it more difficult
to maintain relationships with clients, employees, suppliers or other third
parties, conditions in the financial markets relevant to the proposed
transaction, the receipt of regulatory and other approvals of the transaction,
that future circumstances could cause business decisions or accounting treatment
to be decided differently than now intended, changes in laws or regulations,
changing governmental policies and regulatory actions with respect to allowed
rates of return on equity and equity ratio limits, industry and rate structure,
stranded cost recovery, operation of nuclear power facilities, acquisition,
disposal, depreciation and amortization of assets and facilities, operation and
construction of plant facilities, recovery of fuel and purchased power costs,
decommissioning costs, present or prospective wholesale and retail competition
(including retail wheeling and transmission costs), political and economic
risks, changes in and compliance with environmental and safety laws and
policies, weather conditions (including natural disasters such as tornadoes),
population growth rates and demographic patterns, competition for retail and
wholesale customers, availability, pricing and transportation of fuel and other
energy commodities, market demand for energy from plants or facilities, changes
in tax rates or policies or in rates of inflation or in accounting standards,
unanticipated delays or changes in costs for capital projects, unanticipated
changes in operating expenses and capital expenditures, capital market
conditions, competition for new energy development opportunities and legal and
administrative proceedings (whether civil, such as environmental, or criminal)
and settlements, the outcome of Protection One accounting issues reviewed by the
SEC staff as disclosed in previous Western Resources SEC filings, the impact of
Protection One's financial condition on Western Resources' consolidated results,
and other factors. PNM and Western Resources disclaim any obligation to update
any forward-looking statements as a result of developments occurring after the
date of this news release.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PUBLIC SERVICE COMPANY OF NEW MEXICO
(Registrant)
Date: November 8, 2000 /s/ John R. Loyack
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John R. Loyack
Vice President, Corporate Controller
and Chief Accounting Officer
(Officer duly authorized
to sign this report)
