In a surprise move, Kansas City, Mo.-based UtiliCorp United Inc. Wednesday said it would reacquire the 20% of energy trader and marketer Aquila Inc. it doesn’t already own.
Pres. Robert Green said the “new strategic direction” for UtiliCorp and Aquila had been under consideration for couple of weeks and was made because of changes in the merchant energy sector and a “precipitous” decline in the capital markets. He noted debt markets are tightening and the equity markets have virtually shut down.
As part of a reorganization, UtiliCorp plans to form a new company of the combined entities and will add ‘Aquila’ to its name. UtiliCorp Chairman and CEO Richard Green will be chairman, while Robert Green will be CEO and president.
During a Wednesday briefing with Wall Street analysts, Robert Green said the combined company will give Aquila access to a larger balance sheet to support growth opportunities that a stand alone Aquila could not manage on its own.
With the economy in a downturn, attractive assets in the $100 million range are coming to market that are of interest to the company. He said the combined company wants to “selectively” add assets with stable cash flow. “We want to finance them with an appropriate amount of debt and equity,” Green said, but Aquila’s stock price wouldn’t support an equity deal.
Aquila’s stock has fallen despite an 80% increase in earnings. “The valuation of UtiliCorp is a bit better and the space is deeper,” he said. “Literally, the markets have turned upside down.”
UtiliCorp was one of many companies that responded to investor enthusiasm for the growth potential of merchant energy companies, compared to regulated utilities. Interest has cooled along with the economy.
The combined company has set an earnings target of about $2.92/share in 2002, said CFO Dan Streek, reflecting a total of what each company had projected individually. Company officials said they are experiencing “tremendous” demand for net power and gas cost hedges, weather and actuarial services, and so-called structured products.
Streek also said UtiliCorp expects the proposed acquisition of Britain’s Midlands Electricity PLC along with a financial partner for $2.1 billion to add to earnings next year.
Under the deal reported Wednesday, Aquila’s public shareholders will be offered 0.6896 shares of UtiliCorp common stock in a tax-free exchange for each outstanding share of Aquila Class A common stock. The offer gives a 15% premium based on Tuesday’s closing price of $17.99/share for Aquila Class A common stock and $30/share for UtiliCorp common stock.
The offer requires that at least 50% of Aquila’s publicly held Class A shares are tendered. Green said the company hopes to complete the transaction by January. Original Aquila investors will do better under the UtiliCorp offer “than any other investors” in the merchant generator “space,” Green said.
Aquila stock closed at $20.55 Wednesday, up 14.23%.