Great Plains Energy Inc. (GXP - Free Report) and Westar Energy Inc., (WR - Free Report) announced a fresh proposal to convince the regulators in providing approval for the $14 billion deal. The Utilities are hoping that the revised merger plan would ease regulatory concerns that had previously invalidated the initial acquisition plan.
Details of the New Plan
Under the new proposal, the two firms will merge to create a holding company, in which Westar Energy shareholders will receive one share for each of their current shares, and shareholders of Great Plains will get 0.5981 shares for each the shares they own.
This new agreement is aimed to create a merger of equals and also convince the Kanas regulators. Notably, the Kansas regulators were not convinced with the earlier acquisition proposal were Great Plains had plans to buy Westar making it a subsidiary using $8 billion debts.
Additionally, Westar shareholders could expect a hike in their current dividend payouts of not less than 15 % to match with the current payouts of Great Plains shareholders.
The new proposal further plans to make a pool of nearly $50 million from the two companies combined and distribute the same to customers in 2018. The combined entity will buy back around 30 million shares in 2018 and 2019.
What Triggered the New Plan?
In May 2016, Great Plains Energy’s announced plans of acquiring Westar in a combined cash and stock transaction. The regulatory authority remained dissatisfied with Great Plains’ plan of offering senior notes to finance a Portion of Westar Acquisition.
Amid the tough conditions and rising costs that the power industry is currently plagued with, the State regulators have intervened proactively to protect the interests of local markets, as there are over one million customers in Kansas and nearly 600,000 customers in Missouri.
Following the regulatory disapproval, the two entities went ahead to file the new proposal that addresses the regulatory concerns.
Great Plains Energy and Westar Energy both have been operating in Kansas and have been competitors for decades. A merger will allow them to reduce rate increases for customers and help in lowering costs.
The merger will allow the combined entity to operate through efficiencies and cost savings techniques. The service territories, shared generation assets and expanded footprint will create cost savings and net operating efficiencies of about $35–$45 million in 2018. The merger synergies are expected to increase to $140–$170 million in 2021.
The merged entity will also be able meet the rising customer requirement through clean energy in both Kansas and Missouri.
In the last six months, Westar Energy has underperformed the Zacks categorized Utility - Electric Power industry. The company’s shares lost 8.3% compared with the industry’s gain of 3.4%. However, Great Plains has outperformed the Zacks categorized industry. The company’s shares rallied 8.5% compared with the industry’s gain of 3.4%.
Great Plains Energy Inc. currently carries a Zacks Rank #4 (Sell) While Westar Energy Inc, carries a Zacks Rank #3 (Hold).
Investors can consider better-ranked stocks like Algonquin Power & Utilities Corp. (AQN - Free Report) and NextEra Energy, Inc. (NEE - Free Report) both of which carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Algonquin Power delivered an average surprise of 13.21% in the trailing four quarters. Its 2017 estimates have risen by 8.9% to 49 cents per share in the last 60 days.
NextEra delivered an average surprise of 4.28% in the trailing four quarters. Its 2017 estimates have risen by 0.6% to $6.67 per share in the last 60 days.
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