On Tuesday, Great Plains Energy Inc. announced to buy Kansas’ Westar Energy Inc. (NYSE: WR) for roughly $8.6 billion, which is indicative of a major consolidation in the utilities sector that the companies hope will lead to more controlled costs and consumer rates.
“The utility industry is facing rising customer expectations, increasing environmental standards and emerging cybersecurity threats,” said Terry Bassham, chairman and chief executive of Great Plains. “These factors, coupled with slower demand growth for electricity, are driving our costs and customer rates higher.”
On top of that, Mr. Bassham also stated that the anticipated savings from the deal would help reduce future rate requests. Upon completion of the transaction, Great Plains will have more than 1.5 million customers in Kansas and Missouri.
Westar holders will receive $60 a share—$51 in cash and $9 in Great Plains stock—a 13% premium to Westar’s closing price of $52.92 last Friday. The transaction has a total value of about $12.2 billion including Westar’s roughly $3.6 billion of debt.
Aside from that, Great Plains’ agreement with Westar includes termination fees that could range from $80 million to as much as $380 million, depending on certain circumstances:
If Great Plains or Westar were to terminate the agreement as a result of Great Plains shareholders not approving the issuance of Great Plains common stock to the Westar shareholders, Great Plains may be required to pay Westar $80 million.
If the transaction fails to obtain regulatory approvals by May 31, 2017, subject to extension in certain cases for an additional six months, Great Plains could pay Westar a termination fee of $380 million.
The companies anticipate the transaction, which requires regulatory approval and a shareholder vote, closing in the spring of 2017. After the transaction, Mr. Bassham will be chairman and CEO of the combined company. Mark Ruelle, CEO of Westar, will remain in his current role until the closing of the transaction. Great Plains will add one Westar director to its board.