UtiliCorp to Spin off Aquila Next Year
Unable to find a suitable generation partner for its high flying trading
arm, UtiliCorp United Inc. instead will hold an initial public offering
for a portion of subsidiary Aquila Energy Corp. and then spin off the remaining
shares next year to its shareholders in a tax-free distribution. The result
will be two stand-alone publicly traded companies, both based in Kansas
The company's board of directors last week approved a two-stage plan
that includes holding an IPO for about a 19.9% interest in Aquila. Proceeds
from the IPO would be used by Aquila to repay debts it owes to UtiliCorp,
the company said. The value is estimated to be up to $425 million of Aquila
Class A shares.
"First and foremost, these transactions will increase Aquila's
capital financing flexibility by allowing Aquila to independently access
the capital markets," UtiliCorp CEO Richard C. Green Jr. said. "The
separation also will increase Aquila's strategic focus and provide a targeted
investment for our shareholders."
Robert K. Green, COO of UtiliCorp and chairman of Aquila, said that
Aquila's marketing and risk management business and its electricity and
natural gas asset management business were "all quite different in
nature from UtiliCorp's regulated utility business." He said one of
the goals from the IPO would be to "increase the speed at which Aquila
can respond to the needs of its customers and to changes in the marketplace."
Underwriting will be led by Lehman Brothers and Merrill Lynch &
Co. Additional underwriters include Salomon Smith Barney, Chase H&Q
and Credit Lyonnais Securities Inc.
In August, UtiliCorp said it was shopping around for a generator to
partner with Aquila, and said it wanted to announce a deal before the end
of summer (see NGI, Aug. 14; Aug.
7). CEO Richard Green said at the time that the company was "especially
pleased" with the overall health of UtiliCorp, which he said was on
a pace to grow at least 8% through the year. Most of the company's improved
performance has come this past year from Aquila's gas and power trading.
Last Wednesday, Fitch affirmed the credit rating for UtiliCorp, placing
it on a Rating Watch Evolving following the Aquila announcement. Fitch
said that UtiliCorp's "credit measures have been stressed recently
by the ongoing requirement to support Aquila's aggressive capital spending
to acquire merchant generation assets and the working capital demands occasioned
by the energy trading and marketing business."
Fitch said the planned spinoff would relieve the "pressures"
on UtiliCorp's ratings, but said that the company would "lose the
ongoing earnings contributions of this subsidiary. Further debt reductions
will be required at UtiliCorp to prevent a decline in credit rating measures
and to retain the current credit ratings."
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