The $270 million marriage of UtiliCorp United and St. JosephLight & Power (SJLP) is on the rocks following an incidentUtiliCorp said might be a breach of St. Joseph’s contractobligations under the merger agreement.

UtiliCorp believes that a fire that occurred at St. Joseph’sLake Road Power plant in June constitutes a material adverse affecton St. Joseph, which would be a violation of its merger agreementunless the utility could remedy the problem within 45 days. OnSept. 15, UtiliCorp suspended ongoing merger transition teammeetings pending resolution of the matter.

Following a meeting of its board of directors on Sept. 20, St.Joseph advised UtiliCorp that the impact and projected costs of theLake Road plant fire are not “material” for purposes of the mergeragreement, that SJLP remains in full compliance with the mergeragreement and that SJLP sees no reason why the merger withUtiliCorp cannot be completed promptly following receipt ofMissouri Public Service Commission approval.

SJLP further told UtiliCorp that while it is willing to meetwith UtiliCorp as soon as possible to clarify any confusion on thepart of UtiliCorp regarding the fire, SJLP intends to pursue anyand all appropriate remedies available to SJLP to ensure itsshareowners the benefits of the merger.

“We were disappointed to receive the recent inquiry fromUtiliCorp and disturbed by UtiliCorp’s decision to suspend [merger]transition team meetings,” said St. Joseph CEO Terry F.Steinbecker. “The fire was a one-time event and the unit wasreturned to service within weeks with no disruption of service toour customers. We have applied for regulatory approval to defer thecosts and seek recovery over a five-year period in SJLP’s nextgeneral rate case. We continue to believe the merger with UtiliCorpis beneficial to shareowners of both SJLP and UtiliCorp and weintend to take the action necessary to ensure that the merger iscompleted,” he said.

However, UtiliCorp said the issue still needs to be resolved. “Agreat deal of solid, responsible work has been accomplished by bothcompanies in preparing to complete the terms of our mergeragreement, and the transition effort is on track and on schedule.However, a very serious issue awaits resolution involving thefinancial and operational implications of [the fire],” the companysaid in a statement. “UtiliCorp has asked St. Joseph Light &Power to provide a detailed explanation regarding the materialityof this incident, and remains hopeful that a satisfactory responsewill be forthcoming.”

According to the merger agreement, UtiliCorp is obligated to paySJLP $23/share and assume about $80 million in debt (see Daily GPI, March 8, 1999). SJLP serves 6,300 gascustomers and 61,500 electric customers in 10 counties in northwestMissouri. UtiliCorp’s Missouri Public Service serves 193,000 electriccustomers and 44,700 gas customers in the western half of thestate. The combined company would be the state’s fourth largest gasdistributor and third largest electricity distributor.

SJLP’s stock price plummeted $2.50 (11%) yesterday to$19.44/share. UtiliCorp’s share price was unchanged at $25/share.

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