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UtiliCorp Taking AQP Offer to Shareholders

UtiliCorp Taking AQP Offer to Shareholders

After negotiations with a special committee of Aquila Gas Pipeline (AQP) directors on an acquisition offer failed last week, UtiliCorp United Inc. launched an $8.00 per share cash tender offer directly to shareholders on Friday for all outstanding shares of the midstream operation. Kansas City, MO-based UtiliCorp already owns about 82% of AQP; the public owns about 18%, or 5.4 million shares.

UtiliCorp said completion of the tender depends upon attaining 90% ownership of AQP. But completion of the tender is not conditioned upon financing or any approval by AQP's board of directors or any of its committees. The offer is scheduled to expire at the end of the month.

So why does UtiliCorp want all of AQP? "We feel that it would help us maintain strategic direction of the company and make it as efficient as possible," said UtiliCorp spokesman Ethan Hirsh. "There would be some savings in corporate and headquarters functions, that sort of thing."

Some staff cuts could come if UtiliCorp is successful in its bid, Hirsh said. But most of the savings would come from eliminating AQP's cost of operating as a publicly traded company. "There's a lot of reporting. There's shareholder reporting and records, all those sort of things." On Nov. 10, UtiliCorp proposed acquiring the 5.4 million shares for $8.00 per share. At that time, a special committee of the AQP board, consisting of two independent directors, was formed to negotiate the deal. UtiliCorp said the $8.00 per share offer reflects a premium of about 23% of AQP's Nov. 11 closing price of $6.50.

Aquila Gas Pipeline closed unchanged at $8/share Friday. The stock traded between 7 15/16 and 8 Friday on volume that was nearly 26 times normal. The stock's 52-week range is 4 5/8 to 19.

Shares not tendered in the offer would be acquired through a merger in which the remaining shareholders would receive the same price paid in the tender offer. Timing and terms of the merger will depend on results of the tender.

Based in San Antonio, TX, AQP is a midstream gas company that was spun off by UtiliCorp in 1993. In March 1998 AQP hired Merrill Lynch &Co. to assist in a possible sale of the company (see NGI March 16, 1998). Then in August it took itself off the auction block, citing low prices for natural gas liquids, which created a soft market for the company (see NGI August 10, 1998).

Last month, AQP said it would cut 60 people from its staff of 310 and take a $1.7 million pre-tax charge to earnings (see NGI March 8, 1999). Last year the company fell prey to low commodity prices. For the year, net income was $4.9 million, compared to 1997 net income of $25.2 million. Cash flow from operations was $32.6 million in 1998, down from $56.7 million in 1997.

Joe Fisher, Houston

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