Although the creation of Westar Energy did not follow the pathoriginally intended, plans for the utility holding company were setin motion last week when Western Resources announced it will splitthe company into two separate entities, one covering electricutility businesses and another for its non-electric operations.Both companies will be public entities. The separation is expectedoccur through a voluntary exchange offer expected to be completedprior to year-end.

“Many of our shareholders have wanted greater definition to thebusiness, specifically a desire to have the company return to itscore business as strictly an electric utility,” said David Wittig,Western Resources CEO. “This strategy gives our shareholders achoice of which business they wish to own, and gives the financialcommunity a clearer understanding of where the company’s valuelies.”

The new Westar Energy will consist of two electric utilities,KPL and KGE, that provide electric service to 628,000 customers inKansas.

“We believe that Westar Energy, as a pure-play electric company,will unlock the value associated with our electric assets byproviding shareholders an investment opportunity exclusively in ourelectric utility operations,” Wittig said.

Ironically, Westar Energy was to be the name of a company formedthrough the now-defunct merger between Western Resources and KCPL.The deal fell through last January (see NGI, Jan. 10), when KCPLcanceled it because of questions it had about the financialperformances of Western Resources stock price and of the value ofcertain Western Resources subsidiaries. Had the merger beenexecuted, the combined Westar would have had more than one millionelectric customers in Kansas and Missouri, $8.2 billion in assetsand more than 8,000 MW of electric generation resources.

The non-electric company, Westar Capital, will consist of thecompany’s 85% ownership interest in Protection One, a monitoredsecurity company; its 45% ownership interest in Tulsa-based OneokInc.; its 100% ownership interest in Protection One Europe; its 40%ownership in Paradigm Direct LLC, a direct marketing company; andother investments.

Through the exchange offer, Western Resources shareholders willbe able to trade some or all of their Western Resources commonstock for shares in Westar Capital. The terms of the offer,including the exchange rate, will be determined and announced oncommencement of the offer, expected to be in the third quarter of2000. The offer of shares in Westar Capital will be made only bymeans of a prospectus. The exchange is expected to be a one-for-oneexchange with between 29 and 37 million shares exchanged for WestarCapital, the company said.

Upon completion of the transaction, Westar Energy intends toraise $300 million of equity. Proceeds will be used to repay debt.Wittig will serve as the chairman, president and CEO of WestarCapital and will be the chairman of Westar Energy. The balance ofthe management teams will be announced at a later date. Eachcompany will remain headquartered in Topeka, KS.

KCPL’s worries now appear to be well justified. Along with therestructuring, Western announced its 1999 earnings last week. Thecompany’s net income was $11.3 million, or $0.17/share, versus$44.2 million or $0.67/share for 1998. While its investment inOneok and its two utilities were able to post gains from 1998’sresults, Western Resources could not overcome its merger-relatedcosts or its 71 cent/share loss incurred by Protection One. Inaddition, Western’s stock price is trading at about $16, which isnear its 52-week low of $15.31/share.

John Norris

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