UtiliCorp-St. Joseph Marriage on Ice
The $270 million marriage of UtiliCorp United and St. Joseph Light &
Power (SJLP) is on the rocks following an incident UtiliCorp said might
be a breach of St. Joseph's contract obligations under the merger agreement.
UtiliCorp believes that a fire that occurred at St. Joseph's Lake Road
Power plant in June constitutes a material adverse affect on St. Joseph,
which would be a violation of its merger agreement unless the utility could
remedy the problem within 45 days. On Sept. 15, UtiliCorp suspended ongoing
merger transition team meetings 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 the Lake Road
plant fire are not "material" for purposes of the merger agreement,
that SJLP remains in full compliance with the merger agreement and that
SJLP sees no reason why the merger with UtiliCorp cannot be completed promptly
following receipt of Missouri Public Service Commission approval.
SJLP further told UtiliCorp that while it is willing to meet with UtiliCorp
as soon as possible to clarify any confusion on the part of UtiliCorp regarding
the fire, SJLP intends to pursue any and all appropriate remedies available
to SJLP to ensure its shareowners the benefits of the merger.
"We were disappointed to receive the recent inquiry from UtiliCorp
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 was returned to service within weeks
with no disruption of service to our customers. We have applied for regulatory
approval to defer the costs and seek recovery over a five-year period in
SJLP's next general rate case. We continue to believe the merger with UtiliCorp
is beneficial to shareowners of both SJLP and UtiliCorp and we intend to
take the action necessary to ensure that the merger is completed,"
However, UtiliCorp said the issue still needs to be resolved. "A
great deal of solid, responsible work has been accomplished by both companies
in preparing to complete the terms of our merger agreement, and the transition
effort is on track and on schedule. However, a very serious issue awaits
resolution involving the financial and operational implications of [the
fire]," the company said in a statement. "UtiliCorp has asked
St. Joseph Light & Power to provide a detailed explanation regarding
the materiality of this incident, and remains hopeful that a satisfactory
response will be forthcoming."
According to the merger agreement, UtiliCorp is obligated to pay SJLP
$23/share and assume about $80 million in debt (see NGI, March
8, 1999). SJLP serves 6,300 gas customers and 61,500 electric customers
in 10 counties in northwest Missouri. UtiliCorp's Missouri Public Service
serves 193,000 electric customers and 44,700 gas customers in the western
half of the state. The combined company would be the state's fourth largest
gas distributor and third largest electricity distributor.
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