PNM Grabs Western Resources' Utilities for $4.4B
Public Service Co. of New Mexico is gaining a strong presence in
the Midwest/Midcontinent power market with the $4.4 billion
purchase, including debt assumption, of Western Resources'
utilities. The proposed merger would create a new Albuquerque-based
holding company serving more than one million retail electric
customers and 400,000 retail gas customers in New Mexico and
Kansas, with a generating capacity of more than 7,000 MW.
The tax-free, stock-for-stock transaction, which will take 12 to
15 months to complete, will make the new company a leading energy
supplier in Midwest and western U.S. wholesale markets. Western's
trading presence in six Midwestern power pools is expected to
provide opportunities for PNM to bring its 15 years of power
marketing experience and niche product development to new
customers. In 1998, PNM exited the gas marketing business, after
having a less than stellar start trying to enter the California
market (see NGI, Aug. 31, 1998).
"We evaluated potential partners across a broad range of
criteria, including financial flexibility, proven management
skills, superior operating and technological capabilities,
excellent customer service and a track record for fair dealing on
regulatory issues," said Western's CEO David C. Wittig. He said the
company was confident about the merger with PNM.
The merger comes nearly 10 months after Western announced it
would seek a buyer of its electric utilities following its failed
merger with Kansas City Power & Light Co. (see NGI, Jan. 10).
Faced with a falling stock price and financial problems associated
with its subsidiary Protection One, a monitored security company,
Western decided to split up the company.
The new company, which will have combined assets of nearly $6.5
billion, won't occur until Western separates its utility assets
from its unregulated subsidiaries. These include an 85% ownership
in Protection One, and its 45% investment in ONEOK Inc., the
Tulsa-based parent of Kansas Gas Service Co. Western plans to
transfer its unregulated assets to its spinoff company, Westar
Industries (see NGI, April 4). In October, it filed an application
with the Securities and Exchange Commission to sell stock in
Westar. Wittig will become CEO of Westar.
What PNM found attractive, among other things, was the $3
billion Wolf Creek nuclear power plant near Burlington, KS, the
Kansas Power & Light division and the KG&E subsidiary. PNM
recently announced plans to increase its generating capacity to
meet the Southwest's power demands.
PNM said it plans to accelerate its growth plan, which includes
10% annual average earnings growth. It also wants to reduce its
debt load, said PNM CEO Jeffry E. Sterba. The company has reduced
its debt-to-capitalization ratio to 55% from 72% over the past
"The addition of Western Resources' low-cost, high capacity
generation facilities will quadruple our current production
capabilities, giving us a competitive edge in both power plant
operations and wholesale electric sales," said Sterba, who will
lead the new company.
Once the merger is completed, the new holding company would
issue approximately 95 million shares of stock, of which 42.1%
would be owned by former PNM shareholders and 57.9% by former
Western shareholders and Westar Industries.
The board of directors of the new company would consist of six
current PNM members and three additional directors, two of whom
will be selected by PNM from a pool of candidates nominated by
Western, and one nominated by Westar. The headquarters for the
Kansas utilities will remain in Topeka.
Carolyn Davis, Houston