Kansas City Power & Light Co. (KCPL) threw in the whitetowel earlier this week, canceling its proposed merger with thefinancially troubled Western Resources citing doubts aboutWestern’s growth and increasing shareholder opposition to thetransaction. KCPL canceled the merger using a stipulation in theoriginal agreement requiring the merger to have all regulatoryapprovals completed by Dec. 31, 1999. The merger suffered fromregulatory delays and never received a final okay from the FederalEnergy Regulatory Commission.

The failure of the merger will prevent the creation of WestarEnergy, the electric utility which would have been formed by thecombination. It would have had more than one million electriccustomers in Kansas and Missouri, $8.2 billion in assets and morethan 8,000 MW of generation resources.

“Our board took this action reluctantly and only after givingextensive consideration to all of the relevant facts andcircumstances surrounding the transaction,” said KCPL CEO DrueJennings.

Jennings pointed to the fall of Western’s stock price as a majorreason why KCPL shareholders, including large institutions andsmall individuals, began to question the deal. Western’s stockvalue has dropped from more than $43 at the time the deal wasstruck to a 52-week low earlier this week of $16.125. He also saida “critical” reason for the cancellation was the fact that thecompany’s financial advisor, Merrill Lynch, “could not opine thatthe transaction is fair to KCPL shareholders……”

Along with these reasons, Jennings said that the poorperformance of Protection One, an alarm monitoring company 85%owned by Western, cast doubts on Western’s overall future. In aletter to David Wittig, Western’s CEO, Jennings said KCPL hasbrought its concerns about Protection One to the attention ofWestern on numerous occasions. Despite these meetings, ProtectionOne’s stock price reached a 52-week low earlier this week, and itscredit rating was recently cut by Standard & Poor’s.

“As you know, our Board has held a number of meetings during thepast several months to review and consider the status of thetransaction,” Jennings said to Wittig in the letter. “At thesemeetings, as well as in other communications between our respectivecompanies and their representatives, we have expressed our deepconcern with the problems facing Protection One and their impact onWestern as a whole. These problems, and the related dramaticdecline in Western’s stock price since we signed the MergerAgreement in March 1998, obviously have a direct bearing on thevalue of the contemplated transaction to our shareholders, as wellas the future prospects of Western and its affiliated companiesassuming such transaction was consummated.”

As a result of the cancellation, KCPL said that over the nextseveral weeks, it will review the strategic alternatives, includingamong other things, separating its generation anddistribution/transmission assets into subsidiaries and realizingthe value of KCPL’s high-potential unregulated businesses.

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