Hedge fund Pirate Capital LLC said last week it is suing to block Aquila Inc. from selling its Missouri electric utilities — Missouri Public Service and St. Joseph Light and Power — to Great Plains Energy Inc., parent of Kansas City Power & Light (KCP&L) for $1.7 billion in cash and stock plus assumption of $1 billion of Aquila debt.

Pirate, based in Norwalk, CT, controls 5% of Aquila shares. The fund called the proposed transaction a “sweetheart deal.” In its suit, filed Monday in Delaware Chancery Court, Pirate said, “After years of targeted divestitures and Aquila management’s own positive assessment of the company’s future, the transaction is premature and fails to adequately compensate Aquila shareholders.”

In a statement Pirate noted that it “has asserted its adamant opposition to the deal with Great Plains since the deal was announced on Feb. 7, 2007, and instead recommends that Aquila accept only the [related] transaction with Black Hills Corp. and continue to operate as a stand-alone company.

“Aquila will be an investment-grade, Missouri electric utility play with EBITDA [earnings before interest, taxes, depreciation and amortization] growth rates in excess of 20% per year compared to the current junk-rated disparate mix of assets providing barely 10% annualized growth.”

Pirate said it values the stand-alone Aquila at $5-5.50/share.

Pirate wants the deal blocked, or if it is completed Pirate wants it overturned and to be awarded damages. The hedge fund has been campaigning against the transaction and calls the deal “despicable” (see NGI, Feb. 12). Thomas R. Hudson Jr., portfolio manager of Pirate, wrote to Aquila CEO Richard Green in February to express his opposition.

“As we have previously stated, we are extremely dissatisfied that the deal with Great Plains Energy and Black Hills Corporation was accepted by management, and cannot believe that such despicable terms for ILA [Aquila] shareholders were even entertained,” Hudson wrote.

The deal was announced in February along with a proposed transaction by which Black Hills Corp. would acquire Kansas City, MO-based Aquila’s gas utilities in Nebraska, Colorado, Iowa and Kansas and its electric utility in southeastern Colorado for $940 million in cash and debt assumption, a deal that Pirate supports.

Earlier this month, Aquila said it had made the first regulatory filings necessary to complete the transactions (see NGI, April 9). A spokesman for Aquila said the company is standing behind its proposed transactions.

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