UtiliCorp United added another Missouri-based utility to its recent acquisitions last week, buying Empire District Electric Co. in a stock and cash transaction valued at $800 million, including assumption of debt. The purchase comes only two months after UtiliCorp bought St. Joseph Light &Power for $270 million (see NGI, March 8).

“The first merger with St. Joseph Power and Light was smaller than the latest move with Empire District, but that doesn’t mean we are moving away from small acquisitions. We’re just doing what makes sense for the company. That is our strategy and our overall goal,” said Robert K. Green, UtiliCorp’s COO.

Under terms of the agreement, UtiliCorp is offering $29.50 for each Empire District common share, or about $505 million payable in UtiliCorp common stock or cash (limited to 50% of the total). UtiliCorp also will assume $260 million of existing Empire District debt. The agreement contains a collar under which the value per share will decrease if UtiliCorp’s common stock is below $22 per share at closing and will increase if UtiliCorp’s common stock is above $26 per share at closing. Existing Empire District preferred stock totaling $33 million would be redeemed prior to closing.

The deal represents a premium of 39% to Empire District shareholders based on Empire District’s closing share price of $21.25 on May 10, 1999, and a 14% increase in annual dividend based on UtiliCorp’s current dividend rate and current common stock price. Based on Empire’s average share price since the beginning of 1999, the agreement represents a premium of 28%.

UtiliCorp said the two mergers are expected to be completed sometime in 2000 and that both Empire District and St. Joseph Light &Power will operate as separate retail energy distribution units.

UtiliCorp Adds Rest of AQP

The merger was not the only item on the company’s agenda last week. UtiliCorp also bought back the shares of Aquila Gas Pipeline (AQP) it did not already own, increasing its ownership to 93% from 86% through a tender offer to the pipeline company’s shareholders at $8/share. It gained full control of the pipeline company Friday, then merged it into the UtiliCorp subsidiary, AEC Acquisitions, Inc. The move represents a complete reversal from a year ago, when AQP was on the auction block due to low profits.

“We put AQP up for sale, but never got an offer that tempted us. We are looking for ways to expand the AQP system beyond its existing area. With full control of the system, we will be better able to do that,” Green said. And full control of AQP will improve the company’s performance. Aquila Energy, a UtiliCorp subsidiary and AQP affiliate, reported a 65% drop in earnings from $21.5 million in 1Q98 to 1Q99. “AQP was a main reason for the poor earnings in the first quarter. With full control, we will be better able to integrate the system into other Aquila businesses, which should improve performance. Also, LNG prices are starting to strengthen, which will help as well.”

John Norris

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