Attempting to better organize its businesses and release hiddenvalue in its operations, Western Resources said yesterday it willseparate its electric utility businesses under a differentcorporate umbrella from its non-electric affiliates. Both companieswill be public entities. The separation is expected occur through avoluntary exchange offer expected to be completed prior toyear-end.

“Many of our shareholders have wanted greater definition to thebusiness, specifically a desire to have the company return to itscore business as strictly an electric utility,” said David Wittig,Western Resources CEO. “This strategy gives our shareholders achoice of which business they wish to own, and gives the financialcommunity a clearer understanding of where the company’s valuelies.”

The new electric utility entity will be called Westar Energy. Itwill consist of two electric utilities, KPL and KGE, that provideelectric service to approximately 628,000 customers in Kansas.

“We believe that Westar Energy, as a pure-play electric company,will unlock the value associated with our electric assets byproviding shareholders an investment opportunity exclusively in ourelectric utility operations,” Wittig said.

The non-electric company, Westar Capital, will consist of thecompany’s 85% ownership interest in Protection One, a monitoredsecurity company; its 45% ownership interest in Tulsa-based OneokInc.; its 100% ownership interest in Protection One Europe; its 40%ownership in Paradigm Direct LLC, a direct marketing company; andother investments.

Through the exchange offer, Western Resources shareholders willbe able to trade some or all of their Western Resources commonstock for shares in Westar Capital. The terms of the offer,including the exchange rate, will be determined and announced oncommencement of the offer, expected to be in the third quarter of2000. The offer of shares in Westar Capital will be made only bymeans of a prospectus. The exchange is expected to be a one-for-oneexchange with between 29 and 37 million shares exchanged for WestarCapital, the company said.

Upon completion of the transaction, Westar Energy intends toraise $300 million of equity. Proceeds will be used to repay debt.Wittig will serve as the chairman, president and CEO of WestarCapital and will be the chairman of Westar Energy. The balance ofthe management teams will be announced at a later date. Eachcompany will remain headquartered in Topeka, KS.

Ironically, Westar Energy was to be the name of thenewly-created company formed through a merger between WesternResources and KCPL. The deal fell through last January (see DailyGPI, Jan. 5), when KCPL canceled it because of questions it hadabout the financial performances of Western Resources stock priceand of the value of Protection One.

KCPL’s worries now appear to be well justified. Along with therestructuring, Western announced its 1999 earnings yesterday. Thecompany’s net income was $11.3 million, or $0.17/share, versus$44.2 million or $0.67/share for 1998. While its investment inOneok and its two utilities were able to post gains from 1998’sresults, Western Resources could not overcome its merger-relatedcosts or its 71 cent/share loss incurred by Protection One. Inaddition, Western’s stock price is trading at about $16, which isnear its 52-week low of $15.31/share.

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