Unassociated Document
Filed
by
Great Plains Energy Incorporated
Pursuant
to Rule 425 under the Securities Act of 1933
And
deemed filed pursuant to Rule 14a-12
Under
the
Securities Exchange Act of 1934
Subject
Company: Aquila, Inc.
Commission
File No.: 1-03562
This
filing consists of a transcript of a joint webcast call by Great Plains Energy
Incorporated, Aquila, Inc. and Black Hills Corporation on February 7,
2007.
Operator
Good
morning. My name is Matt and I will be your conference operator today. At this
time I would like to welcome you to today's call to discuss the proposed
transactions between Great Plains Energy and Aquila, and Black Hills Corporation
and Aquila. All participants will be in a listen-only mode. After prepared
remarks there will be a question-and-answer session. As a reminder, this
conference call is being recorded.
I
would
now like to turn the conference over to Mr. Todd Kobayashi, Vice President
of
Investor Relations and Strategy for Great Plains Energy. Please go ahead,
sir.
Todd
Kobayashi
Thank
you
operator and good morning. Welcome to our conference call to discuss the
transaction between Great Plains Energy and Aquila, and Black Hills Corporation
and Aquila. Joining me on the call today are Mike Chesser, Chairman and CEO
of
Great Plains Energy; Dave Emery, Chairman, President and CEO of Black Hills
Corporation; and Rick Green, Chairman, President and CEO of Aquila. Also on
today's call is Terry Bassham, Executive VP and CFO of Great Plains
Energy.
Following
the prepared remarks we will open the call to a Q&A session regarding the
transaction. As you can appreciate we have a limited amount of time today due
to
other commitments for communications.
This
morning we issued a press release announcing these transactions. If you have
not
seen it, the press release is available on all three companies' websites. For
today's call, we will be using a slide presentation, which is also available
on
all three companies' websites. I'd like to remind you that our call is being
webcast live. For those that cannot listen to the live broadcast, a telephone
replay will be available till the close of business on February 21st and a
replay via webcast will be available on the companies' websites.
I
want to
remind you also that Great Plains Energy will host its fourth-quarter and 2006
year-end earnings call tomorrow morning at 9 AM Eastern and Black Hills
Corporation will host a separate conference call tomorrow morning to discuss
the
transaction with Aquila.
Before
we
begin our formal remarks, I'd like to review the Safe Harbor Provision.
Statements made in this conference call that are not based on historical facts
are forward-looking, may involve risks and uncertainties and are intended to
be
as of the date when made. In connection with the Safe Harbor Provisions of
the
Private Securities Litigation Reform Act of 1995, Great Plains Energy, Aquila
and Black Hills Corporation are providing a number of important factors, risks
and uncertainties that could cause actual results to differ materially for
the
provided forward-looking information.
These
include obtaining shareholder approvals required for the transactions; the
timing of and the conditions imposed by regulatory approvals required for the
transactions; satisfying the conditions to the closing of the transactions;
Great Plains Energy and Black Hills Corporation successfully integrating
acquired Aquila businesses into their respective companies; avoiding problems
which may result in either company not operating as effectively and efficiently
as expected; the timing and the amount of cost-cutting synergies; unexpected
costs or unexpected liabilities or the effects of purchase accounting may be
different from the Company's expectations; the actual resulting credit ratings
of the companies or their respective subsidiaries; the effects on the businesses
of the companies resulting from uncertainties surrounding the transactions;
the
effect of future regulatory or legislative actions on the companies; and other
economic business and/or competitive factors.
Additional
factors that may affect future results of Great Plains Energy, Aquila and Black
Hills Corporation are set forth in the most recent quarterly report on Form
10-Q, our annual report on Form 10-K with the SEC which are available at the
websites of the three corporations. Great Plains Energy, Black Hills and Aquila
undertake no obligation to publicly update or revise any forward-looking
statements whether as a result of new information, future events or
otherwise.
In
connection with the acquisition of Aquila, Great Plains Energy intends to file
with the SEC a registration statement on Form S-4 containing the joint proxy
statement prospectus and other relevant materials. The final joint proxy
statement prospectus will be mailed to stockholders of Great Plains Energy
and
Aquila investors and security holders. All security holders are urged to read
the joint proxy statement, prospectus and other relevant materials when they
become available because they will contain important information about Great
Plains, Aquila and the acquisition.
The
registration statement and joint proxy statement, prospectus and other relevant
materials and any other documents filed by Great Plains Energy, Aquila with
the
SEC may be obtained free of charge at the SEC website. In addition, investors
and security holders may obtain free copies of the documents filed with the
SEC
by Great Plains by directing a request to Great Plains Energy, 1201 Walnut
Street, Kansas City, Missouri 64106; attention Investor Relations.
Investors
and security holders may obtain free copies of the documents filed with the
SEC
by Aquila by contacting Aquila Incorporated, 20 West Ninth Street, Kansas City,
Missouri 64105; again attention, Investor Relations.
Great
Plains Energy, Aquila Incorporated and their respective executive officers
and
directors may be deemed to be participants in the solicitation of proxies
relating to the proposed transaction. Information about the executive officers
and directors of Great Plains Energy and the ownership of Great Plains Energy
common stock is set forth in Great Plains Energy's annual report on Form 10-K
for the year ended December 31, 2005 which was filed with the SEC on March
8,
2006 and the proxy statement for Great Plains Energy which will be filed in
the
coming days.
Information
regarding Aquila's directors and executive officers and ownership of Aquila
Incorporated common stock is set forth in Aquila's annual report on Form 10-K
for the year ended December 31, 2005 which was filed with the SEC on March
7,
2006 and the proxy statement for Aquila's 2006 annual meeting of the
stockholders which was filed with the SEC on March 24, 2006. Investors and
security holders may obtain more detailed information regarding the direct
and
indirect interest of Great Plains Energy, Aquila and respective executive
officers and directors and proposed transaction by reading the joint proxy
statement prospectus regarding the proposed transaction when it becomes
available.
After
all
that, now I'd like to turn the call over to Mike Chesser, Chairman and CEO
of
Great Plains Energy.
Mike
Chesser
Thank
you
very much, Todd, and good morning everyone. This is clearly an exciting day
for
us. By now I'm sure that most of you have seen that Great Plains Energy, Black
Hills Corporation and Aquila have announced definitive agreements for two
separate transactions. I will describe the overall transaction details. Then,
I
will turn the call to Rick Green, Aquila's Chairman and CEO who will share
his
thoughts on the structure and benefit of these transactions. Following Rick,
David Emery, President and CEO of Black Hills Corporation, will comment about
the Black Hills/Aquila transaction.
So
with
that let me begin by saying the Great Plains’ acquisition of Aquila makes great
strategic sense. With the addition of Aquila to KCP&L, Great Plains intends
to forge a strong regional utility well positioned to meet the growing needs
of
the greater Kansas City area. Slide four outlines the two separate
transactions.
Under
the
terms of our agreement, Great Plains will acquire all of the outstanding common
shares of Aquila in a cash and stock transaction valued at approximately $1.7
billion or $4.54 per share based on Great Plains’ closing price
yesterday.
Immediately
prior to the Great Plains’ transaction, Black Hills will acquire Aquila's gas
utility properties in Colorado, Kansas, Nebraska and Iowa and its electric
utility property in Colorado for $940 million in cash. Following the close
of
both transactions, Great Plains Energy will become the parent of Aquila, which
will continue to own its Missouri-based utilities and its merchant service
operation.
Under
the
terms of the Great Plains/Aquila transaction, Aquila shareholders will receive
cash consideration of $1.80 plus .0856 of a share of Great Plains Energy common
stock for each share of Aquila common stock. The transaction will be taxable
to
Aquila shareholders. Following the transaction, Aquila shareholders will own
approximately 27% of the combined enterprise, with then current Great Plains
Energy shareholders owning the remaining 73%.
Great
Plains will also assume approximately $1 billion of Aquila net debt. The
proceeds from Aquila's asset sale to Black Hills Corporation will be used to
fund the majority of the cash portion of the consideration to Aquila
shareholders and to reduce debt at Aquila. It's important to note that we feel
comfortable that we can readily finance this acquisition without significant
pressure on our balance sheet or on our credit rating.
In
terms
of closing conditions, the Great Plains transaction is subject to the approval
of both Great Plains and Aquila shareholders, regulatory approvals from the
Missouri Public Service Commission, the Kansas Corporation Commission and the
Federal Energy Regulatory Commission antitrust review and other customary
conditions. We expect both transactions to close in approximately one
year.
Because
the transactions are cross-conditioned, I will highlight two important points
concerning the Black Hills Corporation transaction. First, Black Hills’
transaction is not conditioned on financing; and second, the Black Hills/Aquila
transaction is subject to regulatory approvals from the Kansas Corporation
Commission, and the Public Service Commissions of Missouri and Nebraska, the
Colorado Public Utilities Commission, the Iowa Utilities Board, the FERC, and
antitrust review, as well as other customary conditions.
Following
the close of the Great Plains Energy/Aquila transaction, I will continue to
be
Chairman and CEO of the combined company. Great Plains Energy’s senior executive
team and Board of Directors will be unaffected by this transaction, and our
company will remain headquartered in Kansas City.
This
is a
very strategic transaction for Great Plains Energy shareholders, customers
and
other stakeholders and is consistent with our strategic intent of increasing
shareholder value while improving the total living environment for our customers
by providing low-cost reliable clean energy. The addition of Aquila provides
a
growth vehicle for Great Plains and forges an even stronger regional electric
utility.
Great
Plains Energy operates two primary businesses, Kansas City Power and Light,
a
regulated utility serving approximately 500,000 customers in Kansas and
Missouri; and Strategic Energy, a national competitive electricity supplier
serving customers in many states.
Aquila
is
a company with attractive growth prospects in the areas of Missouri that are
adjacent to KCP&L's properties in Missouri and Kansas. A major component of
our strategy is KCP&L's Comprehensive Energy Plan which includes investments
in new wind and coal fire generation, environmental upgrades, and affordability
and efficiency programs designed to deliver low cost, reliable electricity
to
our customers and reduce emissions from our generating fleet. This long-term
energy program has been endorsed by a wide variety of customer, community,
and
regulatory groups.
By
combining Aquila's electric utility assets in Missouri, we believe we can
deliver immediate and long-term value to our shareholders and customers at
both
companies. The combination of our resources creates a company that is better
positioned to provide superior customer service, greater reliability and
improved environmental performance while keeping energy prices at affordable
rates.
Shareholders
will also benefit. There's an opportunity for synergies over a five-year period
of approximately $500 million, with costs to achieve including transaction
costs
of approximately $185 million. The transaction is anticipated to be modestly
dilutive in 2008 and accretive in 2009 and beyond. Terry will discuss this
and
the financial rationale in greater detail later in the
presentation.
Aquila's
strong presence in Missouri and attractive growth profile is consistent with
our
strategic focus. Importantly, the addition of Aquila's assets will add to our
generation capacity, while our strong balance sheet will lower financing costs
on future Aquila capital expenditures.
Following
closing, Great Plains will own Aquila and its Missouri-based utilities
consisting of the Missouri Public Service division, St. Joseph Light and Power
division and its merchant service operations primarily consisting of the 340
megawatt Crossroads power generating facility and residual natural gas
contracts.
So
we
think this transaction is a win for all constituents. The combined company
will
not only be bigger but it will be better. Slide six graphically depicts the
structure of the transaction. As you can see, the asset sale to Black Hills
for
cash occurs first. At the close of the transaction, Great Plains will own two
sister utility subsidiaries, KCP&L and Aquila.
I
will
now turn the call to Rick Green who will provide an overview of Aquila and
discuss his perspective on these transactions.
Rick
Green
Thanks,
Mike. I'm pleased to be here today to discuss this innovative transaction,
which
I believe is the best option to deliver value to Aquila shareholders and ensure
the best opportunity for Aquila customers, employees and the communities in
which we operate.
Slide
eight is a description of Aquila's assets. Great Plains will be acquiring the
two Missouri electric properties, Missouri Public Service and St. Joseph Light
and Power. It is also acquiring, as Mike said, Aquila's merchant services
division. During our repositioning we sold many of our merchant contracts,
so
what remains is a 340 megawatt peaking facility in Mississippi, called
Crossroads, and a hedged book of gas contracts.
Black
Hills Corporation will be acquiring our other assets including the gas utilities
in Colorado, Nebraska, Iowa and Kansas as well as Colorado Electric. Black
Hills
also is assuming all the liabilities directly associated with its acquired
properties.
Moving
to
slide nine, Aquila's execution of our repositioning strategy since 2002 has
streamlined the company's business profile, reduced debt and improved
operational efficiencies. As we gained our financial strength we attracted
various acquisition proposals. Our Board and management determined that a
competitive auction process would yield the best outcome for our
shareholders.
Before
arriving at today's announcement, the Board and management of Aquila conducted
an extensive process, and we believe that the transactions announced today
with
Great Plains and Black Hills represents the best outcome for our shareholders
and the greatest opportunity for our customers, employees and the communities
that we serve.
As
Mike
mentioned, the Great Plains Energy transaction will provide Aquila shareholders
with an immediate cash consideration plus an ownership stake in the combined
enterprise. This transaction presents an opportunity for shareholders to realize
the value of Aquila and also participate in the upside potential of a
financially strong company, one that is well positioned to serve our combined
customer base. Additionally, Aquila shareholders will receive an annual dividend
on the Great Plains shares, which is currently at $1.66 per share.
Great
Plains is a strong company, both financially and operationally. Following the
close of the transaction, Aquila's remaining debt is anticipated to be
investment grade. Furthermore, shareholders will have access to enhanced rate
base investments, which we expect to fuel long-term earnings growth. Customers
will benefit from lower-than-expected rate increases.
I'm
confident that current Aquila customers, whom we are committed to serving every
day, will benefit from the strength of the combined company. Operationally,
this
is a compelling opportunity for Aquila as it complements our core business
strategy.
Before
I
close, I'd like to note that through the process of bringing this transaction
together, I've come to know the Great Plains and Black Hills organizations
well,
and recognize that our companies share many similar values. I look forward
to
working closely with Mike and David and members of the Great Plains and Black
Hills team to get the deal done as quickly as possible and deliver its benefits
to the respective constituents.
With
that, I will now turn the call over to David who will briefly walk through
the
Black Hills Aquila transaction.
David
Emery
Thank
you, Rick. I'm very pleased that Black Hills is a part of this strategic
transaction. First I want to personally thank you and Mike for your hard work,
cooperation and professionalism through this process. It's been a real pleasure
seeing this deal come together. We're pleased to be a part of this transaction
that will better serve our customers and build shareholder value. For Black
Hills Corporation this is an exciting day, where we begin taking steps to
significantly expand our retail utility presence.
From
our
perspective at Black Hills, the merits of our acquisition of Aquila's operations
and assets in Colorado, Kansas, Nebraska and Iowa fall into three broad
categories. First we have the strategy, skills, experience and track record
to
make this deal work. That includes our strong utility operations and commitment
to superior customer service and value; our proven expertise in planning,
construction, integration and maintenance of assets; our positive relationship
based approach to regulatory issues; our practice of technical innovation and
environmental safety; and our taking our corporate responsibility, social
responsibility, seriously through a strong commitment to the communities that
we
serve.
Second,
the transaction will benefit our customers, investors and employees. Our
customers will benefit from improved economies of scale, operational
efficiencies and integrated business functions. Our investors should benefit
from our expanded operations, improved cash flow and earnings, improved growth
potential and improved credit standing. And our employees will have increased
opportunity for personal and professional growth.
Third,
the transaction lowers Black Hills overall business risk. We will enjoy strong
cash flow and a strong earnings base from stable, risk-managed and
geographically diverse operations.
I
won't
take the time to walk you through the next slide in detail, but as you can
see,
this transaction will enhance the position of Black Hills as a regional
diversified energy company with a concentration in electric and gas utilities
in
neighboring Midwest and Rocky Mountain states.
And
as
the next slide indicates, our utilities will be located in seven adjoining
states in the Midwest and the Rockies that have similar demographics and
business environments. That geographic proximity should permit some
consolidation of administrative functions while retaining the high quality
of
service that is one of our defining characteristics.
So
we are
very pleased to be part of this transaction. It makes great strategic,
operational and financial sense to us. We like the utility assets and the
service territories. We expect earnings accretion in the second full year of
operations. We're committed to constructive regulatory relationships, just
as we
are in our current states of operation.
We
also
see potential upside from the possible vertical integration of the electric
properties in Colorado. We look forward to serving the customers and welcoming
the employees of Aquila's utility operations in Colorado, Kansas, Nebraska
and
Iowa. We expect to hire essentially all of the employees in those four
states.
I'd
also
like to mention that Black Hills will be hosting a conference call on Thursday,
February 8 at 10 AM Eastern. Dial in details are on our on our website,
blackhillscorp.com.
Again
I
thank Mike and Rick for their part in this momentous occasion and I thank all
of
you that are participating in the webcast today. We are happy to be part of
a
deal that in our view will help us achieve our goal of building the long-term
value of Black Hills Corporation for our shareholders.
I
will
now turn the call back over to Mike Chesser with Great Plains.
Mike?
Mike
Chesser
Thanks,
David. I share everyone's enthusiasm for this compelling combination, and I
look
forward to working with you and Rick to complete this transaction.
KCP&L
and Aquila share a strong commitment to customer service and satisfaction in
supporting the communities in which we operate. As illustrated on slide 16,
Great Plains serves part of eastern Kansas, in addition to parts of Metropolitan
Kansas City through our KCP&L subsidiary. Aquila provides service in
Missouri through its Missouri Public Service division, and in the suburbs of
Kansas City and in and around the city of St. Joseph through its St. Joseph
Light and Power division.
In
regards to combined generating capacity, the enterprise will operate 19
generating units providing approximately 5,800 megawatts of power to our
customers and selling into the wholesale market. Additionally, on a combined
basis, the company will have approximately 3,300 miles of transmission lines.
With
the
addition of Aquila's properties we are enhancing our scope and scale through
Western Missouri. Furthermore, due to the complementary nature of KCP&L’s
and Aquila's portfolios as well as their familiarity and geographic proximity,
we expect to be able to leverage the strengths of each company and realize
significant synergies. Great Plains and our KCP&L subsidiary are already
strong, but now we will be even better equipped to service our customers and
to
deliver value to our shareholders.
Turning
to slide 17, we see the combined scale and operating statistics of KCP&L and
Aquila. The middle column reflects KCP&L and Aquila's business profile on a
post transaction basis. The addition of Aquila's approximately 300,000 customers
will increase KCP&L and Aquila's total residential and commercial and
industrial customer base by 60% to almost 800,000. As a result of this enhanced
customer base, Great Plains Energy's utility revenues are expected to increase
by nearly 50% to $1.7 billion.
As
part
of its comprehensive energy plan, Great Plains has regulated generation assets
under construction. However this transaction will substantially increase total
generating capacity by about 43% to approximately 5800 megawatts. Clearly Great
Plains Energy will be a stronger company with additional capacity and lowered
cost to benefit all of its constituents.
Both
KCP&L and Aquila have pending rate cases, which I will go through at a high
level. Aquila has an ongoing rate case in Missouri for both its Missouri Public
Service and St. Joseph Electric properties scheduled to conclude in late May
of
this year. KCP&L has filed a stand-alone rate case in Missouri last week and
plans to file a stand-alone case in Kansas on March 1, both scheduled for
conclusion by the end of 2007. We anticipate that these cases will be treated
on
a stand-alone basis.
We
will
be filing a merger case in both Missouri and Kansas. We also expect that
KCP&L and Aquila will need to raise rates over the next few years primarily
due to the large capital investments that both utilities have underway. We
share
ownership of the investments in both Iatan 1 and Iatan 2 and plan for
investments consistent with KCP&L's comprehensive energy plan to be
undertaken by Aquila.
Given
the
significant synergies involved in this transaction, we project that overall
customer rate increases will be significantly lower than would have been the
case on an Aquila stand-alone basis.
I
will
now turn the call over to Terry to discuss the financial highlights of this
transaction.
Terry
Bassham
Thanks,
Mike. Looking at the financial benefits from a high level, we expect synergies
over a five-year period of $500 million, with costs to achieve of $185 million
following the transaction close. The transaction is expected to be modestly
dilutive to Great Plains 2008 EPS and accretive beginning in 2009.
Additionally
the transaction is expected to enhance Great Plains earnings growth prospects.
We are both owners with Aquila and others of Iatan 1 and Iatan 2. KCP&L has
been making substantial progress over the year on its comprehensive energy
plan.
Work has begun on the environmental upgrades at Iatan 1 and the construction
activity for Iatan 2 is well underway. We do not expect the combination with
Aquila to affect the timing of the implementation of KCP&L's comprehensive
energy plan, and we expect synergies resulting from the transaction to help
reduce rate increases for Aquila customers even while investing additional
capital at Aquila.
Supporting
our investment plan will be a strong Great Plains Energy balance sheet. Great
Plains is committed to investment grade credit ratings, and our target equity
ratio remains at approximately 55%. We anticipate utilizing about $265 million
of proceeds from the Black Hills transaction to reduce Aquila debt. In addition,
we plan to refinance even more of their debt to help achieve interest expense
savings of approximately $38 million annually. From our perspective, we have
structured a tax efficient transaction. We anticipate that there will be minimal
tax on the sale of assets to Black Hills, and a majority of the proceeds from
the asset sale to Black Hills will be used to pay the cash portion of the Great
Plains acquisition and to pay down Aquila debt. Aquila's remaining net operating
loss tax benefits are anticipated to be utilized by Great Plains over the next
several years following the close.
Of
course, cost-saving synergies are a significant component of the economic
rationale for the transaction as they have important and positive implications
for both shareholders and customers. We are comfortable that the synergies
we
have outlined are achievable. Of our $500 million in total synergies over any
five-year period, a substantial portion of the savings -- about $310 million
--
will come from operating synergies. Another approximately $190 million will
come
from reduced interest expense.
There
are
four major components as you can see in the pie chart. The first is interest
savings. We are confident in the continued strength of Great Plains post
transaction, and we expect to retain a favorable credit rating which will enable
us to finance Aquila-planned capital expenditures at a lower cost. Combined
with
step-down provisions on two existing notes, expected debt retirement and debt
financing, we anticipate interest savings of approximately $38 million per
year.
There
will also be significant benefits of scale and improved efficiency in shared
services functions and eliminating duplicate expenses. Operational savings
are
enabled by serving the same metropolitan area. Incremental capital investment
and information technology and infrastructure will also result in operational
synergies. And, finally, we expect significant supply chain savings through
economies of scale in purchasing and improved logistics.
In
total,
these estimated synergies average about $100 million each year with some
variation reflecting a longer ramp-up time for operational
efficiencies.
Slide
21
shows that Great Plains anticipates capital investments, consistent with
KCP&L's comprehensive energy plan, of approximately $680 million for the
period from 2007 to 2011; in particular, new generation, infrastructure,
environmental upgrades, and affordability and energy efficiency programs. As
a
result, we expect Aquila rate base to increase by approximately 16% on an annual
compounded basis to approximately $1.9 billion by the end of 2011.
I
will
now turn the call back over to Mike.
Mike
Chesser
Thanks,
Terry. We have described here a clear timeline for when we expect the
transaction to close. We anticipate getting the process moving immediately
and
making our regulatory filings this quarter. We expect to work very closely
with
the appropriate regulatory officials. We believe that both transactions are
relatively straightforward, so we anticipate securing regulatory approvals
in
order to close in about one year.
Throughout
this process, Rick, Dave and I have developed a good rapport and a lot of trust.
An efficient integration process is key to realizing the benefits of this
transaction, and in the coming weeks we will be working hard on developing
a
comprehensive integration plan. Of course, the integration of KCP&L and
Aquila's utility operations will only start following the transaction close.
An
important element of this innovative transaction is that Great Plains Energy
and
Black Hills Corporation are each acquiring the Aquila assets that are strategic
to each of our businesses. We believe this removes a significant element of
risk.
While
today is a proud day for all of Great Plains, clearly there's a lot of work
ahead and we're all excited to get started.
So
in
summary, this focused, regional acquisition clearly delivers value to Great
Plains shareholders and provides benefits to our customers, employees and
communities. The acquisition of Aquila advances our strategic intent and forges
a strong regional utility serving the Greater Kansas City area. We believe
that
Aquila shareholders will benefit from the upside potential of the combination,
through the receipt of Great Plains stock. We are pleased that Dave and the
Black Hills organization is participating in this transaction.
This
has
been a highly collaborative process and we have great confidence in our ability
to close and just as importantly to execute.
I
thank
you for your time and interest in these transactions. With that I will turn
the
call over to the operator and we will take your questions. One thing I will
ask
is that we are hoping today to be able to answer questions on the details of
this deal. I would remind you that both Great Plains Energy and Black Hills
have
earnings calls or investor conference calls tomorrow where you can explore
more
deeply the implications of the deal on our specific companies. So hopefully
today we can give you the best insight that we can onto the strategic aspects
of
this deal.
With
that, operator?
Operator
(OPERATOR
INSTRUCTIONS). Erica Piserchia with Merrill Lynch.
Erica
Piserchia
Congratulations.
Just a couple of quick questions. Wondering because of the unique structure
of
this deal, whether or not you can give us some sense of the EBITDA multiple
paid
for your portion of the assets?
Mike
Chesser
Terry.
Terry
Bassham
From
a
Great Plains perspective, if you look at the current EBITDA multiple it might
appear higher than the norm. We are obviously looking at not just the current
status of the company but also the rate case they have on file, and the rate
base growth which I discussed in my comments would grow considerably over the
next several years. And we think with that growth we are looking at about an
8
to 9 times multiple on expected EBITDA.
Erica
Piserchia
Okay.
Can
you just remind us what the -- I don't know if you know what the Aquila
utilities have been earning on a trailing twelve-month basis and what they've
requested in the current rate cases?
Terry
Bassham
Well,
I'm
familiar with what they've requested in the rate cases, but in terms of a
trailing earnings, I'm not as familiar with. I'm sure we can get that
information for you.
Erica
Piserchia
What
are
they asking for?
Terry
Bassham
They
were
asking for, I believe, about $93 million in the rate case and then there is
some
staff testimony on file that you could see, as well, in terms of the current
status of the case.
Erica
Piserchia
What
would be ROE there?
Mike
Chesser
Let
me
ask Rick to chime in here; I think it would be more appropriate for him to
address that case.
Rick
Green
The
ROE
that we have is staff's recommendation and they've come in at about 9.25%.
However, we filed for an ROE that is in the 11% range. In recent cases the
Commission has decided more on the 11% range than what's staff's recommendation.
But that has yet to be seen for us. But the timing for that case will be June
of
this year when we get through hearings and decision for that.
Erica
Piserchia
And
then
the other thing, the $185 million of cost to achieve, would that be coming
all
in the first year? Or post close or?
Mike
Chesser
A
large
part of it will be in the first year but some of it will be spread out over
the
next five years.
Erica
Piserchia
Okay.
Thank you.
Operator
Paul
Ridzon of KeyBank.
Good
morning; congratulations. When you say dilution, is that factoring in cost
to
achieve?
Mike
Chesser
Yes.
It
does.
Paul
Ridzon
And
then
the proceeds from the sale of Aquila to Black Hills and non-Missouri assets
do
you expect any tax leakage around that $940 million?
Terry
Bassham
Not
material.
Erica
Piserchia
And
what
is the level of NOLs that you expect to inherit?
Terry
Bassham
The
total
number right now is about $600 million. So there will be some left when the
transaction is over, there will be some remaining and those will be utilized
by
us over the five-year period after.
Paul
Ridzon
And
with
the excess cash, can you give us a sense of what the balance sheet should look
like and how that interties with potential financing to continue financing
construction?
Terry
Bassham
In
general what we would expect to do, as we've discussed, is we would utilize
proceeds from Black Hills to make payment of $1.80 per share and then there
would be about $265 million left to pay down debt. We'll then be looking from
there to refinance. There's also proceeds from the Kansas sale that will be
closed here pretty soon. And we will be looking over the course of the year
to
how to manage that and work with S&P and Moody's, obviously, to get to a
point where we believe it would be investment grade. And we would manage that
process over the course of the next twelve months.
Paul
Ridzon
Over
the
next several years, you need external funds to continue with the
Iatan?
Terry
Bassham
Not
for
KCP&L's piece. We don't need any additional funds that aren't already built
into our plan.
Paul
Ridzon
Thank
you.
Operator
Michael
Lapides, Goldman Sachs.
Michael
Lapides
Rick,
I
want to ask about your rate base growth forecast. And really the main question
is, how were you prior to this transaction thinking about financing that rate
base growth?
Rick
Green
Most
of
our rate base growth is already financed. We have a $300 million facility for
our Iatan expenditures. And so we didn't have any other external financings
that
we really needed for that growth. And what our analysts have been talking about
in general is a run rate EBITDA for us of $280 to $300 million and that probably
run rate would have begun in 2008. So that gives you kind of a sense of what
our
earnings would be going forward.
Michael
Lapides
And
when
we think about -- when I think about the consolidated company post transaction
and kind of with '08 or '09, let's go out a little bit further than that. I
am
kind of getting a back of the envelope rate base at KCP&L in the high
three's, like $3.8 or $3.9 billion. And you forecast here roughly about $1.9
at
combined St. Joseph and MoPub. So that is $5.8, roughly, billion total rate
base. And if I kind of think about equity component and ROE being in the 53
to
55% and the 10.75 to 11.25% range. That is around $330 million or so of
earnings, kind of back of the envelope. And so it's directionally, are we
thinking about it the right way, just kind of thinking long, long term, not
necessarily next two years?
Rick
Green
By
God,
it sounds like you ought to come here and help us work the models.
Terry
Bassham
In
terms
of rate base size, Mike, you are certainly in the ballpark. In terms of equity
percentages we talked about our targets, we’ve obviously got a lot of work to
continue to do with regulators as we go through, but in terms of size of rate
base you are certainly in the ballpark.
Michael
Lapides
Thanks,
guys.
Operator
Tom
Buckler [phonetic] of GE Asset Management.
Tom
Buckler
Good
morning. You mentioned you anticipated favorable rating agency treatment for
Great Plains. Specifically, does that mean that you anticipate keeping your
current ratings or are you willing to accept a modest downgrade?
Mike
Chesser
We
expect
to keep our current ratings. We think that the mix of equity and debt that
is
involved in this deal and the track record that we have had of regulatory
treatment should enable us to keep the current rating.
Tom
Buckler
Have
you
had conversations with the agencies?
Mike
Chesser
We
continuously have conversations with them. I'm sure, as you would expect, we
had
pretty detailed conversations with them about the assumptions on this
deal.
Tom
Perfect.
Thanks very much.
Operator
Charles
Sherret [phonetic] of UBS.
Charles
Sherret
Good
morning. It said in the press release that Great Plains is assuming one billion
in net debt. Does that number include cash from the pending asset sale, the
Kansas asset sale?
Mike
Chesser
No,
it
does not. That would be in addition to that.
Charles
And
all
the debt is going to be at Aquila - at the new operating company?
Mike
Chesser
Yes.
Charles
Sherret
Thank
you
very much.
Operator
Kathleen
Buehetich at WH Reeves
Kathleen
Buehetich
Good
morning. Could I ask both Mike and Dave if either of you plan on an equity
offering this year?
Mike
Chesser
From
our
perspective it is -- we have a FELINE PRIDES conversion but other then that,
no.
David
Emery
Kathleen,
from a Black Hills perspective, the timing of an equity offering is not
determined at this time, but certainly we will have one in conjunction with
this
$940 million acquisition. We may choose to do it pre-close, but certainly if
not
done pre-close, with our financing commitment we have we would do it post
close.
Kathleen
Buehetich
Okay,
thanks. Can I also ask what the rate of demographic growth is for both companies
for the Missouri properties and then for the properties Black Hills are
purchasing?
Mike
Chesser
I
can
speak for Great Plains, or Kansas City Power and Light, is about 2%, Rick,
your
--?
Rick
Green
Our
Missouri properties around the Kansas City area is at around 3%.
Kathleen
Buehetich
Dave,
do
you have a demographic growth for the properties you are buying?
David
Emery
Rick
probably knows the specific numbers better than I do. But certainly the Colorado
properties are fairly high growth rate, and a 3, 4, 5% range. The other
properties are a little more stable, probably in the zero to 2%
range.
Kathleen
Buehetich
Thank
you
both so much, I appreciate it.
Operator
Doug
Fischer of A.G. Edwards.
Doug
Fischer
Thank
you
and congratulations. Would you comment from a Great Plains perspective on how
you would propose that the Missouri regulators deal with savings, et cetera,
or
is that a question you want to save for tomorrow?
Mike
Chesser
No,
I can
give you just a general sense. Our approach of working with the regulators
is
not that we are going to come in with a hard and fast proposal and try to sell
them on it. We instead intend to sit down with them and look at all the benefits
that are being generated, look at the need to maintain credit rating for
finances as we go forward. And work with them in a give and take mode and
collaborate it to come up with something that is mutually agreeable to all
of
us. For that reason, just as we did with our stipulation we are reluctant to
speculate on the exact format of the agreement.
Doug
Fischer
But
would
it be fair to say that you will be asking them for the ability to retain some
material portion of the operational and interest savings to justify the
transaction and basically to help solidify the utility situation in
Missouri?
Mike
Chesser
Sure.
We
will be and we think there is enough benefits in this transaction to go around.
I think there is clear benefits for the customers and there will be clear
benefits for our shareholders.
Doug
Fischer
What
is
the legal standard in Missouri for approving a merger?
Rick
Green
It
is no
net detriment; in recent cases going back to our St. Joe Light and Power
acquisition and the recent Ameren acquisitions, the decisions have come out
to
be no net detriment. So you have the opportunity to look forward to benefits
in
a net amount. And clearly in this transaction we see customers coming out ahead
with a lot of positives and that is the kind of regulatory plan we will be
moving ahead with.
Doug
Fischer
Thank
you, Rick.
Operator
Judd
Arnold of King Street.
Judd
Arnold
On
slide
six, where you have the new organizational structure, you got Great Plains
in
the middle, KCP&L on the left and Aquila on the right. I was wondering from
a debt perspective is there going to be a guarantee from Great Plains
guaranteeing all the Aquila debt that you are assuming?
Terry
Bassham
Yes,
it
certainly would.
Judd
Arnold
Okay,
that was my only question. Thank you.
Operator
Thomas
Hudson of Pirate Capital.
Thomas
Hudson
Actually
it's more a statement than I think a question. But I think before a lot more
time and money is wasted on this transaction you should really poll the largest
Aquila investors to see if they are interested in signing up for this deal.
We
own about 5% of the company, Aquila, and we will vote against this
transaction.
Rick
Green
Thank
you, Tom. And Tom we are going to be back tomorrow for one-on-one's and I'd
look
forward to the opportunity to talk to you about it.
Operator
Paul
Patterson of Glenrock.
Paul
Patterson
Good
morning, can you hear me? Just wanted to know the goodwill associated with
the
transaction; I missed it, what was it?
Terry
Bassham
It
will
be less than $100 million we think.
Paul
Patterson
For
Great
Plains?
Terry
Bassham
Yes
sir.
Paul
Patterson
And
then
the NOLs after the Black Hills sale, you said was $600 million before; what
would it be after?
Terry
Bassham
I
think
in the range of $300 to $400 million, there is one issue in question that could
vary a little bit but about $300 or $400 million worth.
Paul
Patterson
Great.
It
does seem like it's a very customer oriented transaction and I'm wondering
just
how much of these synergies do you think, I mean, since you are going through
multiple rate cases and what have you, how much of these synergies do you think
will not go back to rate payers, if you follow me?
Mike
Chesser
As
I said
it is not appropriate for us to speculate because there are synergies, there's
interest savings, there's maintaining our credit rating. We need to get in
and
talk with the staffs of both regulatory commissions and work through what we
think the right distribution would be. Having said that, I believe Great Plains
has a good track record of being able to maintain a fair balance of benefits
for
customers and shareholders.
Paul
Patterson
Okay.
And
then finally Black Hills I guess tomorrow you are going to give us more
information on synergies and stuff like that?
David
Emery
Yes,
we
will plan on having a separate call tomorrow and then a separate investor
presentation is released today; if it's not already out.
Paul
Patterson
Thanks
a
lot, guys.
Operator
Ryan
Todeo [phonetic] of Bank of New York.
Ryan
Todeo
Good
morning. I have one quick question; of the $265 million debt reduction you
mentioned and the potential refinancings, you mentioned -- have you earmarked
any specific issues at Aquila that you are looking to either take out or
refi?
Rick
Green
No,
we
have not.
Ryan
Todeo
Is
it
safe to say the bonds with the two step up, step down language and the higher
coupon stuff is probably top of the list?
Rick
Green
Again
we
will look at what works best. We really haven't earmarked any particular thing,
we just looked at the total funding.
Ryan Todeo
Okay,
thank you very much.
Operator
Michael
Goldenberg of Luminous Management.
Michael
Goldenberg
Good
morning. Have a question for Rick Green. I was just wondering if you could
go
over the thinking by Aquila's management of comparing the sale of the company
versus continuing to operate as a standalone especially in the light of the
closing price of yesterday?
Rick
Green
Michael,
at the beginning of the year we started getting quite a bit of incoming interest
on the company. And starting in May we formalized that engaging Blackstone
and
Lehman to run a more formal process. In that process we had every category
of
buyer that you've seen in the market. And went through that process. The end
result and the best opportunity for shareholders was the transaction that we
are
announcing today.
So
as we
look at it today and look at what we consider and what Lehman and Blackstone
advice is this is an undisturbed price given the number of rumors that have
been
circulating around Aquila of being more in the $4.11, $4.12 range. Also if
you
look at it from an EBITDA point of view the run rate that you and others have
been looking at, the $280 to $300 million you're up in 9.3, 9.6 times EBITDA
which is a healthy multiple also. So those factors after running a full process
is what brought the board and management to a decision that we've announced
today.
Michael
Goldenberg
And
a
question for Mr. Mike Chesser. Mike, can you talk a little bit more about the
synergies and how you envision the split between customers and shareholders,
utility versus corporate or even the timing of achieving those
synergies?
Mike
Chesser
One
thing
I can share with you is that we expect that looking at the operating synergies,
that most of that will occur through staff positions where we are estimating
somewhere between 250 and 350 positions could be impacted over the first few
years in the combination. The operating employees will pretty much stay intact
and we think that there is some significant savings in the staff position;
also
in fuel costs and other and potentially down the road from generation benefits.
And we do believe that it would be fair for us to engage with the regulators
in
a way to share those synergies with between the customers and the shareholders.
As I say the exact format of that is there are many ways to skin a cat and
we
are very interested in how the regulators think it would work best.
Michael
Goldenberg
Any
more
color on the actual dollar amounts and the timing of achieving
those?
Mike
Chesser
We
talked
about $500 million and with about $185 million to achieve, and we expect to
ramp
up those synergies over the first few years.
Michael
Goldenberg
And
finally, gentlemen, can you go over for each company exact approval, shareholder
vote approval? Is it over 50%; is it two-thirds; are there any other intricacies
for each of the companies for shareholder approval?
Rick
Green
Michael,
for Aquila the threshold for us is 50% plus one of outstanding shares. And
so
that -- and we look at the timing in working with Great Plains of getting the
proxy together and so on, and reviewed by the SEC, are going to put us out
in
probably the June timeframe.
Mike
Chesser
And
for
us Michael it's the majority of those voting.
Michael
Goldenberg
Okay,
so
both are 50 plus one?
Mike
Chesser
Right.
Rick
Green
Well,
mine is a little higher threshold; it is 50 plus one of outstanding
voting.
Michael
Goldenberg
Okay
so a
non-vote is a no vote?
Rick
Green
Right.
Michael
Goldenberg
Okay.
Got
you. Thank you.
Operator
Brian
Russo of Ladenburg Thalmann.
Brian
Russo
I
guess
I'm just interested in hearing more about your confidence of getting the deal
done in one year which seems to be a rather large threshold for shareholders
of
Aquila to approve the deal. And then the various regulatory hurdles that need
to
be overcome, or approvals that need to be overcome. It seems like most deals
are
taking longer than one year to get approved these days.
Mike
Chesser
Well,
just from my perspective I believe the Cinergy Duke deal got done in nine or
ten
months, something like that fairly quickly. This is a very straightforward
deal.
It is in the same state for the main part of the approvals that would have
to be
attained with the electric assets between us and Aquila. It's in the same state,
we are not asking for a lot of complex issues or requirements. And so I believe
that going through this in year it's certainly a lot less complex to us than
a
rate case would be and we get a rate case done in a year. Dave, you want to
talk
about the --
David
Emery
From
a
Black Hills perspective on the [five] utilities we are acquiring, it’s a
seamless transaction from a customer's perspective. If the operating employees
will just come along with the transaction so it really won't be any change
to
customers. So certainly from that perspective as the regulatory Commissioners
look at it it's going to be viewed as a positive in our opinion. We have great
regulatory relationships in the states in which we currently operate; we would
anticipate translating those in the new states which we are excited to begin
operating in. We also have recent history here about 2005 of closing another
utility acquisition in Wyoming. And it has gone extremely well for us. We closed
it quickly and have fully integrated those operations. I think anything that
could be pointed to as a negative here from a regulatory perspective has been
completely addressed. Really seamless customer beneficial transaction. So it
should not have any problem with regulatory approvals.
Brian
Russo
And
just
lastly this question is for Rick Green. Rick could you maybe just elaborate
some
more on the discussions with the various entities when considering offers for
the company? And is this deal considered the best price for ILA shareholders
or
are there more factors involved like ease of regulatory approvals or customers
and shareholder synergies?
Rick
Green
Brian,
I
think through the process and all the discussions which because of
confidentiality with all those I can't go into specifics. But clearly I think
this was the best value, clearly regulatory approval ability to get that weighs
into it. But didn't really see that in this process to be something that caused
any problem with seeking good value at the same time.
Brian
Russo
Okay,
thank you.
Mike
Chesser
Operator,
we'd like to take one more question if we could because you all might expect
we
have quite a busy schedule ahead of us today.
Operator
Michael
Lapides of Goldman Sachs.
Michael
Lapides
Easy
one.
Mike, Terry, what are your thoughts on the peaking plant, the gas plant that
Aquila owns?
Mike
Chesser
At
this
stage as you know it is in litigation. And it has been appealed or it has been
ruled on and appealed and it's being re-appealed. We have done quite a bit
of
due diligence around the potential outcomes on that and we have factored that
impact into our purchase price.
Michael
Lapides
I'm
thinking not the regulated one but the merchant one.
Terry
Bassham
Crossroads.
Michael
Lapides
My
apologies for not being --
Terry
Bassham
That
is
okay, Michael. As Mike said we looked at (indiscernible) from a Crossroads
perspective. We looked at the ability to utilize that or sell it. Our preference
would be probably to get value through monetizing it. But if not we've looked
at
other options as well.
Michael
Lapides
Okay,
thanks, guys.
Mike
Chesser
And
again
I would like to thank you all for your interest. We had a lot more people on
the
call today than we have on our regular earnings calls and you have our
commitment we will continue to keep you posted as we go through this process.
Rick and I will be in New York next week or the next few days meeting one on
one; we have earnings calls tomorrow, Dave and I both have earnings calls.
So we
will keep the communication up and please keep communicating with our IR folks,
it's important to us that you get as much insight into this deal as you
can.
David
Emery
Quick
correction, Mike, (indiscernible) call tomorrow, this is going to be a deal
transaction call not an earnings call. And we also will be out this week doing
some investor meetings and things too.
Mike
Chesser
Great.
But keep the communication flowing.
Operator
Ladies
and gentlemen, thank you for participating in today's conference. This concludes
the program. You may now disconnect.
Information
Concerning Forward-Looking Statements
Statements
made in this document that are not based on historical facts are
forward-looking, may involve risks and uncertainties, and are intended to
be as
of the date when made. In connection with the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995, Great Plains Energy is
providing a number of important factors, risks and uncertainties that could
cause actual results to differ materially for the provided forward-looking
information. These include: obtaining shareholder approvals required for
the
transactions; the timing of, and the conditions imposed by, regulatory approvals
required for the transactions; satisfying the conditions to the closing of
the
transactions; Great Plains Energy successfully integrating the acquired Aquila,
Inc., businesses into its other operations, avoiding problems which may result
in either company not operating as effectively and efficiently as expected;
the
timing and amount of cost-cutting synergies; unexpected costs or unexpected
liabilities, or the effects of purchase accounting may be different from
Great
Plains Energy’s expectations; the actual resulting credit ratings of Great
Plains Energy or Aquila, Inc., or their respective subsidiaries; the effects
on
the businesses of Great Plains Energy or Aquila, Inc., resulting from
uncertainty surrounding the transactions; the effect of future regulatory
or
legislative actions on Great Plains Energy or Aquila, Inc.; and other economic,
business, and/or competitive factors. Additional factors that may affect
the
future results of Great Plains Energy are set forth in its most recent quarterly
report on Form 10-Q or annual report on Form 10-K with the Securities and
Exchange Commission ("SEC"), which are available at www.greatplainsenergy.com.
Great Plains Energy undertakes no obligation to publicly update or revise
any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Additional
Information and Where to Find It
In
connection with the acquisition of Aquila, Inc., by Great Plains Energy,
Great
Plains Energy intends to file with the SEC a registration statement on Form
S-4,
containing a joint proxy statement/prospectus and other relevant materials.
The
final joint proxy statement/prospectus will be mailed to the stockholders
of
Great Plains Energy and Aquila, Inc.. INVESTORS AND SECURITY HOLDERS OF GREAT
PLAINS ENERGY AND AQUILA, INC., ARE URGED TO READ THE JOINT PROXY
STATEMENT/PROSPECTUS AND THE OTHER RELEVANT MATERIALS WHEN THEY BECOME AVAILABLE
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT GREAT PLAINS ENERGY,
AQUILA, INC., AND THE ACQUISITION. The registration statement and joint proxy
statement/prospectus and other relevant materials (when they become available),
and any other documents filed by Great Plains Energy or Aquila, Inc., with
the
SEC, may be obtained free of charge at the SEC’s web site at www.sec.gov. In
addition, investors and security holders may obtain free copies of the documents
(when they are available) filed with the SEC by Great Plains Energy by directing
a request to: Great Plains Energy, 1201 Walnut, Kansas City, MO 64106, Attn:
Investor Relations. Investors and security holders may obtain free copies
of the
documents filed with the SEC by Aquila, Inc., by contacting Aquila, Inc.,
20
West Ninth Street, Kansas City, MO 64105, Attn: Investor Relations.
Participants
in Proxy Solicitation
Great
Plains Energy, Aquila, Inc., and their respective executive officers and
directors may be deemed to be participants in the solicitation of proxies
relating to the proposed transaction. Information about the executive officers
and directors of Great Plains Energy and their ownership of Great Plains
Energy
common stock is set forth in Great Plains Energy’s Annual Report on Form 10-K
for the year ended December 31, 2005, which was filed with the SEC on March
8,
2006, and the proxy statement for Great Plains Energy’s 2006 Annual Meeting of
Stockholders, which was filed with the SEC on March 20, 2006. Information
regarding Aquila, Inc., directors and executive officers and their ownership
of
Aquila, Inc., common stock is set forth in Aquila’s Annual Report on Form 10-K
for the year ended December 31, 2005, which was filed with the SEC on March
7,
2006 and the proxy statement for Aquila’s 2006 Annual Meeting of Stockholders,
which was filed with the SEC on March 24, 2006. Investors and security holders
may obtain more detailed information regarding the direct and indirect interests
of Great Plains Energy, Aquila, Inc., and their respective executive officers
and directors in the proposed transaction by reading the joint proxy
statement/prospectus regarding the proposed transaction when it becomes
available.
