Utilicorp to acquire Empire District Electric

by Karen E. Culp

SBJ Staff

Utilicorp United, a Kansas City-based investor-owned utility, will soon have a presence all around Springfield. The company entered into an agreement May 11 to acquire Empire District Electric, a 90-year-old company based in Joplin that serves 145,000 utility customers in southwest Missouri and in Kansas, Oklahoma and Arkansas.

The cash-and-stock transaction is valued at $800 million, including the assumption of $260 million of Empire's debt, said Myron McKinney, Empire's president and chief executive officer. McKinney said the merger provides Empire with a "unique opportunity" to get itself into a better financial situation before restructuring of the electric industry occurs.

"One of our big concerns is that the margins tend to get thinner when you grow rapidly, and we would rather spread our fixed costs out a little more over more customers so as to increase those margins. For us this provides some greater financial leverage in that we will be part of this larger entity," McKinney said.

Utilicorp announced a similar agreement with St. Joseph Power & Light Company, another investor-owned utility company, in March. Both transactions will close sometime in 2000, said Amy Bass, a spokeswoman for Empire.

"The St. Joseph territory will fit into the area Utilicorp is already serving on the north side, and we will take them on through the south side of Missouri," McKinney said. The structure will take Utilicorp through Missouri's entire western side and into some states it is not currently serving, said company spokesman George Minter.

Utilicorp now has customers in West Virginia, Nebraska, Iowa, Michigan, Minnesota, Kansas and Colorado, as well as Missouri, and also has a presence in the United Kingdom, Canada, New Zealand and Australia, Minter said.

It is Utilicorp's intention to be the premier mid-continent utility company, Minter said.

"What we're doing to further that is to participate in these small mergers that are different from some of the mega-mergers out there in the arena now," Minter said.

The acquisition is subject to federal and state (Public Service Commission) regulatory review and approval, McKinney said. These types of transactions typically take about one year to complete.

The transaction will be a boon for Empire stockholders, said Robin Diedrich, a utility analyst with Edward Jones in St. Louis.

"For Empire, this could have the best possible outcome in that it will benefit their shareholders. They have had a long-standing reputation as a low-cost utility provider for customers, but their earnings returns have been sub-par when compared to the rest of the utility companies in the state. Their dividends have been so low that at one point they could have been cut," Diedrich said.

The merger will give the company the ability to keep its costs low but "allow its margins to improve. It's really a dual benefit for the company in that respect," Diedrich said.

The deal represents a premium to Empire District shareholders of 39 percent based on Empire's closing share price of $21.25 May 10, McKinney said.

Locally, other electric providers were somewhat concerned about the merger. Chris Hamon, general manager of White River Electric Cooperative, a Branson-based rural energy provider, said the company competes with Empire anyway, so some of the same concerns will continue.

"We're already higher (in cost) than Empire because of density, so we're concerned about that now," Hamon said.

The cooperative serves Stone, Taney, Christian, Douglas and Ozark counties, and has about 38,000 meters.

Jerry Divin said his company, Southwest Electric Cooperative, which has its headquarters in Bolivar, already competes with a Utilicorp company in the area it services near Warsaw. Missouri Public Service Co. is a Utilicorp company that has customers in that area, Divin said.

"We've already come up against them up there, and we've had a good working relationship with them around Warsaw," Divin said.

Divin, Hamon and Jerry Mayberry, general manager of Ozark Electric Cooperative, said focus on the customer will help them compete in an industry where the big companies will continue to get bigger.

"If you're reliable and can keep your costs down, then you are doing what your customers need you to do. I believe people like to shop locally, but they want a competitive rate. If they can get a better rate with someone else, of course they're going to take advantage of that," Mayberry said.

John Twitty, deputy general manager at City Utilities, said a company as large and with as strong a presence in western Missouri as Utilicorp could have an impact on rates for everyone.

"When you're dealing with an entity that large, the question becomes, 'can you dictate rates?' This company will have what we call market power, meaning they will be the predominant supplier in this region of the country," Twitty said.[[In-content Ad]]