Kansas City-based Evergy, a utility holding company created just a year ago by the merger of Westar Energy and Great Plains Energy, parent of Kansas City Power & Light, may be headed to the exit. Bloomberg reported this week that the company has multiple suitors.
The most likely to succeed is Ohio-based giant American Electric Power, according to several anonymous industry sources. In addition to AEP, the likely bidders for Evergy include NextEra, WEC, CMS Energy, and Ameren. NextEra, long active in the acquisition hunt, has suffered recent defeats in Hawaii, Texas and Florida.
Bloomberg this week said Evergy “is expected to kick off a formal process next month after pressure from activist investor Elliott Management Corp. to improve its operations or sell itself, according to people familiar with the matter.”
In January, Elliott, which owns some 11.3 million Evergy shares, sent the Kansas utility company a letter demanding that it clean up its management act. The letter said that “a renewed focus on improving core utility operations and investing in Evergy’s critical system infrastructure can rectify its prolonged underperformance, discounted valuation and associated increased cost of capital.”
In March, Evergy essentially capitulated to Elliott, agreeing to a “strategic review” of its operations to find ways to improve the company’s financial performance. Bloomberg said Evergy wants to have serious acquisition proposals in place before a July 30 deadline set for that review of operations a the company’s board of directors.
Bloomberg added, “The process is in its early stages and there is no guarantee any of the parties would pursue a deal or that the process will result in a sale of the company….”
On May 6, Evergy announced its first quarter 2020 earnings, confirming Elliott’s assessment of the company’s performance. The company earned $69 million, or 31 cents/share, compared to $109 million (44 cents/share) for the first quarter of 2019. 2020 quarterly revenue, according to the company’s required filing with the U.S. Securities and Exchange Commission, was $1.118 billion, compared to $1.217 billion in the 2019 quarter.
In its January letter, “Elliott noted that it sought to engage the Evergy Board on a private basis in October 2019. However, in response to Elliott’s outreach, the Board chose not to engage with Elliott on the merits of its suggestions but instead opted to make defensive changes to the Company’s governance. Based on this abrupt change, Elliott determined that it would be in the best interest of all stakeholders to make public its views and facilitate a broader discussion of the best path forward for Evergy.”
Electric utility mergers and acquisitions are often a quest for an unobtainable holy grail of financial returns. They remind me of early 20th Century Scottish author J.M. Barrie, whose 1904 “Peter Pan, the Boy Who Would Never Grow Up,” created “Never-Never Land.” The OED describes it as “a never-never land of unreal prices and easy bank loans”
— Kennedy Maize