Ann de Rouffignac
OGJ Online
UtiliCorp United Inc., anxious to demonstrate the market value of its energy trading unit Aquila Energy, Wednesday reported it spin off a portion in an initial public offering to the public. A complete spin off of all remaining shares of Aquila to UtiliCorp�s shareholders is planned for later in 2001.
UtiliCorp has been searching for a generation partner, acquisition or merger for its merchant trading unit since early this year. But so far, nothing has materialized. UtiliCorp officials have consistently said they would make an announcement by the end of the year concerning Acquila's future.
�Maybe they didn�t like the offers?� says Paul Freemont, analyst with Jefferies & Co. in New York. �This move is clearly a hope that the bullish environment for commodities will mean the spin off is well received by the market.�
Aquila, one of the largest marketers and traders of natural gas and electricity in the US, has few links to physical assets that can lower risk to a trading business.
UtiliCorp United shares were flat in mid-morning trading on the New York Stock Exchange.
�We are still pursuing discussions,� said Richard Green, CEO of UtiliCorp on a conference call with analysts. �This spin-off will facilitate and crystalize the value of Aquila in the marketplace.�
As the search continues for a partner or merger, the spin-off will capitalize Aquila so it can go forward with a generation strategy on its own, said Green.
Both companies are being set up with debt to equity profiles that will allow investment grade credit ratings, said Green. The ratios will be around 40-50%.
Aquila�s debt level and investment grade credit rating will allow Aquila to finance growth off its own balance sheet. It will also have the ability to go to the equity markets for more capital, Green said.
The strategy will include a mix of developing power projects, acquiring others, and pursuing tolling arrangements with other power plant owners. Under a tolling arrangement, a company pays a fee to a power plant owner, supplies the fuel, and takes title to the electricity produced. Ownership of the plant does not change.
Currently, Aquila controls 3,600 Mw of capacity and 1,200 Mw in tolling arrangements.
Proceeds of the initial public offering will be used to repay debt owed to UtiliCorp by Aquila and other debt.
The IPO will reduce UtiliCorp�s debt and debt service. As a result of those savings, the spin off of Aquila will be �earnings neutral� to UtiliCorp. Aquila contributed about 20% of UtiliCorp�s earnings.
Green also said UtiliCorp will continue to pay out the same dividend of $1.20 but as the utility grows, that will clearly be a lower percentage of earnings.
Bob Green, UtiliCorp�s current chief operating officer, will become chairman of Aquila and Keith Stamm its CEO. Richard Green will continue in his current positions with the utility continuing the Green family decades old tradition of leading the utility.
