A recent run on utility companies could entice Aquila Inc. to sell itself to maximize shareholder value.
In recent months, the Kansas City-based utility has shed a handful of utility properties and noncore assets, such as cable provider Everest, reduced the number of employees and let top executives leave without resistance.
Those moves and an ongoing debt-reduction program position Aquila as a healthier stand-alone company, but they also have the effect of setting it up nicely for a sale -- and some big shareholders said the timing is right for such an event.
"That's probably a better end result than anything else," said Gordon Howald, a New York-based utilities analyst at brokerage Natexis Bleichroeder.
A series of attractive exits by regulated utilities could sway Aquila:
- On July 5, Duquesne Light Holdings Inc. sold to Australia's Macquarie Bank for $1.59 billion, a 21.7 percent premium on its shares.
- On July 9, MDU Resources Inc. agreed to buy Cascade Natural Gas Corp. for $475 million, a 23 percent premium.
- On July 11, WPS Resources Corp. agreed to buy Peoples Energy Corp. in a deal that values Peoples Energy shares around $40, versus the $35 they traded at before talks leaked.
On July 7, trade journal Power Finance & Risk reported that Aquila had hired broker The Blackstone Group to help sell the company for $5 to $5.50 a share, or about $2 billion. Aquila's share price rose 4.9 percent July 10 to $4.48 after the news circulated to trading desks.
Aquila spokesman Al Butkus declined to confirm or deny the report. Blackstone spokesman John Ford also declined to comment.
"We have never commented on those types of things, and we won't in the future," Butkus said.
He confirmed that Aquila still was employing Blackstone, which helped Aquila sell about $900 million worth of utilities last year, though he declined to say in what capacity.
Large Aquila shareholders quizzed by the Kansas City Business Journal could not corroborate the report but said the timing was right if Aquila wanted to sell.
Although the company has lost a cumulative $2.9 billion since 2002, when its unregulated ventures went bust, it also has sold nearly $5 billion in assets and trimmed debt from $3 billion to about $1.8 billion.
"The turnaround is pretty much over," said an investment analyst at a firm with a large Aquila stake who requested anonymity.
A fund manager at another large Aquila shareholder said the utility's board has grown more open to selling since Nicholas Singer, a partner at Cyrus Capital Partners LP, joined the board in April 2005.
"The board is realizing that there's more value that could be unlocked," said the fund manager, who also requested anonymity.
Cyrus, a New York-based hedge fund, owns 10.7 million shares, or 2.9 percent, of Aquila. Hedge funds, which seek quick returns, own about 80 percent of Aquila's outstanding shares.
A sale would displace four generations of Green family control. Aquila CEO Rick Green's great-grandfather, Lemuel Green, founded the company as Green Light & Power in 1917.
Rick Green's control of Aquila, though, is in title only. He owns fewer than 1 million Aquila shares.
"Aquila has had a long history with the Green family running it and a closely held board," Howald said. "But the world has changed."
Likely acquirers of Aquila include nearby utilities Ameren Corp., Westar Energy Inc., Kansas Power & Light Co. parent Great Plains Energy Inc. and Warren Buffett's MidAmerica Energy Holdings Co., sources said.
Former KCP&L CEO Drue Jennings failed in a bid to merge with Aquila in the late 1990s.
In an interview a year ago, Jennings said he still endorses the concept of a KCP&L-Aquila combo.
"It's just patently obvious," he said then.
