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April 21, 1996
Dear Shareholder:
In a last-minute attempt to derail the formation of a
formidable competitor, Western Resources, Inc. has submitted
an ill-conceived proposal to merge with Kansas City Power &
Light Company in an exchange of each share of your KCPL
stock for a fraction of a share of Western common stock.
After careful deliberation, including consultation with your
Company's independent financial, legal and regulatory
experts, your Board has unanimously concluded that Western's
proposal is not in your best interests.
Accordingly, the Board has determined not to pursue a
merger with Western, reaffirming its commitment to the
strategic merger of KCPL with UtiliCorp United Inc. The
Board strongly urges you to approve the UtiliCorp merger by
signing, dating and mailing the enclosed WHITE proxy card
today.
The proposed KCPL/UtiliCorp merger represents the
culmination of years of work, planning and pursuing a long-
term business strategy to enhance the growth of the Company
and the value of your shares. The merger agreement with
UtiliCorp was reached only after your Board considered a
number of opportunities and was satisfied that a
KCPL/UtiliCorp combination was the best way to build value
for you by enhancing near and long-term business prospects
for the Company.
In contrast to your Company's proposed merger with
UtiliCorp, the Western proposal is the latest in a series of
transaction-driven ideas, devoid of a long-term strategic
rationale, from a management team that boasts about doing
"about a deal a month for the past year."
Your Board has determined that Western's proposal is
premised on a series of fundamentally flawed assumptions and
estimates. Western would have you believe that it is
offering $28 in value per KCPL share along with a
substantially increased dividend. Take a closer look.
- - Western's synergy claims are inflated. The value of
Western's proposal is dependent upon Western's ability to
achieve over $1 billion in savings. You should know that,
less than a year ago, Western estimated savings of less than
half that amount. It is clear to us that Western
manipulated its proposal to create the illusion of value.
- - Western's merger assumptions are unrealistic. In
addition to inflating the potential amount of merger
savings, Western says it expects that regulatory authorities
will allow it to retain 70% of its estimated merger
benefits. You should know that in today's environment,
regulators typically allow utilities to retain only 50% or
less of these savings. In fact, Western is under a Kansas
order that states "sharing of savings will be on a 50/50
basis."
- - Western's promised dividend increases are questionable.
If Western can't achieve its forecast merger savings, keep
most of them, and avoid adverse regulatory treatment, we
believe Western will not maintain its dividend at the
proposed level. In fact, just last week Standard & Poor's,
the national credit rating agency, put Western on its
CreditWatch list for possible downgrade, noting that the
company is "a weak Single-A-minus utility with an average
business position." Also last week, Citizens' Utility
Ratepayer Board (CURB) told Kansas regulators that it would
"request more significant rate reductions" than those
included in Western's latest proposal. Such a decrease in
Western's rates would undermine the value of its stock and
inhibit Western's ability to maintain even its current
dividend.
- - Western's stock value in any merger with KCPL is
speculative. Western would have you believe that its
proposal represents a current market value of $28 per KCPL
share. However, the market value of the shares you would
receive pursuant to the Western proposal would be heavily
influenced by Western's ability to achieve its inflated
estimates of savings and by its optimistic assumption that
regulators would allow it to retain a precedent-setting 70%
of such savings. The value of Western's shares may also be
affected adversely by cuts in Western's utility rates, which
are currently under review.
- - Any KCPL/Western merger perpetuates the management
challenge of concentration of business risk in one
asset -- Wolf Creek. In contrast, the proposed merger with
UtiliCorp would reduce this risk by half and contribute a
diversified portfolio that would allow numerous avenues for
future growth.
- - Western's exaggerated claims go beyond the financial
claims of its merger proposal. In a thinly-veiled attempt
to mollify community leaders and KCPL employees, Western has
promised that there would be no layoffs in a KCPL/Western
merger and that it would maintain three separate corporate
headquarters. These promises are incompatible with
Western's need to maximize cost savings.
THE KCPL/UTILICORP MERGER IS THE ONLY CHOICE
Beyond all the questions raised about the specifics of
Western's proposal, there is a strategic issue here that is
of great concern to your Board. Put simply, it is the stark
contrast between Western's vision of the future of the
utility industry and the vision embodied in our proposal to
merge with UtiliCorp. Western's proposal is rooted in a
bygone era that fails to recognize the fundamental changes
taking place in our industry, heavily weighted as it is on
the side of cost synergies, critical mass and concentration
of assets and markets. Growth and the need to meet the
demands of a rapidly changing marketplace are neglected in
their proposal.
Our proposal to merge with UtiliCorp has very tangible
short-term benefits in the form of real, substantive and
achievable cost savings. We have documented more than $600
million in cost synergies that will be realized over the
next ten years. However, the cornerstone of our proposal is
the ability to achieve sustainable, long-term growth in
shareholder value. As a combined company, we will be able
to:
- - Compete effectively in national and global markets;
- - Have greater access to potential new customers and new
markets;
- - Use our size and stability to achieve enhanced access
to capital markets;
- - Introduce a new array of energy products and services;
- - Reduce our cost structure through operational and
purchasing efficiencies that will make us an even more
formidable cost competitor;
- - Provide a demonstrated track record in energy related
non-regulated businesses.
For all these reasons--and in consideration of the
risks of Western Resources' unsolicited proposal--your Board
strongly advises you to vote in favor of our combination
with UtiliCorp United.
To do so, just sign, date and return the accompanying
WHITE card, using the enclosed postage-prepaid envelope,
indicating your support of the Company's Board and
management. Only your latest proxy card will be counted.
If you have any questions or need assistance in completing
the enclosed WHITE card, please call our proxy solicitor,
D.F. King & Co., Inc., toll free, at 1-800-714-3312.
Sincerely,
/s/Drue Jennings
Chairman of the Board, President and
Chief Executive Officer