Finally, a buyer for Protection One

Westar unloads it after utility regulators order debt reduction plan
Sunday, February 1, 2004

TOPEKA, Kan. - Ending months of speculation, Westar Energy officials announced in late December that the company would sell its majority stake in Protection One for $120 million to a New York-based investment firm with a division that specializes in distressed debt.

At press time, officials at Protection One were tight-lipped about the terms of the deal, citing the deal’s status as not yet closed. A spokesperson for the Quadrangle Group, the investment entity that purchased Westar’s 88 percent majority stake in the company, also said the firm was unable to comment on the deal. Analysts in the security industry, however, said that Quadrangle appeared prepared to take on the potential challenges a majority stake in Protection One might present.

“Quadrangle seems to be well suited in that they have a division that has a lot of experience with debt restructuring and troubled debt,” said Michael Barnes, president of Barnes Associates in St. Louis. “The critical issue for (them) is what is their strategy for dealing with the collective stakeholders…and their strategy for the operations of the company?”

With the $120 million price tag, Westar will recoup less than half of the $320 million it spent in 1997 to acquire an 80.1 percent majority ownership in the security company. In late 2003, at the time of the sale, Westar owned about 88 percent of Protection One, having bought additional shares in the company throughout its seven years of ownership, according to Karla Olsen, senior manager, media relations for Westar.

Officials at the energy company put Protection One on the auction block in early 2003, the result of talks with state regulators about Westar’s enormous debt load, which at one time topped $3 billion. State regulators said they were concerned about Westar’s non-utility holdings and the effects of the company’s debt on energy consumers in Kansas.

“This is the most significant step in their debt reduction plan,” said Chris Edmonds, an analyst with Pritchard Capital in Atlanta, “both from the standpoint of it being the most difficult and in one sense the largest piece of their plan.”

Including the cash price of $120 million, along with a potential $39.2 million of post-closing cash proceeds and the deconsolidation of $305 million of Protection One’s public debt from its books, Westar expects to shave $500 million in debt.

Little is known on how the sale will affect operations at the company. Protection One spokesperson Robin Lampe said that although it’s too early to discuss future moves, “we are not a party to the agreement (and) it would not be appropriate for us to comment on the intentions of the buyer at this time.”

“Having been cut loose from Westar and now being somewhat autonomous, they’ll be able to focus more on the business and be less subject to the distractions of Westar,” said industry analyst Jack Mallon of Mallon Associates.

At press time, few details were also available as to how the purchase might fit into Quadrangle’s existing portfolio of holdings. The firm specializes in media and communications, with interests in such cable television and broadband companies as Bresnan Broadband Holdings, Cablevision, New South Communications and other diversified telecommunication companies, such as Access Spectrum, a company that leases two-way radio spectrum.

According to its website, through its Quadrangle Capital Partners investment fund, Quadrangle looks to invest between $20 million and $150 million of capital in each transaction, and can exceed those amounts through additional investments from other limited partners of the group.

Quadrangle’s acquisition of Protection One is expected to close in the first quarter of this year.
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