Westar looks to sell its Protection One stake

The decision is part of Westar’s plan to pay down debt to restore it financially
Saturday, February 1, 2003

TOPEKA, Kan. - In a move aimed at reducing the company’s multi-billion dollar debt, Westar Energy Inc. has announced its intent to divest itself of its share of Protection One.

The move did not come as a surprise to analysts who have watched Protection One and Westar deal with mounting debt over the past few years.

Analyst Jack Mallon, managing director at Mallon Capital, said the sale makes sense for Westar. “Particularly if they get the right price.”

“A strategic decision might very well have been made to focus on (Westar’s core businesses),” he said. “They are a utility primarily…and the alarm business was expanded because of the interest at the time in expanding the services of the utility companies, but that whole trend has cooled off and alarms are not a part of their core operations.”

According to Westar spokesperson Karla Olsen, the move is “the first step in the plan to pay down debt and restore the company’s financial health.”

Westar Energy, the largest electric utility in Kansas, owns approximately 88 percent of Protection One, and is currently facing a debt of approximately $3.6 billion.

The Kansas Corporation Commission (KCC), which regulates public utilities, and has been critical of Westar’s investment in outside businesses such as Protection One, has put pressure on Westar to divest itself of its interest in Protection One to reduce Westar’s debt.

Last month, the KCC ordered Westar to separate its regulated utility businesses from its non-regulated businesses, including Protection One.

Richard Ginsburg, Protection One’s president and chief executive officer, said the announcement did not come as a surprise to him.

“Westar is a regulated utility (by the state of Kansas)…and the KCC has been somewhat critical of Westar’s investment in non-regulated businesses, such as Protection One. So, we anticipated this happening,” said Ginsburg.

Olsen denied that the KCC’s order was not the sole reason behind Westar’s decision to explore the sale.

“The KCC and Westar Energy, we share the same goal of paying down the debt,” she said. “(The KCC’s ruling) may have served as an impetus, but we were looking for ways to pay down debt anyway, and this is one way we can do that.”

Ginsburg said that he thinks that the sale could end up being beneficial for Protection One.

“I think Westar’s investment in Protection One was a good investment and (continues to be) a good investment, but we understand that it is a different era now with the regulation of businesses,” he said. “We think it’s probably best for our company to separate and go and be an independent company that does not have a regulated investor. At the end of the day, this will be positive for our company.”

Ginsburg adds he is going to work with Westar to minimize the impact of Westar’s decision on his company. “We would like to separate in a manner that is beneficial to everyone and focus on our business,” he said. “It will be an orderly process, and it will not happen overnight.”

Westar has not set a timetable for the sale, and Olsen adds that the company has not set a price, and it has no potential buyers lined up as of yet.

Mallon added that due to the current economic climate, Westar might have some difficulty finding a suitor for its entire stake in Protection One, though the company may be able to sell the smaller pieces with greater ease.

Mallon said he feels that while there might be some companies interested in pieces of Westar’s stake in Protection One, he is not sure if there are any companies interested in acquiring the entire stake.

“That’s the $64,000 question. Because most of the potential acquirers are on the sidelines, including Tyco,” Mallon continued. “So the options are quite narrow, conceivably one of the European companies (may be interested), but there is no obvious acquirer on the horizon.”