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The Corporation: STRATEGIES
THE TOPEKA UTILITY THAT'S NOT IN KANSAS ANYMORE
Western Resources tangles with Huizenga--and hangs tough
When John E. Hayes Jr., chairman and CEO of Western Resources Inc., got the news in July, he felt blindsided. ADT Ltd., the Boca Raton (Fla.) home security and auto auction company, had agreed to be acquired by billionaire H. Wayne Huizenga's Republic Industries Inc. But Western, which became ADT's largest shareholder early this year and holds a 23% stake, got no warning.
As part of his own strategy to break Topeka (Kan.)-based Western out of the staid utilities business, Hayes has big plans of his own for ADT. He wants to use the ADT brand name to expand Western's promising home security business--and he felt the Huizenga deal would kill that opportunity. So Hayes, along with Western's president, David C. Wittig, decided to block Huizenga: Western would oppose the deal and file plans to acquire up to 50% of ADT itself.
On Sept. 30, Hayes's decision to stand up to Huizenga paid off. Citing delays and uncertainty in the market, Republic and ADT canceled their merger agreement. Republic's stock had dropped 29%, from 29 1/8 to 20 3/4, after the ADT deal was set. Although the shares regained most of their value, the volatility quashed the stock swap. "We finally came to the point where value could not be determined," says one ADT source.
Republic Senior Vice-President Thomas W. Hawkins denies that Western's antagonism played a major role in its decision to pull the plug. But its steadfast opposition certainly made the ADT deal riskier for Huizenga. Western said it wouldn't sell its stake in ADT--the largest national brand in home security--at any price. With other shareholders from ADT and Republic also questioning the deal, Huizenga may have had little choice. "It's a relief to have that deal terminated," says Frank Branson, a Redwood Shores (Calif.)-based investment adviser who owns ADT shares.
It's not every day that a team of little-known Midwestern utility executives win a big hand against the likes of Huizenga. But then, Hayes and Wittig are hardly your typical utility pencil-pushers. Hayes spent 30 years at Southwestern Bell Telephone Co., where he rose to become chairman and CEO. He returned to his native Kansas in 1989 to take the reins at Western, the country's 45th-largest utility. Convinced that the monopoly industry is headed for deregulation, the 59-year-old Hayes believes a shakeout is coming. And he figures his experience with telecom deregulation will help make Western a winner. "New energy companies will dominate the market in the future," he says. "They will rely on marketing and product innovation. We want to be one of those."
COVER BOY. Wittig, Hayes' right-hand man, is an even more unusual find. The 41-year-old Kansas native spent 18 years on Wall Street. He honed his skills as a takeover strategist at Kidder, Peabody & Co. and then Salomon Brothers Inc. A 6-foot, 3-inch former prep-school hockey player, Wittig earned a reputation for aggressive tactics--so much so that at 31, he hit the cover of Fortune magazine. With a fat cigar in hand--and a $500,000 salary--he typified the new breed of hard-charging young bankers.
But when Hayes recruited the Kansan last year, Wittig was ready for a move. His aggressiveness has already chilled traditional industry players. "He has not endeared himself to utility executives because he's not playing by the same set of rules," says one.
Wittig and Hayes have drawn the sharpest criticism because of another deal in which they're playing spoilers. Key to their strategy is bulking up by acquiring fellow utilities. So when Kansas City Power & Light Co. agreed early this year to merge with Utilicorp United Inc., another Kansas City utility, Hayes and Wittig launched their own bid for KCP&L. They broke up the deal with a flood of national ads and direct mailings to shareholders; at one point, Wittig told local journalists that KCP&L's shareholders were not the "nitwits" that Drue Jennings, KCP&L's chairman and CEO, "made them out to be." One rival called it "one of the nastiest proxy fights that anybody can remember."
WINDOW SHOPPING. Western's higher bid of $31 a share for KCP&L--a 15% premium over Utilicorp--led shareholders to reject Utilicorp's bid on Sept. 12. Now, over Jennings' objections, Hayes and Wittig are pressing ahead. Says Wittig: "I think Drue is letting his ego get in the way of a transaction that makes a lot of sense." Jennings declined comment. Western is courting KCP&L shareholders for its tender offer, which expires Oct. 25.
Whatever happens, more deals are likely to emanate from Topeka. After buying five smaller home security companies, Western wants to move further into the market; Hayes believes homeowners will buy such services from familiar local utilities. He also hopes to restart talks he held with ADT over a joint marketing deal; Western mainly wants to use the ADT brand name to sell its own energy services in electricity and gas. And Hayes may boost his stake, though ADT sources deride Wall Street speculation that ADT is in play. "It's not as if ADT is perishable food and has a `sell by' date," says the ADT source.
Wittig says Western will also consider electric or gas company acquisitions. "There's a gold mine out there," he says. Expect Hayes and Wittig to fight for more than their share of the loot.By Peter Elstrom in Topeka, Kan., with David Greising in AtlantaReturn to top