Our challenge was to quickly outline the rationale behind KCPL's decision to terminate merger talks. At the same time we had to convey the message that even without the consummation of this merger, KCPL was well positioned for future growth. The key was to emphasize KCPL's clear path toward expansion within its traditional businesses, but even more so with the growth that was possible through its unregulated businesses.
This task presented a difficult challenge for several reasons, most notably that:
- KCPL management had substantially limited communications with the financial community throughout most of the term of the merger agreement.
- As a traditional utility, the market had not recognized KCPL’s business expansion plans within the unregulated sector. These higher growth, higher margin initiatives had not been factored into current or future valuation models.
We recorded KCPL stock prices for the period immediately prior to and directly following the decision to terminate the merger agreement. We reviewed sell-side analyst commentary with respect to KCPL and media coverage appearing shortly after the announcement was issued. We also monitored for announcements from and media coverage of Western Resources activities once the merger termination was issued.
PLANNING AND OBJECTIVES
Primary objectives and audiences were outlined/determined as follows:
- To ensure that analysts/ media understood the company's long-term strategy for growth
- To ensure that analysts and the media understood the opportunities available to the company through its participation in unregulated industries
- To minimize any negative movement in KCPL stock price
- Target audiences consisted of investors, analysts and the media
The strategic program focused on getting all of the important facts surrounding the merger termination issue to all relevant financial community audiences. In conjunction with management and other advisors, we designed and carried out a program that met each of the objectives outlined above while also satisfying legal disclosure requirements, New York Stock Exchange listing requirements regarding the release of material news and general policies toward transparency in the release into the marketplace of material news and developments.
Strategy was implemented in the following manner:
We assisted in the drafting/editing of a press release that, after review by KCPL legal counsel, was distributed pre-market to disclose the news. The release provided a concise overview of the Board’s path toward the decision to terminate the merger. We took the unusual step of enclosing within the release a verbatim copy of the termination letter sent to Western Resources Chairman David C. Wittig the previous day. This decision addressed management’s concern for full disclosure and supported the Company's position that the termination was a strategic decision by KCPL management, acting in the best interest of its shareholders.
That morning, KCPL management hosted a conference call arranged by us, which included analysts, investors and members of the media. Working from a script and power point presentation prepared with participation from Hill and Knowlton, KCPL management reviewed its decision to terminate merger talks and previewed its strategic development plans. The latter took into account the anticipated separation of generation and distribution/transmission assets into separate subsidiaries to enable the company to fully realize the value of high-potential unregulated businesses.
On February 15, 2000, KCPL management met with a group of 32 investors and analysts in New York to address overhanging issues, to provide a progress report on operations and to respond to questions from participants. To facilitate attendance by as wide an audience as possible, we arranged a teleconference hookup, which enabled 13 investors outside of New York to participate. Hill and Knowlton was responsible for all aspects of planning and hosting the meeting and played a strategic role in developing the verbal and power point presentations.
Following the NY group meeting, we arranged 24 one-on-one meetings for KCPL management with investors located in New York, Boston and San Francisco.
Immediately following the analyst briefing and subsequent one-on-one visits, H&K contacted select members of the financial community to determine their views on recent corporate actions and their strategy for moving forward.
As is apparent from the results of the financial community survey, KCPL’s Financial Community Briefing and subsequent road show was widely praised. Participants described those events as superior vehicles for communicating and providing detail on recent Company initiatives, growth catalysts, financial and operational considerations and evolving business strategy for KCPL's regulated and non-regulated businesses.
Respondents praised KCPL for its proactive outreach to its equity analysts and institutional shareholders following the terminated merger with Western Resources. In general, participants indicated their belief that management’s interests are aligned with shareholders’ through management's strategies aimed at increasing value coupled with the efforts made to ensure that the financial marketplace received transparent and timely financial disclosure.
The Briefing was also successful in creating awareness and a sense of momentum toward the Company’s ability to leverage its unregulated businesses. Participants were very clear regarding this strategy, however, they were unclear as to the Company’s intentions surrounding near and long term strategies behind maximizing value through monetizing assets for earnings contributions vs. the traditional utility company approach of conveying direct value to shareholders through dividends. The majority of participants stated that the unregulated businesses represent a yet unrecognized asset which has not been reflected in the valuation of KLT shares, demonstrated by a 52-week low in the stock price within recent weeks of the survey. They recognized the profit potential and impact on valuation that ventures such as DTI ( the company’s telecommunications subsidiary) will have with the caveat that management effectively communicates this to the street.
As a demonstration of management credibility and the impact of communications directed at the pending issues outlined above, currently, KLT shares are trading at approximately a 25% premium over February 2000 levels. Additionally, two international brokers have re-instituted research coverage.
The Company has committed to frequent and timely updates on its progress to the financial community which has generally responded well to this renewed focus on communications. Hill and Knowlton continues to work with KCPL management to provide strategic investor relations counsel on a variety of timely issues.