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Nicklaus: As activist takes on Kansas City utility, Ameren is mentioned as possible buyer

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Paul Singer of Elliott Management

This May 12, 2014, file photo shows Paul Singer, founder of hedge fund Elliott Management Corp. speaking at the Manhattan Institute for Policy Research  in New York. (AP Photo/John Minchillo, File)

When they’re done celebrating their team’s Super Bowl victory, Kansas Citians will need to pay attention to another high-stakes heavyweight battle.

Evergy, the Kansas City region’s electric utility, got an unwelcome letter last month from Elliott Management, a New York hedge fund founded by activist investor Paul Singer. Elliott, which has a 4% stake in Evergy, told the utility’s board it isn’t happy with the way things are being run.

Among the options Elliott suggests in the letter is a “premium stock-for-stock merger” with another utility, an idea that should set off alarms in Kansas City. Such a deal would mean the loss of jobs and cost the area its fourth-largest corporate headquarters.

The letter also is intriguing on this side of Missouri. St. Louis-based Ameren reportedly was interested in buying one of Evergy’s predecessor companies back in 2016, and analysts are mentioning it as a possible acquirer now.

Ameren itself hasn’t said anything about possible acquisitions, and hasn’t made a major deal in 15 years, but nearby opportunities don’t come up very often. Evergy’s wind and solar assets in Kansas would be attractive to any utility trying to diversify away from coal-fired power plants.

Christopher Turnure, an analyst at J.P. Morgan, writes in a Feb. 3 report that Ameren “is a logical partner, given its existing Missouri operations, opportunity for local synergies in the state and constructive relationships with local regulators.”

A Jan. 21 report from Guggenheim Partners analyst Shahriar Pourreza includes Ameren in a “small finite group that could make a potential deal work.” Pourreza sees acquisitive Florida utility NextEra Energy as another logical suitor, with Chicago-based Exelon as a possible dark horse.

Turnure also mentions Milwaukee based WEC Energy Group and Minneapolis-based Xcel Energy as potential buyers. Both he and Pourreza think a merger would work better than the “standalone path” Elliott suggests as an alternative. That path would have Evergy halt share buybacks and launch a program of cost cuts and infrastructure investments.

“We see the role of Elliott here as playing matchmaker for a potential sale,” Turnure writes.

But does Ameren want to be the buyer?

Andy Smith, an analyst at Edward Jones, doesn’t think the St. Louis company needs such a deal. “Ameren has its own growth plan, which is a very robust plan,” he says. “Like a lot of companies, they prefer to do their own spending to grow the rate base as opposed to doing a very expensive acquisition.”

Smith doesn’t rule out a deal, however. “If they thought it was a once-in-a-lifetime opportunity to buy something they’re familiar with, then, yes, it could happen,” he says. “I just wouldn’t bet on it.”

Evergy itself is the product of a 2018 merger between Great Plains Energy, parent of Kansas City Power & Light, and Topeka-based Westar Energy. Kansas regulators rejected the deal once, then approved it after Evergy agreed to preserve Kansas jobs and cut electricity rates.

Any buyer now probably would have to make similar concessions, which limits the potential payoff from a merger. Smith doesn’t think Evergy necessarily needs to sell, and he puts chances of a deal at less than 50%.

Still, Elliott is a formidable foe. It beat the government of Argentina in a battle over defaulted bonds, won a proxy fight at oil producer Hess and forced the sale of sporting goods retailer Cabela’s. On Wednesday, it won four board seats at coal miner Peabody Energy.

The folks at Evergy may need tips from the Chiefs on how to build a stout defense.

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