Western Resources' (WR) CEO David Wittig has gone from ringmaster to cheerleader, but if the company's stock price is any indication, the investment banker-turned-CEO hasn't had much luck at either lately.
Working feverishly to rally the beleaguered utility's stock price, Wittig trekked from Topeka, Kan., to Wall Street this week to dine with a select group of investors, hoping to lure them back into Western's camp. It's the second analyst dinner Wittig has thrown in the past nine months. "They're pulling out all the stops," says one portfolio manager, who observes that it's unusual to see a company CEO in dog-and-pony motif twice in a year. "It smells of desperation."
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The stakes in the outcome of Western's latest pep rally are enormous both for Wittig and the company. Western stock has slid more than 46% this year and is currently selling at 18, well below the 30 price tag when Wittig arrived in May 1995. The descent is the result of a number of corporate missteps. These range from the overhang of a pending merger with
Kansas City Power & Light
-- a deal mired in a morass of regulatory squabbling for almost three years -- to the implosion of the company's 85% interest in home security company
. The latter has suffered growing customer attrition and a damning
inquiry into its accounting practices. The security company lost $16.9 million in the third quarter, excluding extraordinary items.
"The decline is the combination of a number of issues," says
analyst Thomas Hamlin. "Protection One has been a disaster all year and the market does not appear to have confidence in Wittig right now." Hamlin continues to rate the stock a buy with his price target under review. First Union has recently provided banking services to Western.
Wittig's and Western's fall from grace didn't happen overnight. In Wittig's early days, he boasted Midas-like powers. He was plucked from Wall Street by then Western chairman John Hayes to transform the sleepy Midwestern utility into a national electric and consumer services powerhouse. His reputation as a dealmaker at
, his understanding of the utility industry and his Kansas roots made him an ideal candidate to lead Western -- created by the combination of
Kansas Power and Light
Kansas Gas and Electric
-- into the era of utility deregulation.
Wittig seized the opportunity to grow the company through an aggressive series of acquisitions. Wittig won a fierce battle to acquire Kansas City Power & Light over rival
and entered the monitored security business by buying the home security business from
and several regional security companies.
He offered Western's gas assets to
for a 45% interest in the Oklahoma company, providing an additional boost to Western's balance sheet. "The Oneok transaction turned Western's money-losing gas business into one that pays significant dividends," says Hamlin.
Wittig even won for losing. After making a hostile tender offer for home security giant
, Western lost the merger battle to
, ADT's white knight -- but not before Western amassed a holding in ADT it later sold for a $864 million profit.
Wittig's deal-making acumen made Western the utility darling of Wall Street and sent the stock soaring to a high of 43 7/8 by March 1998. Little did investors know at the time that Wittig's forte was the art of the deal, not the minutia of execution.
Since the peak, Western stock has steadily declined; Protection One has been through numerous management shake-ups and remains under SEC scrutiny; and the company is yet to close its merger with Kansas City Power & Light, a deal now being held hostage to Western's sliding stock price.
KCP&L has the option to walk away from the merger if it doesn't close by Dec. 31, and Western's stock price is below 29 7/8. "The price isn't likely to move before January," says Hamlin. "With Western's stock as low as it is, the probability of
the deal not getting done continues to grow."
While Western didn't portray Wittig's New York junket this week as a last-gasp attempt to light a fire under the company's stock price, those in attendance did. "It was his best attempt to boost the stock price to a level KCP&L could accept," says an analyst who attended the meeting. "Unfortunately, there wasn't anything very new."
Ironically, the dissolution of the merger might be the best thing for Western shareholders. "If the merger falls apart, the stock price probably goes up," says
Deutsche Bank Alex. Brown
utility analyst Ed Tirello. "There are people who don't think it's a good deal. I do." Tirello rates Western a buy with a 34 12-month price target. His firm has not provided banking services to the company.
Others think a failed merger morphs Western from acquirer to acquiree. "Not doing the deal is probably good for shareholders at this point," says Hamlin. "The company immediately takes on the persona of a takeover candidate."
Ironically, Hamlin suggests, even in the unlikely event that the merger goes ahead, Western may still be dealt. "The combined companies are only the 33rd-largest utility," he says. "A lot of people think the 10th and 11th companies are too small, let alone No. 33. I've always viewed the combination as a good takeover candidate."
That is exactly what Wittig's rapid-fire deal-making was designed to avoid. "He came to Western to build a major corporate powerhouse," says the analyst at the meeting. "He just has to realize there's more to it than making deals."
And now Wittig's ability to spark deals for Western has been extinguished as he is relegated to convincing a skeptical group of investors he has what it takes to lead Western forward.
If this week's performance is any indication, he has a tough road ahead. After the supposedly upbeat dinner, the stock closed at a multiyear low Wednesday, breaking below 18 for the first time this decade. "I guess not everybody at the dinner thought it was positive," says Tirello.
Christopher S. Edmonds is president of Resource Dynamics, a private financial consulting firm based in Atlanta. At time of publication, neither Edmonds nor his firm held positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he welcomes your feedback at