Loading...
HomeMy WebLinkAboutFIN-2022-201 - KPC and WNH Merger - New Board Considerations Financial Services Department www.kitchener.ca REPORT TO: Committee of the Whole DATE OF MEETING: May 9, 2022 SUBMITTED BY: Jonathan Lautenbach, Chief Financial Officer, 519-741-2200 ext. 7334 PREPARED BY: Jonathan Lautenbach, Chief Financial Officer, 519-741-2200 ext. 7334 WARD(S) INVOLVED: N/A DATE OF REPORT: April 20, 2022 REPORT NO.: FIN-2022-201 SUBJECT: KPC and WNH Merger New Board Considerations RECOMMENDATION: THAT with the proposed merger between Kitchener Power Corp. and Waterloo North Hydro Holding Corporation and their subsidiaries Kitchener-Wilmot Hydro Inc. and Waterloo North Hydro Inc. anticipated to be finalized this year, and subject to the transaction closing, the following recommendations regarding Kitchener board representatives be approved: Current KPC Board members Jim Phillips and Rosa Lupo, be appointed to serve as independent board members on the new Holdco Board as outlined in this report, and; New Board candidates Susan Taves and Brian Unrau be appointed to serve as independent board members on the new Holdco Board, based on recommendations of the KPC recruitment committee as outlined in this report, and; Councillors previously nominated to serve on the KPC Board starting June 1, 2022, Councillor Kelly Galloway-Sealock, and Councillor Bill Ioannidis, continue to serve in this report, and further; Councillor ________________ be appointed to serve on the new Wiresco Board *** This information is available in accessible formats upon request. *** Please call 519-741-2345 or TTY 1-866-969-9994 for assistance. REPORT HIGHLIGHTS: The proposed merger between Kitchener Power Corp. and Waterloo North Hydro Holding Corporation and their subsidiaries Kitchener-Wilmot Hydro Inc. and Waterloo North Hydro Inc. is anticipated to be finalized later this year There is a need to appoint representatives to serve as initial board members on new Holdco and Wiresco Boards to ensure proper governance for the new larger utility Some independent board representatives from both the current KPC and WNH boards are recommended to serve on the new Holdco board for continuity purposes Two new independent Kitchener board candidates are being recommended to serve on the new Holdco Board Board are being recommended to serve on the new Holdco Board One additional Councillor is required to be nominated to serve on the new Wiresco Board BACKGROUND: th On December 13, Council approved proceeding with the proposed merger between Kitchener Power Corp. and Waterloo North Hydro Holding Corporation and their subsidiaries Kitchener- Wilmot Hydro Inc. and Waterloo North Hydro Inc., authorizing staff to execute the necessary legal agreements, including the Merger Participation Agreement (MPA) and Unanimous . The MPA was executed by all parties in January and work has continued on the next steps in the process, including preparing a joint Mergers, Amalgamations, Acquisitions, Divestitures (MAADs) application that was submitted to the Ontario Energy Board (OEB) for approval. Anticipating that the merger will be approved and finalized later this year, work has continued to prepare for a successful transition to the newly formed entity, including a process to establish the new Boards that will be required to provide governance for the new corporation once the transaction is approved and closes. The draft USA agreement has been agreed to by all parties and will be executed after approval of the merger is granted from the OEB. The USA outlines the Board structure for both new Holdco and Wiresco Boards. In accordance with the draft USA, the new Boards will include both independent and non- of Board members from both the existing Kitchener Power Corp. and Waterloo North Hydro Holding Corporation Boards. This report outlines the recommended Board representatives to serve as the initial representatives on the new Holdco and Wiresco Boards. REPORT: During merger discussions between Kitchener Power Corp. (KPC) and Waterloo North Hydro Holding Corporation (WNHH)., a Joint Steering Committee (JSC) was established to work through details related to a potential merger. The committee included representation from both KPC and WNHH, including the Chairs and Vice Chairs of the respective Boards and the CEOs of both utilities. Following the execution of the MPA, the JSC has been focused on transition considerations, including outlining a process for establishing the new initial Holdco and Wiresco Boards that will be needed to provide proper governance for the new larger utilityonce the merger is approved. A process was established by the JSC to identify candidates to serve on the new boards with an agreement that the KPC representatives would provide candidate recommendations for the Kitchener Board members, WNH representatives would develop candidate recommendations recommendations. In accordance with the draft USA, the new Holdco Board will include 7 independent board members and 6 non-independent board members, with Kitchener having a total of 7 representatives on the board (4 independent, 3 non-independent). The new Wiresco Board will include 5 independent board members and 4 non-independent members, with the Holdco Board appointing the independent members, and Kitchener having a total of 2 non-independent representatives on the Board. Independent Board Members The KPC members of the JSC are recommending that the following individuals serve as the initial City of Kitchener independent Board members for the new utility. The City of Kitchener representatives include both current KPC board members and as well as two new candidates that are being recommended after a recruitment process was conducted by a recruiting committee established by the KPC JSC members (see appendix A). New Holdco Board (Kitchener Independent members) Jim Phillips Rosa Lupo Susan Taves* Brian Unrau* Board Chair - The JSC has recommended that Rosa Lupo serve as the initial Chair of the Holdco Board *Recommended candidates based on a recruitment process conducted the KPC recruitment committee The JSC has recommended that other existing board members from both KPC and WNH serve as independent representatives on the new Wiresco Board for the initial Board term. They are also recommending that Steve McCartney serve as the initial Chair of the Wiresco Board The KPC Board members that are recommended to continue to serve on the new Holdco and Wiresco Board will provide continuity for the Board during the transition year and during the initial Board term. Continuity on the Board was identified as being an important consideration as both KPC and WNH merge to form a larger entity. Non-Independent Board Members The current KPC Board includes three City of Kitchener non-independent board members, the Mayor and two Council members. The current Wiresco Board includes only the Mayor as the lone City of Kitchener non-independent board member. Under the new Holdco Board structure, the City of Kitchener maintains three non-independent positions on the Board, one of which will continue to be held by the Mayor. Going forward, it is recommended that the two other non-independent positions continue to be held by Councillors rotating on the basis of one-year terms. The City of Kitchener has gained one additional position for a non-independent member on the new Wiresco Board, for a total of two seats on the Board. It is recommended that this new seat be filled by a Councillor also subject to a one-year term, commencing and ending at each Annual General Meeting. The Mayor would continue to hold the other non-independent seat on the new Wiresco Board. Two Council members, Councillor Kelly Galloway-Sealock and Councillor Bill Ioannidis, have already been nominated by Council to serve on the KPC Board effective June 1, 2022. With the merger anticipated to be finalized potentially by August or September of this year, it is recommended that the Councillors on the KPC board at the time of closing, continue to serve on the new Holdco Board during the transition year serving out their one-year term (ending spring of 2023). With the upcoming municipal election this fall, in the event that a current Council member serving on the Board is not re-elected, the Councillor would resign from the Board and Council would go through a new nomination process for the Board position following the inauguration day. The appointment to the new Holdco Board is conditional on the nominated Councillors acknowledging that they would resign from the Board if not re-elected. In addition to recommending that Councillors serving on the KPC Board at the time of merger continue to serve on the new Holdco Board, there is also a need to nominate one Councillor that will serve on the new Wiresco Board for a term running from the date of the merger through to the Annual General Meeting in spring 2023. th At the May 9 Council meeting, Council will be asked to nominate one Councillor to serve on the new Wiresco Board for the initial term that will commence once the merger is finalized. If the Councillor nominated is not re-elected during the upcoming municipal election, the Councillor would resign from the Board and Council would go through a new nomination process for the Board position following the inauguration day. The appointment to the new Wiresco Board is conditional on the nominated Councillor acknowledging that they would resign from the Board if not re-elected. It is recommended that the Councillor nominated to the new Wiresco Board be different from the Councillors nominated to serve on the new Holdco Board. STRATEGIC PLAN ALIGNMENT: service. FINANCIAL IMPLICATIONS: Operating Budget Considerations N/A Capital Budget Considerations N/A COMMUNITY ENGAGEMENT: INFORM council / committee meeting. PREVIOUS REPORTS/AUTHORITIES: There are no previous reports/authorities related to this matter. APPROVED BY: Dan Chapman, CAO ATTACHMENTS: Attachment A Letter from KPC recruitment committee 301 Victoria Street South Kitchener, Ontario N2G 4L2 May 5, 2022 To: Members of Council From: Kitchener Power Corp. Recruitment Committee Re: Recommendations for Two Independent Board Members to Serve as Kitchener Representatives on New Holdco Board of Directors The purpose of this report is to provide you with recommendations for two (2) Independent director candidates to represent the City of Kitchener on the new Holdco Board of Directors effective the date of merger. The recommendations have been prepared by the Recruitment Committee of Kitchener Power Corp consisting of Chair Jim Phillips, Vice-Chair Rosa Lupo and President & CEO Jerry Van Ooteghem. The recommendations are based on a Board Competency Framework which has been developed to ensure that the appropriate depth and breadth of knowledge, skills and experience are represented on the Board, and which gives due consideration to Diversity, Equity and Inclusion. An advertisement for two Kitchener Directors was placed in The Record on March 5th, 9th and 12th. The Position was also posted on our website and on LinkedIn. Approximately 40 applications were received for the position and from these applications five (5) candidates were selected for an interview. On the basis of these interviews and follow-up reference checks, the Recruitment Committee is recommending the following independent candidates for the vacant positions on the new Holdco Board subject to and effective the date of merger. 1. Susan Taves, CPA, CA, ICD.D Susan is a Chartered Professional Accountant with extensive experience in merger/acquisition transactions and corporate transformation. Susan retired in 2015 as Managing Partner at BDO Canada LLP and previously worked at Price Waterhouse as Manager of Financial Advisory Services. Susan is a certified and active Corporate Director who serves on three corporate boards which includes the TSX Trust Company, Skyline Group of Companies and Kindred Credit Union (in Kitchener). 1 2. Brian Unrau, CPA, CMA, MBA, BED, FCUIC Brian is a Chartered Professional Accountantwith over 20years of multi-disciplinary experience in areas including design and construction, information technology and finance. Brian also has experience in mergers and acquisitions and in structuring and raising capital for new investments. Brian is the President of VCT Group Inc. in Kitchener and is also President of Community Energy Development Co-operative in Kitchener with over 800 members. Brian serves on the Board of Directors of MennoHomes Inc. and previously served on the Board of the Federation of Community Power Co-operatives. The Recruitment Committee of Kitchener Power Corp. is pleased to recommend these candidates to serve on the new Holdco Board of Directors as Independent Directors effective the date of merger. Sincerely, James C. Phillips, Chair, Kitchener Power Corp. 2