Dynegy cuts exposure to wholesale power with deals worth $6.25 billion

August 23
12:51 AM 2014

Power company Dynegy Inc (DYN.N) said on Friday that it would buy coal and gas power plants for $6.25 billion to increase its presence in two less regulated eastern U.S. markets, sending its shares up as much as 22.5 percent.

The deals for select assets of Duke Energy Corp (DUK.N) and Energy Capital Partners will nearly double Dynegy's national generating capacity and allow the company to retail electricity in Illinois, Ohio, Pennsylvania and Michigan, increasing its exposure to the PJM and New England markets.

The acquisitions are the latest in a series of deals aimed at minimizing exposure to the volatile wholesale power market, and analysts expect consolidation to continue.

Earlier this year, Wisconsin Energy Corp (WEC.N) said it would buy Integrys Energy Group Inc (TEG.N) for $5.71 billion about two months after Exelon Corp (EXC.N) agreed to buy Pepco Holdings Inc (POM.N) for $6.83 billion to cut exposure to the wholesale power market.

"The structure of the PJM (Pennsylvania, New Jersey, Maryland) marketplace is more transparent and probably, in the long term, more beneficial to (power) generators," ISI Group analyst Jon Cohen said.

Dynegy emerged from bankruptcy in 2012, less than a year after its unit filed for protection from creditors, burdened by costly power plant leases. (

The company said it intends to issue about $5 billion in new unsecured bonds and $1.25 billion in equity and equity-linked securities to fund the deals.

At the end of June, Dynegy had long-term debt of about $1.97 billion.

Chief Executive Robert Flexon expects the deals to triple the company's 2015 adjusted EBITDA and add to free cash flow per share in 2015 and beyond.

The company expects the deals to result in nearly $500 million in tax savings, $200 million in related efficiencies and cost savings of over $40 million per year.

Dynegy will buy Duke Energy's non-regulated Midwest commercial generation business for $2.8 billion in cash.

The business includes ownership interests in 11 power plants and Duke Energy Retail Sales, Duke Energy said.

Dynegy will also buy some Energy Capital Partners power plants for $3.45 billion.

Energy Capital Partners is a private equity firm that invests in North American utilities, oil and gas, and other energy companies.

Both deals are expected to close by the end of the first quarter of 2015.

Lazard and Credit Suisse acted as Dynegy's financial advisers on both deals. Morgan Stanley was lead financial adviser to Dynegy on the Energy Capital Partners transaction and Goldman Sachs acted as financial adviser on the Duke Energy deal.

Dynegy shares were up 6.5 percent at $31.64 at 1300 ET on the New York Stock Exchange.

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