Dynegy's stock soars after report of buyout approach; analyst suggests it could go a lot higher (5/19/17)
By Tomi Kilgore
Shares of Dynegy Inc. shot up 24% toward a three-month high in premarket trade Friday, after The Wall Street Journal reported that the power company was approached by rival Vistra Energy Corp. regarding a potential takeover. Analyst Ali Agha at SunTrust Robinson Humphrey said his analysis derives a $14-per-share net asset value for Dynegy, which would be 93% above Thursday's closing price of $7.26, and would give the company a market capitalization of about $1.84 billion. Agha Vistra buying Dynegy "would make strategic sense" because it would allow Vistra to diversify out of the Texas power market; Dynegy has a relatively small exposure in Texas, implying market power concerns would not be an issue; and because Vistra Chief Executive Curt Morgan used to work at Energy Capital Partners, which is Dynegy's largest shareholder. Dynegy's stock traded at $8.99 about 45 minutes before open, the highest level seen during regular session hours since Feb. 24. The stock had tumbled 14% year to date through Thursday, while Vistra shares had lost 4.5% and the S&P 500 has gained 5.7%.
Vistra Energy And Dynegy To Combine To Create Leading Integrated Power Company (10/30/17)
- Nearly $4 Billion in Equity Value Projected to be Created via Expected EBITDA, Free Cash Flow and Tax Synergies, and Operational Improvements
- Combination Projected to Maintain Industry-Leading Strong Balance Sheet with Substantial Liquidity
- More Than $5 Billion in Excess Capital Projected to Be Available for Capital Allocation Through 2022 with an Emphasis on Achieving 3 Times Gross Debt to EBITDA by Year-End 2019
- Combined Business Expected to Benefit from Earnings, Fuel, Market, and Geographic Diversification with Approximately 50 Percent of Gross Margin Projected from Capacity Payments and Retail
- Projected to Have Lowest Cost Structure in Industry with Benefits of Significant Economies of Scale and Best-in-Class Power Plant Operations
- Integrated Power Company with a Leading Position in ERCOT, PJM and ISO-NE; 40 Gigawatts (GW) of Installed Capacity with an Estimated 180 Terawatt Hours (TWhs) of Electricity Generated and Approximately 2.9 Million Retail Customers with an Estimated 75 TWh Hours of Load Served
- Dynegy's Leading CCGT Generation Fleet Provides Platform to Expand Vistra Energy's Premier Integrated ERCOT Model to the Midwest and Northeast
- Vistra Energy and Dynegy to Host Conference Call at 8:30 am ET Today
IRVING, Texas and HOUSTON, Oct. 30, 2017 /PRNewswire/ -- Vistra Energy (NYSE: VST), the parent company for TXU Energy and Luminant, and Dynegy Inc. (NYSE: DYN) today announced that their Boards of Directors have approved, and the companies have executed, a definitive merger agreement pursuant to which Dynegy will merge with and into Vistra Energy in a tax-free, all-stock transaction, creating the leading integrated power company across the key competitive power markets in the United States. The resulting company is projected to have a combined market capitalization in excess of $10 billion and a combined enterprise value greater than $20 billion.
Under the terms of the agreement, Dynegy shareholders will receive 0.652 shares of Vistra Energy common stock for each share of Dynegy common stock they own, resulting in Vistra Energy and Dynegy shareholders owning approximately 79 percent and 21 percent, respectively, of the combined company. Based on Vistra Energy's closing share price of $20.30 on October 27, 2017 and the aforementioned exchange ratio, Dynegy shareholders would receive $13.24 per Dynegy share. Through the all-stock transaction, both Vistra Energy and Dynegy shareholders are expected to benefit from an estimated $350 million in projected annual run-rate EBITDA value levers, additional annual free cash flow value levers of approximately $65 million (after tax), and approximately $500-600 million in projected net present value benefit from tax synergies.
The combination of Dynegy's generation capacity and existing retail footprint with Vistra Energy's integrated ERCOT model is expected to create the lowest-cost integrated power company in the industry and to position the combined company as the leading integrated retail and generation platform throughout key competitive power markets in the U.S. Together with Dynegy, Vistra Energy will serve approximately 240,000 commercial and industrial (C&I) customers and 2.7 million residential customers in five top retail states, with estimated retail sales of 75 terawatt (TWh) hours in 2018. The combined company will also own approximately 40 GW of installed generation capacity. Of that capacity, more than 60 percent is natural gas-fueled, and 84 percent is in the ERCOT, PJM, and ISO-NE competitive power markets.
Vistra Energy President and Chief Executive Officer Curt Morgan said, "This combination represents a transformative opportunity to create the leading integrated power company in the United States. Combining Vistra Energy's leading retail and commercial operations with Dynegy's leading CCGT fleet and geographically diverse portfolio is expected to create a company with significant earnings diversification and scale. The resulting combined enterprise is projected to have the lowest-cost structure in the industry and will benefit from weather and market diversification that, when combined with Vistra Energy's balance sheet strength, will provide a platform for future growth. The result will be a leading integrated power company with significant scale in the key U.S. competitive markets. We look forward to building on Vistra Energy and Dynegy's highly attractive business mix and asset quality to deliver enhanced value to current shareholders of both companies and attract and retain new investors on a long-term, sustainable basis."
Dynegy President and Chief Executive Officer Bob Flexon stated, "Our combination with Vistra Energy accelerates Dynegy's strategic initiatives of strengthening our balance sheet while creating the preeminent integrated power company. Vistra Energy's strength in retail combined with Dynegy's infrastructure and generation capabilities will provide an unmatched, highly efficient integrated business in key competitive markets. The premium offered to Dynegy shareholders reflects the quality of our generation assets and the retail business we have built over the past five years. In addition, with the all-stock transaction, shareholders of both companies will benefit from the significant projected synergies and financial flexibility enabled by the combined company's strong balance sheet and cash flow profile. We at Dynegy are proud of what we have accomplished, and we look forward to this exciting next step in the company's evolution."
Projected Strategic and Financial Benefits of the Combination
•Creates Leading Integrated Retail and Generation Platform: The combined company will have approximately 40 gigawatts (GW) of high-quality, low-cost, environmentally compliant power generation assets concentrated in ERCOT, PJM, and ISO-NE, the most desirable competitive markets in the U.S. Complementing the 12-state generation portfolio is a combined retail platform serving more than 2.9 million retail customers with an estimated 75 TWhs of electricity sales in 2018. The combined company's premier wholesale generation portfolio will serve as a platform for accelerated growth of this retail business. Approximately half of the combined company's gross margin is projected to be derived from capacity revenues and retail margin.
•Significant Value Creation Opportunity Projected to Total Nearly $4 Billion: The combined company is projected to achieve approximately $350 million in annual run-rate EBITDA value levers by streamlining general and administrative costs, implementing fleet-wide best-in-class operating practices, driving procurement efficiencies, and eliminating other duplicative costs. Vistra Energy estimates the full run-rate of EBITDA value levers will be achieved in approximately 12 months of closing. In addition, the combined company is expected to benefit from approximately $65 million (after tax) of incremental annual run-rate free cash flow benefits from balance sheet and capital expenditure efficiencies. Finally, the combined company is expected to benefit from the utilization of approximately $2.0-2.5 billion of legacy Dynegy Net Operating Losses (NOLs) with an estimated net present value of approximately $500-600 million.
•Strong Financial Profile: The combined company is expected to have a strong financial profile with projected proforma liquidity of approximately $3.9 billion as of April 30, 2018 and gross debt to EBITDA declining to the company's targeted 3 times by year-end 2019 (with net debt to EBITDA of 2.6 times by year-end 2019). With approximately $14 billion of adjusted EBITDA expected to be generated between 2018 and 2022, the combined company is projected to have approximately $5.5 billion in excess capital available for allocation toward balance sheet improvements (including any debt repayments required to achieve the company's 3 times gross debt to EBITDA target), growth investments, and other value accretive opportunities.
Management, Board of Directors and Headquarters
Following the close of the transaction, the combined company will be led by Curt Morgan as President and Chief Executive Officer. Bill Holden will serve as the Chief Financial Officer with Jim Burke as the Chief Operating Officer.
The Board of Directors is expected to have a total of 11 directors consisting of the current eight members of the Vistra Energy Board and three members from Dynegy's Board.
The Dynegy Board of Directors and Mr. Flexon have mutually agreed to extend his employment as permitted under the terms of his existing employment agreement for one year. Mr. Flexon will continue to serve as President and Chief Executive Officer of Dynegy through April 30, 2019 or the date the transaction closes, whichever comes first.
The combined company's headquarters will be in Irving, Texas. In addition, the combined entity has retail offices in Houston, Texas, Cincinnati, Ohio, and Collinsville, Illinois.
Conditions and Timing
The companies anticipate closing the transaction in the second quarter of 2018.
The transaction is subject to certain regulatory approvals, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, and approval by the Federal Energy Regulatory Commission, the Federal Communications Commission, the Public Utility Commission of Texas, the New York Public Service Commission, and other customary closing conditions. The transaction is subject to approval by the shareholders of Vistra Energy and Dynegy. In addition, the transaction will not require any refinancing of Vistra Energy's or Dynegy's debt, but preserves flexibility for opportunistic refinancing at, or after, closing.
Advisors
Citi is serving as financial advisor, Credit Suisse is serving as capital markets advisor, and Simpson Thacher & Bartlett LLP is serving as legal advisor to Vistra Energy.
PJT Partners and Morgan Stanley are serving as financial advisors and Skadden, Arps, Slate, Meagher & Flom LLP is serving as legal advisor to Dynegy.
Conference Call/Webcast
Vistra Energy and Dynegy will host a joint conference call to discuss the merger today at 8:30 am ET (7:30 am CT). The call will be webcast live at www.vistraenergy.com and www.dynegy.com. Alternatively, callers may dial (844) 579-6824 within the United States or (763) 488-9145 from outside the U.S. utilizing the Conference ID 3685219. It is recommended that participants call 20 minutes ahead of the scheduled start time.
Shortly before the conference call begins, slides will be posted under the investor relations sections of each company's website that will be referred to during the call.
A webcast replay and transcript of the call will be available approximately 24 hours following the call at www.vistraenergy.com and www.dynegy.com.
ABOUT DYNEGY
Throughout the Northeast, Mid-Atlantic, Midwest, and Texas, Dynegy operates 27,000 megawatts (MW) of power generating facilities capable of producing enough energy to supply more than 22 million American homes. With 17,000 MW fueled by natural gas and more than 9,000 MW fueled by coal, our plants can generate enough electricity to power more than 17 million homes. We generate power safely and responsibly for 1.2 million electricity customers who depend on that energy to grow and thrive.
ABOUT VISTRA ENERGY
Vistra Energy is a premier Texas-based energy company focused on the competitive energy and power generation markets through operation as the largest retailer and generator of electricity in the growing Texas market. Our integrated portfolio of competitive businesses consists primarily of TXU Energy and Luminant. TXU Energy sells retail electricity and value-added services (primarily through our market-leading TXU Energy™ brand) to approximately 1.7 million residential and business customers in Texas. Luminant generates and sells electricity and related products from our diverse fleet of generation facilities totaling approximately 18,000 MW of generation in Texas, including 2,300 MW fueled by nuclear power, 8,000 MW fueled by coal, and 7,500 MW fueled by natural gas, and is a large purchaser of renewable power including wind and solar-generated electricity. The company is currently developing one of the largest solar facilities in Texas by capacity.
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