June 3 (Bloomberg) -- PPL Corp. is in talks to sell a stake in its electric power subsidiary to Riverstone Holdings LLC as part of a tax-free spinoff of the unit, people familiar with the matter said.
The deal would have PPL spinning out PPL Energy Supply LLC to shareholders and then merging it with a smaller group of Riverstone-owned power facilities in Texas and New Jersey, said the people, who asked not to be identified because the matter is not public.
The combined entity would have a market value of $3 billion to $4 billion, and operate electrical plants with about 12,000 megawatts of capacity, one person said. PPL shareholders would own a majority stake in the company, though the final ownership structure is still being negotiated, this person said.
The deal, structured as a so-called Reverse Morris Trust, is still weeks away from being finalized and could still fall apart, the people said. Jeffrey Taufield, a spokesman for Riverstone, declined to comment, while representatives from PPL didn’t return calls for comment.
Utilities have been shedding plants after a drop in natural gas costs caused electricity prices to decline. Duke Energy Corp., the largest U.S. utility owner, said in February it plans to sell its interest in 13 Midwestern power units. American Electric Power Co. may decide later this year or early 2015 whether it will follow Duke in selling plants.
PPL gained 0.6 percent to $34.99 at the close in New York, giving the company a market value of $22.1 billion.
PPL, based in Allentown, Pennsylvania, has been considering a range of options for its power supply unit, whose profitability was expected to decline this year, Chief Executive Officer William Spence said during an investor call last month. The unit was projected to earn 11 cents a share on an adjusted basis in 2014, compared with 39 cents a share in 2013, according to a slide presentation.
Sparkspread reported that PPL was exploring a sale and other options for the unit earlier this year.
Riverstone, based in New York, has committed to $26.1 billion in investments, including $2 billion in power and coal production, since it was founded in 2000, according to its website.