Riverstone to Take Talen Energy Private in $1.8 Billion Deal

  • Talen formed from merger of Riverstone, PPL generating units
  • Deal advances private expansion into power generation

Buyout firm Riverstone Holdings agreed to acquire Talen Energy Corp., the U.S. independent power producer squeezed by cheap natural gas and weak demand, for $1.8 billion in cash.

Riverstone owns about 35 percent of Talen, which went public a year ago. The buyer will pay $14 a share for the portion it doesn’t already own, the Allentown, Pennsylvania-based power plant owner said Friday in statement. That’s a 56 percent premium to the closing price of $9 on March 31, the last trading day before public reports of a potential sale, and a 17 percent premium to Thursday’s closing price.

The deal comes less than a year after New York-based Riverstone helped form Talen through a merger of some of its power plants with the generating unit of utility owner PPL Corp. Its creation came at a bad time for independent power generators as gas, a key power plant fuel, sank to its lowest level since 1999 in March. Talen’s stock plunged to as low as $5.73 last year.

“Private equity is likely to own an increasing share of merchant power assets in the U.S.,” Stacy Nemeroff, a Bloomberg Intelligence analyst, said Friday in an e-mail. Utility owners including American Electric Power Co. that own plants that sell in competitive markets want to shed them, she said. “Market cap of the remaining independent power producers is within reach of private equity,” she said.

Shares rose 17 percent to $13.95 at 9:51 a.m. in New York. They had risen 92 percent this year through Thursday after falling 70 percent in 2015 as a decline in gas prices, a key power plant fuel, eroded electricity prices.

The value of the deal including assumed debt is about $5.2 billion, according to the statement. The transaction is subject to approval of a majority of non-Riverstone shareholders and is expected to close by year-end. Talen has the right to solicit better offers over the next 40 days, and it may continue discussions with parties during the “go-shop” period for an additional 20 days, according to the statement.

“We believe it is unlikely anyone tops Riverstone’s officer,” Neel Mitra, a Tudor Pickering Holt & Co. analyst, wrote in research published Friday.

Earnings Drop

Other private equity firms have expanded into power generation in the past year. Energy Capital Partners LLC formed a joint venture with Dynegy Inc. in February to buy U.S. plants from Engie SA for $3.3 billion. Closely held Panda Power Funds is building new gas-fueled plants in Virginia and Pennsylvania.

“It makes sense that Riverstone would want to be part of a buyout,” Nemeroff said before the agreement was announced. “It gives them a chance to hang on to any upside in their equity stake given the loss in the stock’s value.”

Talen is the smallest of the publicly traded U.S. power producers, with a portfolio that’s about half the size of Calpine Corp. or Dynegy Inc. and less than a third of NRG Energy Inc.’s, Nemeroff said in a May 6 report. The company forecast a bigger earnings drop than its peers for 2016, in part because it sold power plants to comply with regulatory conditions tied to the merger of the Riverstone and PPL assets, she said.

Talen Chief Executive Officer Paul A. Farr has worked to diversify the company’s portfolio since it went public, agreeing to buy gas-fueled generation in New York, New England and Arizona last year.

Riverstone helped form the company by merging some of its power plants with the power generation unit of PPL Corp. Talen’s shares plunged in the seven months following its June 2015 spinoff from PPL. Weak power prices hurt margins at the company’s fleet of coal, nuclear, and gas fueled power plants, according to Bloomberg Intelligence.

Goldman Sachs Group Inc., Royal Bank of Canada, Barclays Plc, Credit Suisse Group AG, Deutsche Bank AG, Morgan Stanley and Bank of Tokyo-Mitsubishi UFJ Ltd. committed a $250 million secured term loan for the transaction.

Citigroup Inc. and Kirkland & Ellis LLP are advising Talen. Goldman and RBC are financial advisers to Riverstone. The buyer’s legal advisers are Wachtell, Lipton, Rosen & Katz and Vinson & Elkins LLP.

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