Dynegy, Energy Capital to Buy Power Plants for $3.3 Billion

  • Atlas Power joint venture to be run, majority owned by Dynegy
  • Dynegy would be the second-largest U.S. wholesale generator

Power producer Dynegy Inc. and private equity firm Energy Capital Partners LLC formed a joint venture to buy generators in the U.S. from Engie SA for $3.3 billion, less than the cost of building new plants.

Dynegy, based in Houston, will own 65 percent of the venture, Atlas Power, and control day-to-day operations of plants in the U.S. East, Midwest and Texas that can produce 8,731 megawatts, the partners said Thursday in a statement. That’s enough to power about 7 million average U.S. homes. The purchase will be mostly financed by debt at the joint venture.

“This deal is very surprising given Dynegy’s weak stock performance and already heavy debt burden,” Stacy Nemeroff, a Bloomberg Intelligence analyst, said Thursday in an e-mail. “However, it would diversify their portfolio and reduce their reliance on coal plants and assets in Ohio, which have weighed on the stock.”

With the acquisition, Dynegy would become the largest U.S. wholesale power generator behind NRG Energy Inc. with 35,000 megawatts of capacity, according to slides prepared for an investor presentation.

The venture is paying about $378 per kilowatt of generating capacity. That’s less than the cost of a new plant, according to data from the U.S. Energy Information Administration. About 92 percent of the portfolio is natural gas generation.

Dynegy gained 14 percent to close at $9.49 in New York Thursday, the biggest one-day gain since 2012. The shares are shares down 29 percent this year.

Lazard Ltd. was Dynegy’s financial adviser. Skadden, Arps, Slate, Meagher & Flom LLP were legal advisers to Dynegy and Energy Capital.

‘Compelling Value’

“This transaction is a compelling value for our shareholders as it is the right assets, in the right markets, at the right price,” Dynegy Chief Executive Officer Robert Flexon said in the statement. “We partnered on this transaction with Energy Capital in order to minimize Dynegy’s equity issuance and manage balance sheet risk.”

Energy Capital will buy $150 million of Dynegy stock to help fund the transaction, bringing its stake to 15 percent. The purchase is expected to close in the fourth quarter.

Courbevoie, France-based Engie, the energy company formerly known as GDF Suez SA, said Thursday it will cut dividends, slash costs and sell as much as 15 billion euros ($16.5 billion) of assets by 2018 as earnings are dented by falling prices.

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