Dynegy Inc. put another brick in the wall in its quest to reincarnate, after many analysts wrote the obituaries of the firm about four years ago. The firm announced that it would acquire LS power plant in a deal valued at $2.2 billion in a bid to stage a comeback.
The firm, based in Houston produces and sells electric energy, capacity and ancillary services in key U.S. markets. The company's power generation portfolio currently consists of more than 12,800 megawatts. It operates twenty facilities in ten states. The assets of the firm would increase by about 70% after the deal.
The transaction will create a combined company with more than 20,000 megawatts capacity, including 31 power plants in 15 states, once the deal is through by the early part of 2007. Approvals from the regulators and the shareholders are still pending.
Under the terms of the transaction, East Brunswick, New Jersey based LS Power will receive 340 million shares of Dynegy common stock plus $100 million in cash and a $275 million Dynegy note. The combined entity will also assume roughly $1.8 billion in LS Power debt. Dynegy also will acquire a 50 percent interest in a development joint venture with the company.
The LS power group which was established in 1990 has power generation portfolio consists of approximately 8,200 megawatts of primarily natural gas-fired intermediate power plants and a development portfolio of coal-fired generation projects at various stages of development.
As what might be fallout of the deal, the value of Dynegy's stock rose to $6.26, a gain of 8.7 percent. This number had fluctuated from a low of $4.06 and a high of $6.37 in the past year.
"They've (LS) got the development capacity that we don't have. We (Dynegy) have the operating capacity that they don't have," Dynegy Chairman and CEO Bruce Williamson said of the deal.
Things started getting out of hand for Dynegy in 2002 when amid accusations of accounting fraud and other misdoings, founder Charles Watson resigned, and the company was forced to sell the Northern Natural Gas pipeline to a consortium of investors led by noted billionaire Warren Buffett. Following these incidents, the company hired Bruce Williamson, a former Duke Energy executive, who began a program of cost cutting, elimination of unprofitable businesses and financial restructuring that was successful in averting a bankruptcy filing. The company disposed of all of its businesses with the exception of its core merchant power and natural gas liquids businesses.
The situation was ditto for other independent power generators, when Dynegy fell to rock bottom four years ago, as deregulated electricity markets tanked in a fallout from the California energy crisis and the collapse of Enron Corp. Since then, Dynegy has pared debt from about $13 billion to $4 billion, and has been refocusing on acquisitions of smaller groups to enhance its power assets.
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