Buyout firm Riverstone Holdings agreed to acquire Talen Energy Corp. (NYSE: TLN), the U.S. independent power producer squeezed by cheap natural gas and weak demand, for $1.8 billion in cash.
Energy deals have been picking up. Duke Energy Inc. (NYSE: DUK) said it will buy Piedmont Natural Gas Co. (NYSE: PNY); Range Resources Corp. (NYSE: RRC) agreed to buy Memorial Resource Development Corp. (Nasdaq: MRD); and TransCanada Corp. (NYSE: TRP) is purchasing Columbia Pipeline Group Inc. (NYSE: CPGX).
Riverstone, based in New York, 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 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 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. Talen’s stock plunged to as low as $5.73 last year.
“It makes sense that Riverstone would want to be part of a buyout,” Bloomberg Intelligence analyst Stacy 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.”
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.
The shares rose 18 percent to $14.08 at 7:01 a.m. in New York. They had risen 92 percent this year after falling 70 percent in 2015 as a decline prices for gas, a key power plant fuel, eroded electricity prices.
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. (NYSE; GS), 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. (NYSE: C) 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.
-- Additional Reporting by Mergers & Acquisitions' Demitri Diakantonis