Posted on 11/03/2003 4:53:43 AM PST by MeneMeneTekelUpharsin
Dynegy has reached an agreement to sell its Illinois Power utility in a deal that would reduce its debt and strengthen its balance sheet. Houston-based Dynegy was expected this morning to announce a deal, valued at about $2.2 billion, to sell Illinois Power to Exelon Corp., Bruce Williamson, Dynegy's president and chief executive officer, told the Houston Chronicle on Sunday.
As part of the deal, Exelon would assume about $1.8 billion in Illinois Power debt, he said, adding: "That's a big chunk of debt to go away." Dynegy has been working to reduce its debt. With a sale, Dynegy's work force would also drop significantly, since about 1,800 of Dynegy's 4,000 employees work in Illinois for Illinois Power. Dynegy has about 800 employees in Houston, though about 100 information technology jobs are slated to be cut in upcoming months. No Houston jobs are expected to be lost as a result of the Illinois Power sale.
The sale to Chicago-based Exelon would mark another milestone in a series of restructuring steps taken by Williamson since he was hired about a year ago to turn Dynegy around. Since then the company has, among other things, reduced debt and restructured key financing deals to extend their maturity dates. Williamson has said, though, that Dynegy needs to keep paring debt. As Dynegy looked ahead, it reviewed its three main business units: the regulated Illinois Power, unregulated power plants and natural gas liquids. It's already in the process of exiting energy trading.
Illinois Power, which has electric transmission and distribution lines but no power plants, has about 590,000 power customers and more than 400,000 natural gas customers across Illinois. It's headquartered in Illinois, while Dynegy's two other main business units are based here. Williamson said that after the Illinois Power sale, "the Houston-based unregulated gas and power businesses will be significantly stronger from a financial and competitive standpoint." During its review, Dynegy decided Illinois Power, the smallest of its three businesses, offered it the least potential for growth.
Dynegy began shopping Illinois Power around this summer. In late September, Dynegy said it was in exclusive discussions with Exelon, which is one of the nation's largest electric utilities, about Illinois Power. Exelon has more than 5 million customers in Illinois, including in the Chicago area, and in Pennsylvania. Exelon spokesman Don Kirchoffner declined to comment Sunday. Williamson said both boards approved the deal over the weekend, and under its terms, Exelon would assume about $1.8 billion in Illinois Power debt and pay Dynegy $425 million.
Of the $425 million, Dynegy would get about $275 million in cash when the deal closes and the rest at a later time. The deal also includes two other important components. A so-called intercompany note, under which Dynegy is obligated to pay $2.3 billion to subsidiary Illinois Power, would be eliminated. And Exelon would agree to buy power for its customers from Dynegy's unregulated power plants for six years, starting in January 2005. Dynegy currently sells electricity from some of those plants to Illinois Power. The sale is subject to approval by regulators, including the Illinois Commerce Commission, the Federal Energy Regulatory Commission and the Securities and Exchange Commission, and isn't slated to close until the last quarter of 2004. Dynegy would record a slight loss on the sale as Illinois Power's value on its books is more than the purchase price.
That is why Buffet bought a very large stake in Texas Utilities some time back...about 19 million shares or a little over 5%. He went mainly retail as opposed to wholesale power, though. Food for thought.
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