Posted on 08/23/2003 1:42:21 PM PDT by MeneMeneTekelUpharsin
Dynegy is shopping around one of its three main units, its Illinois utility. The Houston-based energy company is talking to a handful of potential buyers about its Illinois Power unit, according to people familiar with the process. Dynegy's move follows the company's recent completion of a series of key refinancing and restructuring deals that stabilized its balance sheet and pushed significant debt maturities into 2010.
After completing that work, officials at Dynegy turned their attention to strategic planning, reviewing which businesses they thought offered the best competitive advantages and potential for growth, the people said. Dynegy spokesman John Sousa declined to comment, citing the company's policy against addressing speculation. The company, which is getting out of energy trading, has three core businesses: unregulated power plants in 12 states; natural gas liquids; and Illinois Power.
The utility, operating in much of Illinois, owns electric transmission and distribution systems, and provides gas and power to consumers. It doesn't own power plants. Officials at Dynegy concluded that lllinois Power, which has regulated operations, offered the least potential for growth and decided to explore a sale, the people said. Illinois Power also carries a significant amount of debt and eliminating that would boost Dynegy's balance sheet. Illinois Power might be more valuable to companies with larger transmission and distribution interests than Dynegy has, the people said. Dynegy is in discussions with a handful of companies about a sale, the people said, declining to name them.
Dynegy isn't treating the sale as a must-do deal, but instead as one it will do if it can strike the right terms, the people said. Illinois Power itself buys 70 percent of its electricity from Dynegy plants in a contract running through 2004. As part of a sale deal, Dynegy would seek a new owner to extend that contract, the people said. In a February investor presentation, Dynegy provided estimates of 2003 operating cash flows. Generation was listed at $340 million to $350 million; liquids at $195 million to $205 million; and Illinois Power at $100 million to $110 million.
The utility provides Dynegy with a stable source of cash, and analysts would have to be convinced any deal was worth what the company would give up. Christopher Ellinghaus, of Williams Capital Group in New York, said eliminating one of Dynegy's core businesses wouldn't be entirely painless. Depending on the price and debt that gets assumed, credit rating agencies would either be dismayed or overjoyed, he said. Given that the utility provides stable cash flow, which rating agencies like, Dynegy would need to do a good job negotiating the price, he said. Potential interested buyers based on geography -- that is, those with operations near Illinois Power -- could include Ameren, Exelon, Cinergy, MidAmerican Energy Holdings and Alliant Energy, Ellinghaus said. An Alliant spokeswoman said the company wasn't talking with Dynegy, while spokesmen at the other four said corporate policy prevented them from commenting either on rumors or matters such as acquisitions.
Jeff Dietert, an energy analyst with Simmons & Company International in Houston, said it would make sense for Dynegy to sell Illinois Power. "It is a low-growth entity. It would make sense to be consolidated with someone that's got a larger footprint and could eliminate redundancies and eliminate costs," he said. It could be hard to sell because of its substantial debt, he added. Dynegy previously had a deal that fell apart to sell Illinois Power's high-voltage transmission lines for $239 million. Illinois Power has 2,000 employees in Illinois. In total, Dynegy has about 4,200 employees.
ROFL. We've outsourced about everything else to China. No, really, the nice thing about power plants and investing in them (if you can find the right company) is that they can NOT be moved overseas. And, people have to have power.
Not all of them. You have to be careful Mirant blew out and left a lot of people holding the bag. Better do your research. It looks like Dynegy is going to make it but it will take a few years (in my opinion). However, if ANY warning is ever given about financial distress, you had better move fast.
Still haven't heard a good argument pro or con as to the effect this sale will have on Dynegy. Dynegy must think it will be good for them, or they wouldn't do it, no?
Richard W.
The situation is analogous to that of a landlord who owns a rent-controlled property. It may be that a prospective buyer would be interested in living on the property himself, and the law would permit the owner to evict the current tenant(s) in order to occupy the premises himself. The result would probably be to significantly increase the market value of the property, due to its being freed from its controlled rent.
Similarly, Dynergy is hoping to find a buyer for Illinois Power whose situation enables the buyer to operate the utility more profitably, and who would therefore be willing to buy it for a price that exceeds its worth to Dynergy.
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