Dynegy Inc. (NYSE:DYN) and Ameren (NYSE:AEE) announced today they have
signed a definitive agreement under which Dynegy’s subsidiary Illinois
Power Holdings, LLC (IPH) will acquire Ameren’s subsidiary, Ameren
Energy Resources (AER) and its subsidiaries Ameren Energy Generating
Company (Genco), AmerenEnergy Resources Generating Company (AERG), and
Ameren Energy Marketing Company (AEM). Upon closing, Dynegy will own
more than 8,000 megawatts (MW) of generating capacity in Illinois, and
nearly 14,000 MW nationally. The AER retail and marketing businesses and
the following plants are included in the transaction: Duck Creek,
Coffeen, E.D. Edwards, Newton, and Joppa.
“The acquisition of AER is expected to create significant value for
Dynegy shareholders by building upon our existing scale in one of our
key markets with assets similar to our Illinois-based CoalCo portfolio.
We are uniquely positioned to create significant synergies that will
benefit AER and our CoalCo and GasCo
businesses. AEM also brings to Dynegy an established retail business
with significant scale that complements both portfolios,” said Robert C.
Flexon, Dynegy President and Chief Executive Officer. “Additionally, the
financial terms of the acquisition and the transaction structure ensure
that very limited capital support, if any, will be needed or provided by
the Company to AER thereby preserving Dynegy’s capital allocation
flexibility.”
Transaction Structure
Dynegy will acquire AER and its subsidiaries through a wholly-owned
special purpose entity – IPH – that will maintain corporate separateness
from current Dynegy entities. Obligations under the signed Transaction
Agreement (TA) include:
Ameren:
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Prior to closing, Ameren, or its designated subsidiary, will purchase
Genco’s Elgin, Grand Tower and Gibson City natural gas-fired
generation plants for a guaranteed minimum price of $133 million.
Appraisals will be obtained for these plants prior to settlement, and
if the average value of the appraisals exceeds $133 million, any
excess amount will be remitted to Genco. If Ameren subsequently sells
these plants within two years of closing, all after-tax proceeds in
excess of the $133 million, or the higher appraised value if
applicable, will be remitted to Genco.
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In addition to the gas plant sale proceeds, Ameren will ensure a
minimum of $93 million of cash at AER and its subsidiaries of which
approximately $70 million will be held at Genco.
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For 24 months following closing, Ameren is to provide post-closing
credit support to IPH for its existing commercial obligations. IPH’s
reimbursement obligation for that support would be secured by a lien
on certain IPH assets.
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AER will have consolidated net working capital at closing, excluding
cash, of $160 million.
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Post closing, Ameren will offer transition support services to IPH, as
needed, and billable to IPH for services provided in excess of $5
million.
Dynegy:
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Dynegy has provided a $25 million guarantee to Ameren at TA signing of
certain IPH obligations under the TA for a period of 24 months beyond
the transaction closing.
IPH:
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IPH will assume existing business and on-site environmental
obligations of the five acquired plants but will not assume any
potential liabilities associated with previously owned facilities and
the Duck Creek rail embankment.
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IPH will indemnify Ameren for up to $25 million for certain offsite
liabilities associated with the beneficial reuse and disposal of coal
combustion residuals from the acquired operating sites.
Transaction Benefits
AER’s coal generation and retail marketing business is a natural fit
with CoalCo, Dynegy’s existing coal generation fleet. Both portfolios
are compliant with the EPA’s Mercury and Air Toxic Standards which goes
into effect during 2015. As other noncompliant or uneconomic generation
continues to retire, the combined portfolio will be well positioned to
benefit from tightening supply dynamics. Transaction benefits include:
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The transaction more than doubles Dynegy’s exposure to market recovery
and Midwest coal plant retirements.
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AER has recently obtained additional transmission rights which, when
confirmed by AER, will increase the total available transmission
capacity from their Illinois assets into PJM to approximately 900 MW.
These rights will be available for the 2016/2017 PJM capacity auction.
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AER and its subsidiaries will have sufficient liquidity and collateral
support at closing to meet expected operating obligations.
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Operational synergies are expected to exceed $60 million per year by
2015. Cost synergies, such as lower delivered fuel cost and other
procurement opportunities, result from the combined portfolio’s
increased scale in Illinois. Other savings, such as reductions in
operating and general and administrative expenses, result from the
similar asset profile of CoalCo and by leveraging Dynegy’s existing
infrastructure. As part of the integration, Dynegy will expand its
highly successful PRIDE (Producing Results through Innovation by
Dynegy Employees) program to AER’s business.
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Dynegy’s existing business is also anticipated to benefit through
lower allocation of existing infrastructure costs across the broader
asset base.
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AEM has established marketing and retail businesses which provide 15
million megawatt-hours of electricity annually to municipals, co-ops,
and commercial and industrial customers in MISO and PJM. The Homefield
Energy retail brand, which serves nearly 500,000 homes and small
businesses in Illinois, is included in this total. Dynegy’s PJM-based
generation facilities will provide support for growth in that market.
These businesses will also provide basis management opportunities for
the entire coal fleet.
The targeted synergies, along with the current forward market for
natural gas prices and Dynegy’s associated view on forward power and
capacity prices, are expected to result in AER being accretive to
Dynegy’s Adjusted EBITDA in 2014 and to Free Cash Flow by 2015. In
addition, these same forward curves indicate that all three of AER’s
subsidiaries offer substantial equity value creation for the benefit of
Dynegy’s shareholders.
Combined Portfolio Profile
Dynegy continues to support environmentally compliant coal and gas-fired
generation as a responsible way to support America’s future energy
needs. Dynegy remains committed to working with local communities, state
and federal regulators, and legislators to ensure that affordable,
reliable, responsible and environmentally compliant electricity is
provided to the communities which the Company serves.
Approvals and Time to Close
Dynegy and Ameren expect to close the transaction during the fourth
quarter of 2013. The transaction is subject to customary closing
conditions, including approval from the Federal Energy Regulatory
Commission.
Advisors
Dynegy’s financial advisor for this transaction is Lazard.
Investor Conference Call/Webcast
Dynegy will discuss its 2012 financial results and the Ameren Energy
Resources acquisition during an investor conference call and webcast
today, March 14, 2013, at 9 a.m. ET/8 a.m. CT. Participants may access
the webcast and the related presentation materials in the “Investor
Relations” section of www.dynegy.com.
ABOUT DYNEGY
Dynegy's subsidiaries produce and sell electric energy, capacity and
ancillary services in key U.S. markets. The Dynegy Power, LLC (GasCo)
power generation portfolio consists of approximately 6,771 megawatts of
primarily natural gas-fired intermediate and peaking power generation
facilities. The Dynegy Midwest Generation, LLC (CoalCo) portfolio
consists of approximately 2,980 megawatts of primarily coal-fired
baseload power plants.
Adjusted EBITDA and Free Cash Flow are non-GAAP financial measures.
Please refer to Item 2.02 of our Form 8-K filed on March 14, 2013, for
definitions, utility and uses of such non-GAAP financial measures.
This press release contains statements reflecting assumptions,
expectations, projections, intentions or beliefs about future events
that are intended as “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These forward-looking statements
include statements regarding benefits of the proposed transaction,
including significant value for Dynegy shareholders, expected synergies
and anticipated future financial operating performance and results,
AEM’s established retail business, preservation of Dynegy’s capital
allocation flexibility, obligations under the TA, AER’s consolidated net
working capital at closing, sufficiency of AER’s liquidity and
collateral support, and ability to close the transaction during the
fourth quarter of 2013. These statements are based on the current
expectations of Dynegy’s management. Discussion of risks and
uncertainties that could cause actual results to differ materially from
current projections, forecasts, estimates and expectations of Dynegy is
contained in Dynegy’s filings with the Securities and Exchange
Commission (the “SEC”). Specifically, Dynegy makes reference to, and
incorporates herein by reference, the section entitled “Risk Factors” in
its 2012 Form 10-K, when filed. In addition to the risks and
uncertainties set forth in Dynegy’s SEC filings, the forward-looking
statements described in this press release could be affected by, among
other things, (i) conditions to the closing of the transaction may not
be satisfied; (ii) problems may arise in successfully integrating AER’s
coal generation and retail marketing business into Dynegy’s current
portfolio, which may result in Dynegy not operating as effectively and
efficiently as expected; (iii) Dynegy may be unable to achieve expected
synergies or it may take longer than expected to achieve such synergies;
(iv) the transaction may involve unexpected costs or unexpected
liabilities; (v) Dynegy may be unable to obtain regulatory approvals
required for the transaction or required regulatory approvals may delay
the transaction or result in the imposition of conditions that could
have a material adverse effect on Dynegy or cause Dynegy to abandon the
transaction; (vi) the business of Dynegy may suffer as a result of
uncertainty surrounding the transaction; (vii) the industry may be
subject to future regulatory or legislative actions, including
environmental, that could adversely affect Dynegy; and (viii) Dynegy may
be adversely affected by other economic, business, and/or competitive
factors. Any or all of Dynegy’s forward-looking statements may turn out
to be wrong. They can be affected by inaccurate assumptions or by known
or unknown risks, uncertainties and other factors, many of which are
beyond Dynegy’s control.