On Friday, Blackstone Group (BX) announced that it will acquire Houston-based energy company Dynegy Inc. (DYN) for $4.7 billion (including debt).
Under the deal, Blackstone will pay $4.50 per share (a 62% premium on the closing price of $2.78 on August 12) in cash for about 120.6 million outstanding shares of Dynegy. In addition, Dynegy will get a 40-day period to solicit better bids for its shareholders. This is expected to be an unusual buyout where Blackstone will be spared from refinancing or investing much cash due to the lack of a change in control provision in the agreement.
Dynegy produces energy using coal, natural gas and fuel oil and markets its products in the Midwest, Northeast and on the West Coast.
Blackstone also declared that concurrently and contingent to the agreement, it plans to sell Dynegy’s natural gas plants to NRG Energy Inc. (NRG) for $1.36 billion. The four gas plants include the Casco Bay facility in Maine and the Moss Landing, Marro Bay and Oakland facilities in California.
A weak economy and low natural gas price have been putting pressure on Dynegy. In the second quarter of 2010 the company reported a loss of $191 million or 25 cents per share.
The deal, Blackstone’s largest since the $27 billion takeover of Hilton Hotels in 2007, is expected to close by the end of 2010. The transaction is subject to regulatory approvals and the nod of Dynegy’s shareholders.
However, investigations have started regarding the proposed acquisition of Dynegy by various law firms on behalf of its shareholders. The enquiry mainly probes whether the cash offered to the Dynegy shareholders is unfair and significantly below the fair value of the company.
Blackstone was advised in the acquisition by Credit Suisse Group (CS) and its own advisory unit, as well as Simpson Thacher & Bartlett, a law firm. Dynegy was helped by Goldman Sachs Group Inc. (GS), Greenhill & Company and the law firm Sullivan & Cromwell for inking the deal.
Blackstone currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
BLACKSTONE GRP (BX): Free Stock Analysis Report
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DYNEGY INC (DYN): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
NRG ENERGY INC (NRG): Free Stock Analysis Report
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