This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Calpine Sheds Six Power Plants in $1.6B Deal

Stocks in this article: CPNDUK

HOUSTON ( The Deal) -- Privately held power and energy infrastructure owner LS Power Equity Advisors said Monday it agreed to pick up six natural gas-fired, combined-cycle power plants in the southeastern U.S. from Calpine (CPN) of Houston for $1.57 billion in cash.

The plants are in Gabriel, La.; Calhoun County, S.C.; Decatur, Ala.; Mobile, Ala.; Coweta, Okla.; and Pace, Fla., and generate 3,500 megawatts. They feed power to investor-owned utilities, municipal utilities, cooperatives and other market players.

Analysts at Tudor, Pickering, Holt & Co. Securities Inc. wrote in a note that the region is oversupplied and utility dominated, leading to subpar returns for independent power plant generators in the area. They think LS Power wants the plants because their value could increase after 2015 when coal retirements begin to be driven by the Environmental Protection Agency's Mercury and Air Toxics Standards. The analysts wrote that Calpine would rather use the proceeds to invest in competitive wholesale power markets such as California, Texas and the mid-Atlantic U.S.

"We see above market asset sales to utilities and co-ops as a distinct possibility over time (2020), but prefer that CPN [Calpine] realizes the value of these assets now and use the cash to invest in core markets versus waiting for possible opportunities to sell at higher multiples to regulated counterparties," they wrote.

LS Power CEO Paul Segal said in a statement that the quality of the assets, the record of the facilities and the plant personnel were all important factors in its purchase decision. "These projects have been reliably serving wholesale power customers in the Southeast for a number of years and we look forward to continuing to provide value for our growing base of customers," he said.

In a separate statement Friday, Calpine said the sale unlocks shareholder value from noncore, unappreciated assets, accelerates the use of net operating losses to offset projected capital gains and that the redeployed capital -- $1.53 billion on a net basis -- is expected to be accretive to adjusted free cash flow per share.

Calpine CEO Jack Fusco said in a statement the company will continue to be "opportunistic" in its deployment of the proceeds, whether paying down debt, investing in acquisition or development opportunities or repurchasing its shares.

Calpine said it will lose an expected $100 million in Ebitda and $70 million in free cash flow this year as a result of the divestiture.

After the sale, Calpine will still own four natural gas-fired power plants in Arkansas, Alabama and Florida totaling 1,738 megawatts and will continue pursuing opportunities to monetize the plants, either through contract or sale.

Tudor Pickering said it thinks Calpine will pursue opportunities for the plants with regulated utilities in the area and possibly use the proceeds from its power plant sales to buy Duke Energy's (DUK) Ohio power plants that are going on the block.

Calpine said LS Power and its affiliates, which own around 8% of Calpine's stock, agreed not to trade in the company's stock until after the deal closes.

The transaction is expected to close in the second quarter if it clears regulators and third parties.

Founded in 1990, LS Power is an employee-owned, independent power company with offices in New York, New Jersey, Missouri and California that has developed, constructed, managed or acquired 28,000 megawatts of competitive power generation and 470 miles of transmission infrastructure and raised $27 billion in debt and equity financing. It said in February it raised $2.075 billion for its third fund.

Michael Shenberg at White & Case LLP counseled Calpine. William Bice at Milbank, Tweed, Hadley & McCloy LLP assisted LS Power.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,368.62 -11.79 -0.07%
S&P 500 1,898.40 +11.64 0.62%
NASDAQ 4,299.3690 +40.9310 0.96%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs