Dynegy Inc. (NYSE:DYN) Plans To Buy 11 New Plants from Duke Energy Corporation to Double Its Capacity

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By Jessica Schultz on August 25, 2014 Energy & Solar

The stocks of Dynegy Inc. (NYSE:DYN) rose 20 percent when the company gave its approval to buy power plants worth $6.25 billion in anticipation that electricity prices would rise in the near future, in the regions of New England and north eastern side of United States.

The company, on August 22, 2014, announced that it will buy around 11 power plants together with the retail sales unit owned by Duke Energy Corporation (NYSE:DUK) for a total of $2.8 billion in cash. The company will also make a deal of $3.45 billion with the private equity firms for some more power plants. According to the claims made by the Houston based corporation, its capacity will almost double once the deals go through.

The new gas fueled plants that the company plans to purchase will be able to produce 5,053 MWs. Moreover, the coal-fueled plants will be responsible for generating around 3,793 MWs.

The company has a total market capitalization of $3.3 billion; however, it will finance the deal by giving stocks worth $1.2 billion and issuing debt worth $5 billion

Robert Flexon, the chief executive officer of the company, is shifting the company’s business from wholesale to state-based utility units. It is important to note here that Robert was the one who led the company through a bankruptcy phase back in 2012.

On February 17, the company announced that it will replace its wholesale business with utility units, for the firm can make much more profits if it operates in the regulated utilities sector.

Dynegy Inc (NYSE:DYN) made the new deals in order to expand its operations in New England and North East U.S., where the prices of electricity spiked up last year due to fuel shortages and colder than usual weather.

The CEO, during a press call on Friday, said that the company is relying on price volatility in both the regions as the previous experiences show that there will be supply shortage. The company carries out around 18 percent of its operations in both the markets; however, once the deals go successful, it will be operating 60 percent of its business in those regions.

Coming to the deal that the company announced earlier today, if Dynegy Inc. (NYSE:DYN) successfully acquire the new plants, it will produce around 26,000 MWs; this can keep 20.8 million houses powered. The company will also become the second largest energy producing corporation. The largest power plant company in United States is NRG Energy Inc. (NYSE:NRG).

The prices of Dynegy Inc. (NYSE:DYN) rose by 7.3 percent and reached to $31.90 on August 22, 2014. In the early trading session, the stock gained almost 23 percent; it was the first time that the company had gained such a huge percentage after its bankruptcy phase. The shares of Duke Energy Corporation (NYSE:DUK), on the other hand, declined by 0.5 percent and came down to $72.70.

Dynegy Inc (NYSE:DYN) has Credit Suisse and Lazard Ltd. as its advisors on both the deals. Moreover, Morgan Stanley was the company’s advisor on the deals made with the private equity firms whereas Goldman Sachs was the advisor on the deal made with Duke Energy Corporation.