Tuesday, April 21, 2009

Dynegy Sees Power Mergers Occurring Only After Recession Ends (DYN)

From Bloomberg:
Dynegy Inc., the owner of power plants in 11 U.S. states, said mergers among electricity producers won’t occur until an economic recovery emboldens companies to take on more risk.

“You don’t find very many opportunities for people to go out and look at M&A because you want to basically sort of worry about what you already got on your plate,” Chief Executive Officer Bruce Williamson, 49, said yesterday in an interview. Once the recession ends, “within the next five years, I think there will be a lot of consolidation in the power sector.”

The U.S. power industry is ripe for acquisitions because producers can add assets that expand sales without increasing costs as much, Williamson said. Houston-based Dynegy did just that with its April 2007 purchase of plants from LS Power Group, lifting generation capacity by almost 70 percent and increasing general and administrative costs by 14 percent, he said.

That $3.66 billion transaction gave LS about 40 percent of Dynegy’s stock and the right to make a bid for the rest of the company or top an outside offer. Darpan Kapadia and other LS Power representatives haven’t responded to telephone messages seeking comment on plans for the stake after a provision of the deal restricting sales of Dynegy stock ended this month.

Dynegy’s stock has tumbled 80 percent in the past year. The shares dropped 14 percent to $1.69 yesterday in New York Stock Exchange composite trading.

LS Power

Closely held LS hasn’t sold a single share of Dynegy stock, according to Williamson, who declined to speculate on whether the firm will make a takeover bid. He said LS recognizes that Dynegy’s stock is too cheap and therefore probably wouldn’t sell its shares at this time....MORE

See also last week's "Utilities: Getting Ready for the Up Move that Follows the Next Down Move"