Owner of Berwick, Washingtonville power plants looks at buyout by investment firm

Last updated: June 3, 2016 - 2:22pm


 

ALLENTOWN — The New York-based investment group that created Talen Energy after its merger with PPL Corp. last year is now looking to take over the company that owns the Berwick nuclear plant and the Washingtonville coal-fired plant in a $1.8 billion deal.

Riverstone Holdings currently owns 35 percent of Talen’s stock, but if the merger is approved by the Federal and Nuclear regulatory commissions, Riverstone will acquire 100 percent of the stock, turning it from a publicly-traded company to a privately-held one. 

Since its formation last June, Talen’s reported a net loss of $341 million, and stocks have plunged 70 percent, according to Bloomberg News. That doesn’t mean Riverstone plans to shut down facilities, including the two local power plants, according to Talen spokesman Todd Martin.

“There is value in these assets,” Martin pointed out. “So as we sit here today, nothing has changed. Our employees are focused on their daily work and we expect to continue to operate our daily business.”

Martin had previously confirmed the company is “reorganizing” the nuclear plant near Berwick, and jobs will be lost through voluntary attrition. Steve Knoebel, president of the International Brotherhood of Electrical Workers Local 1600, has predicted the company could cut a total of 125 jobs between three plants – Susquehanna, Washingtonville, and a plant on Brunner Island, in York County.

But asked if the planned acquisition could affect those changes, Martin wouldn't guess. “I don’t know. It would be premature to speculate."

Here's the press release put out by the company this morning:

ALLENTOWN, Pa., June 3, 2016 /PRNewswire/ -- Talen Energy Corporation (NYSE: TLN), a competitive energy and power generation company that owns or controls 16,000 megawatts of capacity in eight states, announced today that it has entered into a definitive merger agreement with affiliates of Riverstone Holdings LLC ("Riverstone"), a private investment firm.

Under terms of the merger agreement, all outstanding shares of Talen Energy common stock not currently owned by Riverstone affiliated entities will be acquired for $14.00 per share in cash. Affiliates of Riverstone currently own approximately 35 percent of the outstanding shares of Talen Energy common stock, which were issued in the June 2015 transaction that established Talen Energy by combining competitive generation assets that had been owned by affiliates of PPL Corporation and affiliates of Riverstone.

The purchase price represents a 56 percent premium to the closing price of $9.00 per share on March 31, 2016, the last trading day before public reports of a potential sale of Talen Energy, and a 101 percent premium to the 60-day volume-weighted average price of $6.95 per share through March 31.

The transaction has a total enterprise value of approximately $5.2 billion.

"We believe the transaction offers compelling value to our stockholders, while eliminating execution risk, and will provide additional momentum to the outstanding work our employees have done to drive improvements in the safety, reliability and efficiency of our plants in the time since we became an independent company," said Paul Farr, Talen Energy President and Chief Executive Officer.

"The disinterested directors of the Board, not including the two Riverstone directors, with the assistance of our financial and legal advisors, carefully analyzed Riverstone's offer, and after extensive negotiation and thorough consideration, concluded that the agreement we are announcing today is in the best interests of our stockholders," said Stuart E. Graham, Chairman of Talen Energy's Board of Directors.

David M. Leuschen and Pierre F. Lapeyre, Jr., co-founders of Riverstone, added, "As an experienced owner of power generation assets, Riverstone is excited to acquire Talen Energy and its world class generating fleet, which is located in some of the United States' most attractive power markets."

'Go Shop'

The agreement provides for a "go-shop" period, during which Talen Energy – with the assistance of its legal and financial advisors – may actively solicit, receive, evaluate and potentially enter into negotiations with parties that offer alternative proposals. The go-shop period is 40 days. Talen Energy will be permitted to continue discussions with certain parties that make a qualifying offer during the go-shop period for an additional 20 days and, subject to customary requirements included in the agreement, enter into or recommend a transaction with a person or group that makes a superior proposal. The agreement provides for the payment of a termination fee by Talen Energy to Riverstone in the event that the agreement is terminated for a superior proposal, which termination fee will be $50 million, but which will be reduced to $25 million if Talen Energy accepts a superior proposal made during the go-shop period.

There can be no assurance that this process will result in a superior proposal. Talen Energy does not intend to disclose developments during this process unless and until the Board makes a decision with respect to any superior proposal it may receive.

Stockholder and Regulatory Approval

In addition to approval by stockholders representing a majority of outstanding shares of common stock, the transaction is subject to approval by a majority of non- Riverstone affiliated stockholders voting at a special stockholder meeting to be scheduled. Riverstone and its affiliates have agreed to vote their 35 percent stake in favor of the proposed transaction.

The transaction is subject to expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, approval of the Nuclear Regulatory Commission and the Federal Energy Regulatory Commission, as well as certain other customary regulatory approvals and other customary closing conditions. Riverstone's obligation to consummate the transaction is also subject to Talen Energy having a minimum amount of cash and revolving credit facility capacity available at closing.

The parties currently expect the transaction to be completed by the end of 2016.

Transaction Financing

The consideration for the common stock in the transaction, of approximately $1.8 billion, is expected to be funded by a conversion of Riverstone's existing ownership of 35 percent of the common stock of Talen into shares of the surviving corporation, Talen Energy's cash on hand, and proceeds of a $250 million new secured term loan.  The new secured term loan is fully committed by Goldman Sachs Bank USA, Royal Bank of Canada, Barclays Bank plc, Credit Suisse AG and Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and Deutsche Bank AG New York Branch, Morgan Stanley Senior Funding Inc., and the Bank of Tokyo-Mitsubishi UFJ Ltd., and will rank pari-passu with the existing first lien revolving credit facility of Talen Energy Supply LLC (a wholly owned subsidiary of Talen Energy) ("Energy Supply"), which will be reduced from $1.85 billion to $1.4 billion upon closing of the transaction. Concurrently with the signing of the merger agreement, all of Energy Supply's subsidiaries that currently guarantee its revolving credit facility have executed guarantees (effective as of the closing of the transaction) of Talen Energy's outstanding unsecured notes due 2025 ("2025 Notes") and its Pennsylvania Economic Development Financing Authority revenue bonds ("Municipal Bonds"), which together comprise approximately $831 million of Energy Supply's approximately $3.3 billion total unsecured debt that will remain outstanding. As a result of this new credit support for the 2025 Notes and the Municipal Bonds, it is expected that these notes and bonds will be structurally senior to the non-guaranteed unsecured debt of Energy Supply, and we believe that the issue ratings on the 2025 Notes and the Municipal Bonds will be maintained or improved.

Financial and Legal Advisors

Citi is serving as financial advisor to Talen Energy. Kirkland & Ellis LLP is serving as Talen Energy's legal advisor. Goldman, Sachs & Co. and RBC Capital Markets are serving as financial advisors to Riverstone. Wachtell, Lipton, Rosen & Katz and Vinson & Elkins LLP are serving as Riverstone's legal advisors for the transaction.

About Talen Energy

Talen Energy is one of the largest competitive energy and power generation companies in North America. The company owns or controls 16,000 megawatts of generating capacity in well-developed, structured wholesale power markets, principally in the Northeast, Mid-Atlantic and Southwest regions of the United States. For more information, visit www.talenenergy.com.

Talen Energy Generating Assets

Plant

Fuel Type

Ownership in MW (summer rating)

State

Region

Martins Creek

Natural gas/oil

1,708

PA

PJM

Lower Mt. Bethel

Natural gas

555

PA

PJM

Bayonne

Natural gas/oil

165

NJ

PJM

Camden

Natural gas/oil

145

NJ

PJM

Dartmouth

Natural gas/oil

82

MA

ISO-NE

Elmwood Park

Natural gas/oil

70

NJ

PJM

Newark Bay

Natural gas/oil

122

NJ

PJM

Pedricktown

Natural gas/oil

117

NJ

PJM

York

Natural gas

46

PA

PJM

Athens

Natural gas

969

NY

NYISO

Millennium

Natural gas

335

MA

ISO-NE

Laredo

Natural gas

181

TX

ERCOT

Nueces Bay

Natural gas

648

TX

ERCOT

Barney Davis

Natural gas

964

TX

ERCOT

Harquahala

Natural gas

1,040

AZ

WECC

Combustion turbines

Natural gas/oil

370

PA

PJM

Montour

Coal

1,528

PA

PJM

Brunner Island (a)

Coal

1,428

PA

PJM

Brandon Shores

Coal

1,274

MD

PJM

H.A. Wagner

Coal/natural gas/oil

966

MD

PJM

Keystone (b)

Coal

212

PA

PJM

Conemaugh (b)

Coal

285

PA

PJM

Colstrip (b)

Coal

529

MT

WECC

Susquehanna (b)

Nuclear

2,262

PA

PJM

 

(a)  Project to co-fire with natural gas expected to be completed by the end of 2016.

(b)  Jointly owned facility.

About Riverstone Holdings

Riverstone is an energy and power-focused private investment firm founded in 2000 by David M. Leuschen and Pierre F. Lapeyre, Jr. with approximately $34 billion of equity capital raised. Riverstone conducts buyout and growth capital investments in the exploration & production, midstream, oilfield services, power and renewable sectors of the energy industry. With offices in New York, London, Houston and Mexico City, the firm has committed approximately $30 billion to more than 120 investments in North America, Latin America, Europe, Africa and Asia. Visit www.riverstonellc.com for more information.

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