What Does the Deal Between Ameren Corp. (AEE) and Dynegy Inc. (DYN) Mean for Them

Page 1 of 2

Recently, Dynegy Inc. (NYSE:DYN) agreed to buy the merchant generation business Ameren (NYSE:AEE) Energy Resources (AER), from the power company Ameren Corp (NYSE:AEE) for around $900 million, including around $180 million in tax benefits. Interestingly, the deal does not involve any cash or stock issuance, as Dynegy will undertake around $825 million in debt with the acquisition of Genco, AER’s subsidiary. Is the deal better off for both Dynegy and Ameren? Let’s find out.

Dynegy and Ameren

Dynegy Inc. (NYSE:DYN) is involved in the business of production and sale of electric energy, capacity, and ancillary services to RTOs and ISOs, integrated utilities, electric cooperatives, and industrial customers, from twelve operating power plants in six U.S. states with a total capacity of 9,800 MW. The company has two main segments: the Coal segment and the Gas segment. The majority of its fleet capacity, 6,771 MW or 69.4% of total fleet capacity, was from the Gas segment, while the Coal segment has a capacity of around 2,980 MW.

Ameren Corp (NYSE:AEE) is a public utility holding company operating in three business segments: Ameren Missouri, Ameren Illinois and Merchant Generation. The majority of its 2012 revenue, $3.25 billion or 47.6% of total revenue, was generated from the Ameren Missouri segment, while the Merchant Generation segment contributed more than $1 billion in revenue in 2012.

The Merchant Generation segment is the only loss-making segment among the three, with more than $1.5 billion in 2012 net loss, while the Ameren Corp (NYSE:AEE) Missouri and the Ameren Illinois segments generated profits of $416 million and $141 million, respectively. In 2012, the Merchant Generation had more than $1 billion in income tax benefit.


Dynegy’s benefits

Dynegy Inc. (NYSE:DYN) believes that the acquisition of AER would deliver significant shareholder benefits in the most capital efficient manner. By combining AER, its annual adjusted EBITDA would increase from $150 million to $332 million, or from $1.50 per share to $3.32 per share, a growth of 121%. In order to achieve that growth alone, Dynegy would have had to commit more than $1 billion of capital to repurchase around 55 million shares. Dynegy commented that the deal would be much better off for the company in terms of operational, commercial, and financial perspective.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

The 50 Best Personal Finance Blogs

Most Expensive Apartments in New York City

Bloodiest UFC Fights Ever Fought

Most Expensive Rum Brands in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!