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

In terms of operational perspective, Dynegy Inc. (NYSE:DYN) would synergize more than $60 million in the first year, with lower cost of fuel, G&A, and operating cost by its increased scale and leveraging its existing infrastructure. From the commercial perspective, it would allow Dynegy to have fleet capacity of around 900 MW for 2016/17 PJM capacity auction.

In addition, Dynegy mentioned that the deal would double its “upside leverage to natural gas prices and MISO market recovery.” In terms of financial perspective, the deal is expected to be accretive to adjusted EBITDA in 2014 and the free cash flow by 2015.

Ameren’s benefits

For Ameren Corp (NYSE:AEE), the sale of its merchant units would improve its operating earnings and cash flow in the near future. Ameren’s CEO Thomas Voss said: “We expect that this transaction will reduce business risk and improve the predictability of our future earnings and cash flows, which is expected to strengthen Ameren’s credit profile and support Ameren’s dividend.”

Indeed, divesting non-core businesses to reduce the debt level would strengthen company’s balance sheet, and improve its earnings and cash flow in the future. Dominion Resources (NYSE:D) recently announced that it would sell three of its power plants in Illinois and Massachusetts to funds controlled by Energy Capital Partners for around $650 million after-tax proceeds.

At the current trading price of around $34 per share, Ameren is trading at 7.1 times EV/EBITDA. Dominion Resources is a much larger company, with around $32.4 billion in total market cap. At around $57 per share, Dominion is valued at around 11.6 times EV/EBITDA. Both Ameren and Dominion are paying good dividends, yielding 4.7% and 4%, respectively.

Foolish bottom line

I think after the deal, both Dynegy Inc. (NYSE:DYN) and Ameren Corp (NYSE:AEE) would be in much better shape, and their operating performance and profitability would significantly increase in the coming years. Income investors might like Ameren Corp (NYSE:AEE) the most due to its highest dividend yield.

The article What Does the Deal Between Ameren and Dynegy Mean for Them originally appeared on Fool.com and is written by Anh HOANG.

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