PPL Corp. has agreed to spin off PPL Energy Supply and merge it with RIverstone‘s generation business to form Talen Energy Corp., a new power producer. When the transaction closes, PPL Corp.’s shareholders will own 65 percent of Talen Energy while Riverstone will own 35 percent. Talen Energy will be headquartered in Pennsylvania. Also, Paul A. Farr, PPL’s executive vice president and CFO, will be the new firm’s president and CEO as well as a director. Talen Energy is expected to be listed on the NYSE. Citigroup Global Markets and Morgan Stanley provided financial advice to PPL Corp. while JPMorgan served as financial advisor to Riverstone.
ALLENTOWN, Pa., June 9, 2014 /PRNewswire/ —
PPL Corporation (NYSE: PPL) and Riverstone Holdings LLC, a leading energy and power investment firm, announced Monday (6/9) a definitive agreement to combine their merchant power generation businesses into a new stand-alone, publicly traded Independent Power Producer.
The new company, which will own and operate a diverse mix of 15,320 megawatts of generating capacity in key U.S. competitive energy markets, will be called Talen Energy Corporation. Based on current generating capacity statistics, Talen Energy would be the third-largest investor-owned IPP in the nation.
Under the terms of the agreement, at closing, PPL Corporation will spin off PPL Energy Supply, LLC, the parent company of PPL Generation, LLC, and PPL EnergyPlus, LLC, to shareowners of PPL and then immediately combine that business with Riverstone’s generation business to form Talen Energy Corporation, an independent publicly traded company expected to be listed on the New York Stock Exchange.
Upon closing, PPL Corporation’s shareowners will own 65 percent of Talen Energy and Riverstone will own 35 percent. PPL Corporation will have no continuing ownership interest in Talen Energy.
PPL Corporation’s shareowners will receive a pro-rata distribution of Talen Energy shares at closing based on the number of PPL Corporation shares owned as of the spinoff record date. The spinoff will have no effect on their ownership of PPL Corporation common stock and there will be no change in the number of shares of PPL Corporation common stock outstanding. The transaction is designed to be tax-free to PPL Corporation and its shareowners.
“Talen Energy will be a very significant player in the U.S. competitive generation market, bringing together the best of two robust businesses with a very strong presence in the PJM region, as well as nearly 2,000 megawatts of generating capacity in the fast growing ERCOT market in Texas,” said William H. Spence, PPL Chairman, President and Chief Executive Officer. “Talen Energy will have significant scale, a very competitive cost structure and the financial agility to pursue growth opportunities.”
Spence announced that, upon closing, Paul A. Farr, PPL’s executive vice president and Chief Financial Officer, will be Talen Energy’s president and Chief Executive Officer and a director of the new corporation. To facilitate the transition process, Farr is being named president of PPL Energy Supply, effective June 10. Also effective June 10, Vincent Sorgi, currently vice president and controller for PPL, is being named a senior vice president of PPL and its Chief Financial Officer.
Michael B. Hoffman, a Partner at Riverstone Holdings, said, “Riverstone is very excited about participating in this important transaction. The blending of our two complementary businesses will create, on day one, one of the largest independent power producers in the U.S. with more than 15,000 megawatts of diversified generating capacity in the most attractive U.S. markets, strong free cash flow, and a conservatively capitalized balance sheet. With an outstanding management team led by Paul Farr, we believe Talen Energy will be one of the most successful IPPs in North America.”
Benefits of the transaction to PPL Corporation shareowners
Following the spinoff, PPL Corporation will focus on the high-performing regulated utilities it owns and operates in the United Kingdom, Kentucky and Pennsylvania, serving more than 10 million customers. These regulated businesses, which had 2013 revenues of $7.2 billion, provided more than 85 percent of PPL Corporation’s 2013 earnings from ongoing operations.
PPL Corporation expects to maintain a strong balance sheet, to manage its finances consistent with investment-grade credit ratings and to continue to provide a competitive dividend for shareowners.
Spence said PPL will maintain the current dividend rate — $1.49 per share on an annualized basis — on its common stock until the close of the transaction and intends to grow the dividend under the fully regulated business model.
Spence said the company is maintaining its current 2014 forecast of ongoing earnings of $2.15 to $2.30 per share. “We also are providing 2015 earnings guidance, excluding the Supply segment, of $2.05 to $2.25 per share. And, going forward, we are targeting a minimum of 4 percent compound annual growth in PPL’s earnings per share, based on the $2.05 per share midpoint of our projected 2014 ongoing earnings, excluding Supply,” said Spence.
“As stand-alone companies, PPL Corporation and Talen Energy each will have compelling growth prospects, and we expect the financial markets will ascribe valuations that more appropriately recognize the inherent strengths of each company,” said Spence. “As PPL has grown its rate-regulated business portfolio significantly over the past several years, PPL’s Energy Supply business has not — in our view — achieved appropriate equity valuation.”
While the transaction represents a significant change for all company stakeholders, Spence said PPL decided on this direction following an in-depth analysis of its business mix.
“Given the challenges, uncertainties and opportunities in the wholesale power markets, maintaining the status quo was not a viable option. This transaction provides greater clarity for shareowners, our PPL Energy Supply employees, customers and the communities we serve,” said Spence.
Talen Energy will be an efficient, diversified and highly competitive IPP with a 15,320-MW portfolio
Talen Energy will combine 5,325 megawatts of capacity owned and operated by Riverstone at 15 sites in Maryland, New Jersey, Texas and Massachusetts with 9,995 megawatts of capacity owned and operated by PPL Generation at 12 sites in Pennsylvania and Montana. The new company’s planned 15,320-megawatt portfolio will have excellent fuel diversity, with 40 percent natural gas, 40 percent coal and 15 percent nuclear. The above numbers exclude capacity from PPL’s 11 hydroelectric units in Montana, which are expected to be sold to NorthWestern Energy pursuant to a September 2013 definitive agreement.
About 83 percent of the generating capacity to be owned by Talen Energy is located in the region served by the Pennsylvania-New Jersey-Maryland Interconnection, the world’s largest wholesale electricity marketplace.
The combination is expected to result in significant operating and financial benefits for Talen Energy. The company expects to realize annual run-rate synergy benefits of $155 million and projects 2015 “Model Year” Adjusted EBITDA of about $1.07 billion, inclusive of the run-rate forecast synergies.
PPL Energy Supply had total debt of $2.7 billion and cash of $520 million as of May 31, 2014. Riverstone’s generation business is expected to have $1.25 billion of debt after giving effect to their planned refinancing.
Farr will lead the transition process to form Talen Energy. Jeremy R. McGuire, PPL’s vice president of strategic development, will also serve as a member of the transition team and, upon closing, will become the Chief Financial Officer of Talen Energy.
In addition to Farr, PPL will name four independent members to the eight-member Talen Energy board, while Riverstone will name three members, one of whom will be independent.
Talen Energy will be headquartered at a yet-to-be-determined location in Pennsylvania. PPL Corporation and the company’s Pennsylvania electricity delivery operation, PPL Electric Utilities, will continue to be headquartered in Allentown.
PPL EnergyPlus will continue to serve its wholesale and retail customers in the mid-Atlantic region and Montana.
Spence emphasized that the PPL Generation plants moving to the new company will continue to be operated and maintained by many of the trusted professionals who have been doing so for decades.
“PPL people have done an excellent job of operating and maintaining these power plants in a safe and reliable manner. That commitment to safe and reliable operation will continue unchanged, as many in the current management team are expected to be part of Talen Energy,” said Spence.
Many of the current employees of PPL Energy Supply and the employees of PPL Services Corporation who provide support for that business are expected to transfer to Talen Energy at closing. It is expected, however, that the combination of operations will result in the elimination of a number of positions at plant locations and in corporate support services. The number of positions affected will be determined during the transition process, Spence said, noting that the company is confident in its forecast of synergies.
The transaction is subject to approval by the Nuclear Regulatory Commission and the Federal Energy Regulatory Commission (including the required market power analysis); a Hart-Scott-Rodino review; certain approvals by the Pennsylvania Public Utility Commission; and other customary closing conditions. The transaction, which does not require PPL shareowner approval, is expected to close in nine to 12 months.
This transaction does not include the 8,100 megawatts of regulated generating capacity owned by PPL’s Kentucky utilities. Those assets will continue to be owned and operated by Louisville Gas and Electric Company and Kentucky Utilities Company to serve customers in Kentucky and southwestern Virginia.
Spence said PPL Corporation continues to forecast significant rate base growth in its regulated businesses as it invests $16 billion over the next five years in transmission facilities, in regulated power plants and in environmental improvements.
In addition to the utilities in Kentucky that serve 1.2 million customers, PPL operates utilities in Pennsylvania and the United Kingdom serving 1.4 million and 7.8 million customers, respectively.
Citigroup Global Markets Inc. and Morgan Stanley & Co. LLC served as financial advisers to PPL Corporation. Simpson Thacher & Bartlett LLP served as PPL Corporation’s legal adviser.
Riverstone was advised by J.P. Morgan (financial adviser) and Vinson & Elkins (legal counsel).
Additional information also is available on pplweb.com and riverstonellc.com.
PPL Corporation, with 2013 revenues of $12 billion, is one of the largest companies in the U.S. utility sector. The PPL family of companies delivers electricity and natural gas to about 10 million customers in the United States and the United Kingdom, owns more than 18,000 megawatts of generating capacity in the United States and sells energy in key U.S. markets. More information is available at www.pplweb.com.
Riverstone is an energy and power-focused private investment firm founded in 2000 by David M. Leuschen and Pierre F. Lapeyre, Jr. with approximately $27 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 $26.1 billion to 108 investments in North America, Latin America, Europe, Africa and Asia.