Merchant M&A Chatter Picks Up With Vistra Reportedly Setting Sights On Dynegy

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Dallas-headquartered Vistra Energy Corp., the newest publicly traded merchant generator and retail provider following its emergence from bankruptcy in October 2016, is reportedly in early talks to acquire peer Dynegy Inc., according to The Wall Street Journal. Dynegy owns 31.4 GW of gas- and coal-fired capacity across the U.S., including 4.7 GW in the Electric Reliability Council of Texas. Vistra's operations consist of 17 GW of nuclear, coal and gas-fired capacity in ERCOT through Luminant, and the state's largest electric retail business, TXU Energy. 

During Vistra's May 18 first-quarter earnings call, management affirmed its commitment to its core, complementary generation and electric retail operations in ERCOT, while leaving the door open to potential large M&A transactions. In addition, Vistra is actively exploring acquisitions of combined-cycle generating assets in Texas.

Vistra's reported interest in Dynegy comes as the legacy merchant generation sector has in recent months addressed sagging stock prices and heavy debt weighing on balance sheets while scaling back the pace of CapEx and asset acquisitions. 

With a net debt-to-EBITDA ratio hovering around 8.0x at the end of 2016, Dynegy has pointed to deleveraging as its top priority, aiming to lower that multiple to 4.5x through select asset sales and cost and performance initiatives to improve cash flow and earnings. 

IPP management teams on recent earnings calls have indicated a willingness to consider large-scale M&A. Dynegy management believes that potential market power issues that could arise from the combination of large generating fleets and change-of-control debt provisions present little to no impediment to a corporate transaction, while Calpine Corp. management has indicated it would consider M&A offers. 

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