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Calpine to go private in $5.6B cash deal with ECP-led consortium

Calpine Corp. has agreed to sell itself to a consortium of investors led by Energy Capital Partners LLC, Access Industries and Canada Pension Plan Investment Board for $5.6 billion in cash.

Less than a decade after emerging from bankruptcy and listing on the New York Stock Exchange in 2008, Calpine on Aug. 18 agreed to a buyout offer of $15.25 per share from Energy Capital Partners and the investor consortium, in a deal that will move the company's ownership of some 26,000 MW of mostly natural gas-fired capacity into private hands. For Calpine, its intent to go private was hardly a secret, and an option that its management team viewed as one that could likely fetch premiums relative to where its equity price was valued in public markets.

ECP's buyout price represents a roughly 51% premium to Calpine's unaffected stock price of $10.07 on May 9, a day prior to initial media speculation of a transaction. The price is largely in line with analyst expectations.

"This transaction is the result of an exhaustive review of strategic alternatives undertaken by our Board, with the assistance of outside advisors, to maximize shareholder value and unlock the company’s intrinsic value, while eliminating execution risk. We are confident that this is the best outcome of that review and look forward to shareholder approval," said Frank Cassidy, chairman of Calpine's board of directors.

For its part, ECP has been among the power sector's more aggressive private equity funds in recent years. The fund is also a large shareholder of Dynegy Inc., in which it owns a 15% equity interest following its joint-venture with the generator last year. The acquisition of Calpine would give ECP control over a sizable wholesale power fleet across the Northeast, California and Texas, as well as retail services offered by Calpine Energy Services and Champion Energy Services.

"We do not expect to make any changes to the way Calpine operates its business and intend to remain focused on providing the high level of service to which Calpine's wholesale and retail customers have become accustomed. Finally, we do not intend to make any changes to the Company’s financial policy or previously announced $2.7 billion deleveraging plan," said Tyler Reeder, a partner at ECP.

An entity owned by ECP and its consortium will fund 100% of the equity required to consummate the transaction. The transaction is not subject to a financing condition. In a separate news release, the Canada Pension Plan Investment Board said it will invest $750 million in the acquisition.

The deal is expected to close by first quarter of 2018, according to the announcement. Terms of the deal are still subject to shareholder and regulatory approval, including from the Federal Energy Regulatory Commission, the New York Public Service Commission, the Public Utility Commission of Texas and other states, as necessary.

The deal concludes a monthslong process in which advisers from Lazard Ltd were enlisted to evaluate potential private bids for the independent power producer, according to a May 10 report by the Wall Street Journal, with White & Case LLP serving as legal advisers. Along the way, reports surfaced that ECP was in the mix for Calpine, alongside Apollo Management Group, Blackstone Group LP, Carlyle Group LP and Global Infrastructure Partners L.P., before making it to the final round in late July. Financial advisers to ECP are Barclays Capital Inc., with legal advisers from Latham & Watkins LLP.

"Go-shop" period

The transaction includes a 45-day "go-shop" period for Calpine where it can actively solicit, evaluate and potentially enter into negotiations with parties that offer superior alternative proposals. The company has to pay a $142 million termination fee to the investor consortium in the event that it opts to pursue an alternative proposal. The termination fee will be lowered to $65 million if Calpine ends the agreement for a superior proposal from certain exempted persons prior to 12:01 a.m. ET on the 106th day after the date of the agreement.

Calpine said it does not plan to disclose developments during this process until its board has made a decision.