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Lamenting share price, Vistra CEO says going private remains an option

Vistra Energy Corp.'s sliding share price in the second quarter of 2019 was driven by various factors, including weather, commodity prices and nuclear subsidies, President and CEO Curt Morgan said on an Aug. 2 earnings call that broached the question of whether the independent power producer may ultimately be taken private.

"It is as if some investors in the competitive power sector were conditioned to sell off at the first whisper of any potential bad news, yet we are a vastly different company than the [independent power producers] of the past, with lower debt," said Morgan, adding that the company plans to continue repurchasing its stock.

The company executed $1.29 billion of its previously authorized $1.75 billion buyback program through July 25, according to its earnings statement. Vistra also closed its acquisition of Crius Energy Trust during the second quarter.

Shares of Vistra declined during the second quarter, opening April 1 at $26.15 and closing June 29 at $22.64.

"We have inexplicably, to us, anyway, lost approximately $3 billion of equity value, yet we expect our EBITDA for 2019 and 2020 will be over $3 billion with free cash flow expected to be in excess of $2 billion," Morgan said on the call.

Taking Vistra private in a manner similar to Calpine Corp., which was acquired by Energy Capital Partners in 2018 is an option that remains on the table, Morgan said in response to an analyst making the comparison.

"In our view, the question is, can we put up sustained strong numbers, year in and year out, in various market price environments while producing very strong free cash flow and the opportunity to return value to shareholders and/or invest in our business," said Morgan. "To us, the answer is an unequivocal yes."

Another IPP, Talen Energy Corp., also went private in 2016.

Morgan said Vistra officials "still have faith" in the public markets and whether those markets embrace the company and its direction will ultimately shape the IPP's fate.

"While I don't like the magnitude of [the recent downturn] and I think that people are not recognizing what we are capable of doing in terms of managing it, I understand it," said Morgan, adding that Vistra's management team and the board will be "constantly" exploring all options for future growth.

"We've got to look for what's the best way to unlock value for the company," said Morgan. "Now I don't know if that's taking it private or not, but that will certainly be on the list, it has to be. I don't think that's rocket science."

Analysts from CreditSights, in a note published shortly after the call on Aug. 2, expressed doubt that Vistra would be taken private while its share price still hovered around its current level.

"We do not see a going-private transaction in the cards for [Vistra] as long as the stock is in the low $20s but we do see long-term risk of wind and solar continuing to eat into peak power prices," CreditSights analysts wrote, adding that Vistra could potentially retire its Martin Lake, Oak Grove Project or Coleto Creek coal-fired facilities in Texas as part of an attempt to tighten the Lone Star State’s power market, "assuming the grid operator [lets] them."

During the earnings call, Morgan also took aim at the Ohio bill signed into law by Gov. Mike DeWine on July 23, subsidizing nuclear plants owned by FirstEnergy Corp.'s separately managed FirstEnergy Solutions Corp.

"We were absolutely against that," said Morgan, who said his company was "collateral damage."

"This was an inside deal, in my opinion, that was rammed through to try and help FirstEnergy and FirstEnergy Solutions get out of their bankruptcy," said Morgan. "I hope [the Federal Energy Regulatory Commission] will do the right thing and mitigate them out of the market."