U.S.-based IPP Calpine agrees to acquisition by investor consortium

Calpine City View Plaza San Jose (source: flickr/ Michael Gray, creative commons)
Alexander Richter Alexander Richter 18 Aug 2017

U.S.-based independent power producer Calpine, one of the largest geothermal operators in the world, has agreed to the acquisition by a consortium of investors lead by Energy Capital Partners.

In a release today, Calpine Corporation (NYSE:CPN), America’s largest generator of electricity from natural gas and geothermal resources, announced that it has entered into a definitive agreement under which Energy Capital Partners (Energy Capital or ECP) along with a consortium of investors led by Access Industries and Canada Pension Plan Investment Board will acquire Calpine for $15.25 per share in cash, or $5.6 billion. The purchase price represents an approximately 51% premium to Calpine’s unaffected share price of $10.07 on May 9, 2017, the day prior to initial media speculation of a transaction. The transaction follows a competitive strategic review process and was unanimously approved by Calpine’s Board of Directors.

“We are very pleased to announce this proposed transaction and are confident it is in the best interests of our shareholders and stakeholders,” said Frank Cassidy, Chairman of Calpine’s Board of Directors. “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.”

“We are excited to partner with Energy Capital, a leading private equity investment firm focused on North American energy infrastructure and power assets,” said Thad Hill, President and Chief Executive Officer of Calpine. “With ECP, Calpine will be able to operate as it always has – executing on our strategic objectives of providing safe and reliable power and serving our retail and wholesale customers with differentiated products and services. We will also continue to strengthen our wholesale power generation footprint, while benefiting from ECP’s support, industry expertise and long-term investment horizon. In short, Calpine will continue to be the nation’s premier competitive power company.”

Tyler Reeder, a partner at Energy Capital Partners, stated: “We look forward to joining forces with Calpine’s talented team as they continue executing their strategy. We see significant value in Calpine’s operational excellence and strong and stable cash flows and have been impressed by the Company’s exceptional leadership and talented employees. 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.”

Calpine will maintain its corporate headquarters in Houston, Texas with the current management team expected to remain in place.

“Go-Shop” Period

The agreement includes a 45-day “go-shop” period, during which Calpine, with the assistance of its legal and financial advisors, can actively solicit, evaluate and potentially enter into negotiations with parties that offer superior alternative proposals. The agreement provides for the payment of a termination fee by Calpine of $142 million to the investor consortium in the event that the agreement is terminated for a superior proposal; except that the termination fee will be $65 million if Calpine terminates the agreement for a superior proposal from certain exempted persons prior to 12:01 a.m., Eastern time, on the 106th day after the date of the agreement. There can be no assurance that this process will result in a superior proposal. Calpine does not intend to disclose developments during this process unless and until its Board has made a decision with respect to any potential superior proposal.

Stockholder and Regulatory Approval

The proposed transaction is subject to approval by stockholders representing a majority of outstanding shares of common stock of Calpine. In addition, the transaction is subject to expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. Other necessary regulatory filings include Federal Energy Regulatory Commission (FERC), New York Public Service Commission (NYPSC), the Public Utility Commission of Texas (PUCT) and other states, as necessary.

The parties currently expect the transaction to close in the first quarter of 2018.

Investor Consortium Funding

Along with Energy Capital Partners, the investor consortium is led by Access Industries and Canada Pension Plan Investment Board. An entity wholly owned and controlled 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. Calpine expects both Standard and Poor’s and Moody’s Investors Service to affirm Calpine’s credit ratings.

Financial and Legal Advisors

Lazard is serving as financial advisor and White & Case LLP as legal advisor to Calpine. Barclays Capital Inc. is serving as financial advisor and Latham & Watkins LLP as legal advisor to Energy Capital Partners.

Source: Company release by BusinessWire