Calpine Announces $5.6 Billion Sale to Equity Group

Houston-based Calpine Corp., which confirmed in July it was looking for a buyer, announced August 18 it has agreed to be bought by Energy Capital Partners (ECP) in a $5.6 billion deal.

ECP is a private equity firm that focuses on investments in North American energy infrastructure. The purchasing group also includes a consortium of investors led by Access Industries, a New York City-based holding company, and the Canada Pension Plan Investment Board. The deal is expected to close early next year, according to the companies.

“We are excited to partner with Energy Capital,” said Thad Hill, Calpine’s president and CEO, in a statement after the deal was announced. “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.”

Calpine in July confirmed that it was looking for a buyer, two months after reports surfaced that the company was working with investment bankers to facilitate a sale. Reports in July also said Energy Capital was the front-runner to purchase the company.

The deal values Calpine stock at $15.25 per share, more than a 50% premium to the company’s share price on May 9, 2017, the day before the first reports of a possible sale. Calpine’s stockholders still must approve the deal.

Calpine sells its electricity supplies directly into wholesale markets. Such generators have had their margins squeezed by the greater use of less-expensive natural gas and increased use of renewable energy, and by subsidies for nuclear generation in some states. Calpine is among generators that have taken plants offline due to poor economics.

Frank Cassidy, chairman of Calpine’s board of directors, said in a news release that “We are very pleased to announce this proposed transaction and are confident it is in the best interests of our shareholders and stakeholders. This transaction is the result of an exhaustive review of strategic alternatives undertaken by our Board … and [we] look forward to shareholder approval.”

In its statement, Calpine said the deal 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.”

Should the company find and accept a better deal in the “go-shop” period, Calpine would pay a $142 million termination fee to the investor consortium under today’s agreement, although that fee could drop to $65 million under certain conditions. Calpine said it would not “disclose developments” during the period, unless its board of directors were to make “a decision with respect to any potential superior proposal.”

The current deal calls for Calpine to keep its headquarters in Houston and retain its current management team. Tyler Reeder, a partner with ECP, said in a news release that ECP plans no changes to Calpine’s operation or its previously announced $2.7 billion deleveraging plan.

Reeder said “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.”

—Darrell Proctor is a POWER associate editor (@DarrellProctor1, @POWERmagazine)