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Riverstone Holdings to Acquire Power Generation Company Talen Energy in $5.2B Deal

Energy- and power-focused private investment firm Riverstone Holdings LLC has agreed to acquire Pennsylvania-based Talen Energy Corp. and its 16,000 MW of electric generating capacity in eight states across the country in a deal valued at $5.2 billion.

Talen owns or controls 24 power plants that are primarily located in Northeast, Mid-Atlantic and Southwest states. Most of those facilities generate power with natural gas, while a smaller portion use coal or natural gas and oil. Talen CEO Paul Farr said that after careful consideration and extensive negotiations, management and the company's board of directors determined that the merger "offers compelling value to our stockholders."

Under the terms of the agreement, all outstanding shares of Talen common stock would be acquired for $14 each by Riverstone, which already owns 35% of the company's common stock. The deal comes about a year after utility PPL Corp. spun off Talen into a separate company that was combined with the generation business owned by Riverstone. Shortly after that, Talen acquired New York-based MACH Gen LLC and its 2,500 MW of natural gas-fired electric generation capacity for $1.18 billion to grow its portfolio (see Daily GPI, Oct. 15, 2015; July 21, 2015).

The purchase price represents a 56% premium to a closing of $9/share at the end of March, when public reports began to surface about negotiations between Talen and Riverstone. Talen's stock closed at $11.94/share on Thursday and was up by more than 16% on the New York Stock Exchange to $13.90/share midday Friday.

The agreement also includes a "go shop" provision that allows Talen to solicit other offers for up to 40 days and provides for another 20 days of negotiations in the event that Talen receives a better offer. If it does, Riverstone would be entitled to either a $50 million termination fee or a $25 million fee if Talen accepts an offer during the go-shop period.

Both parties expect their transaction to close by the end of the year, pending regulatory and stockholder approval.

Riverstone focuses on buyout and growth capital investments in the exploration and production, midstream, oilfield services, power and renewable energy sectors. It has $30 billion committed in more than 120 investments worldwide.

In any event, Talen's business is poised to grow. Increasing natural gas production, particularly from shale plays in the Northeast and Southwest, is expected to boost gas-fired power capacity across the country in the coming years (see Daily GPI, May 19). The Energy Information Administration (EIA) said last month that 18.7 GW of new natural gas-fired capacity is expected to come online across the country between 2016 and 2018.

U.S. consumption of natural gas is projected to rise from 28 Tcf in 2015 to 34 Tcf in 2040, or about 1% annually, according to EIA's Annual Energy Outlook 2016. The industrial and electric power sector make up 49% and 34% of that growth, respectively, EIA said.

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