Dynegy Commits $$$ to Broadband
Dynegy Inc. has signaled its commitment to add
telecommunications to its natural gas and power interests with an
investment of more than half a billion dollars, including the $152
million purchase of a Colorado-based communications solutions and
Leveraging its merchant talents into another national utility
network, that of broadband communications, Dynegy said it has
signed a letter of intent to purchase Extant, Inc. The purchase
price includes $60 million in cash and 1.25 million shares of
Dynegy common stock.
Following the transaction, Dynegy will establish Dynegy Global
Communications, a new division that will own 80% of a limited
partnership to be called Dynegy Connect. Telstrat Corp. Ltd., an
Australian telecommunications and information services company,
owns a 17% interest in Extant and has signed a memorandum of
understanding to own a 20% interest in Dynegy Connect.
Dynegy is committed to an additional investment of $400 million
to complete development and implementation of the network currently
being assembled by Extant. Dynegy Connect will deploy a smart-build
strategy utilizing leases, alliances, ownership or control over
existing fiber routes.
In a conference call last week, Dynegy Chairman Chuck Watson
said the transaction would be slightly dilutive to Dynegy earnings
this year and next. Dynegy estimates it will cut earnings 10-15
cents this year and 5-10 cents in 2001, with the prospect of
building a $2 to $3 billion business by 2003-4.
Despite the "slight dilution" the company expects to meet
analysts' consensus for 2001, he added.
"This transaction enables Dynegy to execute its long-term
strategy to become a leader in the broadband marketing and trading
arena, while remaining focused on the tremendous opportunities in
energy convergence," Watson said. Dynegy's strategy is to follow
the path it set in natural gas and power by building an asset-based
business before moving into broadband trading.
Extant's network has been deployed in 28 U.S. cities and 40
cities are expected to be operational by the end of the year. More
than 100 cities are set to be fully deployed by 2003. On completion
the joint venture network will consist of approximately 80,000
fiber miles and 20,000 route miles.
Dynegy will not be trading bandwidth "real soon. That's possibly
a year or three off," the Dynegy CEO said. Broadband communications
is projected to grow to a $400 billion market or about twice the
size of the current power market. "This is clearly a market that is
too big for Dynegy to ignore. Even if we achieve 5% market share,
it would exceed the earnings contribution from (Dynegy's) power and
gas business today."
Watson stressed the strength of the deal was in the "combined
intellectual capital:" Dynegy's in marketing and trading, and
Extant's in the communications business and technology. "This
acquisition launches Dynegy into the communications marketplace
through the addition of management expertise, market intelligence,
network access and control, and sophisticated operating and
connectivity software systems." Extant Chairman Larry McLernon,
will become executive vice president of Dynegy Inc. and CEO of the
Dynegy Global Communications division.