Talen Energy Corp. has agreed to acquire New York-based MACH Gen LLC and its 2,500 MW of natural gas-fired electric generation capacity for $1.18 billion.
The deal comes just a month after Pennsylvania-based Talen was spun off by utility PPL Corp. and combined with the generation business owned by private equity firm Riverstone Holdings LLC. Established with about 15,000 MW of generation, the deal would boost Talen's capacity to 17,600 MW before the required sale of 1,300 MW to meet a FERC order related to the spin-off.
Prior to the deal, Talen was primarily operating its power plants in the PJM and ERCOT markets of the Mid-Atlantic and Texas. The MACH acquisition would give it three natural gas-fired power plants, including two in the NYISO and ISO-NE markets with a 1,080 MW facility in Athens, NY, and a 360 MW facility in Millennium, MA. The third 1,092 MW plant is located in Harquahala, AZ.
"This negotiated deal represents a significant step in the execution of our growth strategy and provides meaningful improvement in our cash flow profile," said Talen CEO Paul Farr. "This transaction adds highly competitive combined cycle gas assets in NYISO and ISO-NE, two mature and liquid wholesale power markets, with the opportunity to create significant value by optimizing a very efficient gas-fired plant in Arizona."
That plant is losing money, but Talen believes it can operate the facility better. Analysts at Tudor, Pickering, Holt & Co. Inc. said the steep purchase price for the MACH facilities appeared to be based on higher capacity factors than what the plants are running at. Talen could also eventually monetize the Arizona facility.
Farr said during a conference call with analysts that he sees natural gas supply fundamentals improving as more plants in the Northeast gain "direct access" to the Marcellus Shale. The company estimates that the three new facilities would improve cash flow by $30 million next year.
The company expects to fund the acquisition with a combination of debt and cash. The deal is subject to regulatory approval and is expected to close by the end of the year.