Dynegy Inc. has signaled its commitment to addtelecommunications to its natural gas and power interests with aninvestment of more than half a billion dollars, including the $152million purchase of a Colorado-based communications solutions andnetwork company.

Leveraging its merchant talents into another national utilitynetwork, that of broadband communications, Dynegy said it hassigned a letter of intent to purchase Extant, Inc. The purchaseprice includes $60 million in cash and 1.25 million shares ofDynegy common stock.

Following the transaction, Dynegy will establish Dynegy GlobalCommunications, a new division that will own 80% of a limitedpartnership to be called Dynegy Connect. Telstrat Corp. Ltd., anAustralian telecommunications and information services company,owns a 17% interest in Extant and has signed a memorandum ofunderstanding to own a 20% interest in Dynegy Connect.

Dynegy is committed to an additional investment of $400 millionto complete development and implementation of the network currentlybeing assembled by Extant. Dynegy Connect will deploy a smart-buildstrategy utilizing leases, alliances, ownership or control overexisting fiber routes.

In a conference call last week, Dynegy Chairman Chuck Watsonsaid the transaction would be slightly dilutive to Dynegy earningsthis year and next. Dynegy estimates it will cut earnings 10-15cents this year and 5-10 cents in 2001, with the prospect ofbuilding a $2 to $3 billion business by 2003-4.

Despite the “slight dilution” the company expects to meetanalysts’ consensus for 2001, he added.

“This transaction enables Dynegy to execute its long-termstrategy to become a leader in the broadband marketing and tradingarena, while remaining focused on the tremendous opportunities inenergy convergence,” Watson said. Dynegy’s strategy is to followthe path it set in natural gas and power by building an asset-basedbusiness before moving into broadband trading.

Extant’s network has been deployed in 28 U.S. cities and 40cities are expected to be operational by the end of the year. Morethan 100 cities are set to be fully deployed by 2003. On completionthe joint venture network will consist of approximately 80,000fiber miles and 20,000 route miles.

Dynegy will not be trading bandwidth “real soon. That’s possiblya year or three off,” the Dynegy CEO said. Broadband communicationsis projected to grow to a $400 billion market or about twice thesize of the current power market. “This is clearly a market that istoo big for Dynegy to ignore. Even if we achieve 5% market share,it would exceed the earnings contribution from (Dynegy’s) power andgas business today.”

Watson stressed the strength of the deal was in the “combinedintellectual capital:” Dynegy’s in marketing and trading, andExtant’s in the communications business and technology. “Thisacquisition launches Dynegy into the communications marketplacethrough the addition of management expertise, market intelligence,network access and control, and sophisticated operating andconnectivity software systems.” Extant Chairman Larry McLernon,will become executive vice president of Dynegy Inc. and CEO of theDynegy Global Communications division.

Ellen Beswick

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