NGI The Weekly Gas Market Report
Building on a tripling of the financial contribution of its Dynegy Marketing and Trade division, Dynegy Inc. announced its third-quarter recurring earnings per share of $0.55 will top analysts’ estimates of $0.50 per share.
Dynegy made two other separate announcements yesterday: (1) it has completed the previously announced $188 million purchase of Extant, Inc., a privately held, Colorado-based communications solutions provider, tapped to lead the growing conglomerate into the world of broadband; and (2) will be selling 10 million newly issued shares of Dynegy Class A common stock, pursuant to its appearance on the Standard & Poor 500 Index today.
The company said this year’s third-quarter results to be reported Oct. 17, will show an 80% increase in net income to $175 million over the $96.5 million pro forma total of Dynegy and Illinova in 3Q 1999. The companies merged this past February.
Dynegy Marketing & Trade’s financial contribution includes operating margin plus equity earnings, which totaled $101 million in the third quarter last year. Tripling would put that number at around $300 million in the latest quarter.
“Successful execution of Dynegy’s core energy convergence business strategy — the merchant leverage effect — enabled the company to trade around its assets and extract value from the marketplace as regional inefficiencies occurred.” This was in spite of record mild temperatures in the Midwest and Northeast U.S. throughout the peak summer months, Dynegy noted.
It cited the “nationwide volatility in both power and gas, coupled with strong marketing, structured origination activity and term sales. Dynegy’s generation asset portfolio, including the assets acquired in the Illinova merger, is expected to perform solidly, particularly in the West where weather conditions significantly impacted demand.” The company credited its geographically diverse asset base for helping to offset an off-season for the Midwest and Northeast.
The company said it has agreed to sell the new shares of stock, subject to its inclusion in the S&P 500 Stock Index. The shares will be sold through Goldman, Sachs & Co., Banc of America Securities LLC and Lehman Brothers as agents for Dynegy at a price per share equal to yesterday’s closing price ($53.25) less a discount of $0.125 per share, excluding commissions.
The new stock will meet a portion of the demand for Dynegy shares from S&P 500 index funds. The company had been on the S&P MidCap 400 index.
The 10 million new shares will be added to the 310 million Dynegy shares outstanding.
The Extant acquisition “gives Dynegy an entry into the communications marketplace through the addition of management expertise, market intelligence, network access and control and sophisticated operating and connectivity software systems,” said Chuck Watson, Dynegy chairman. The new venture will go by the name of Dynegy Connect and will be 80% owned by Dynegy and 20% owned by Telstra Corp. Ltd., an Australian telecommunications and information services company (see Daily GPI, Aug. 3).
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