Saying its energy supply business had not achieved the same “equity valuation” as its rate-regulated business, the parent of an electric utility company that serves part of the midstate announced it was spinning off its merchant power generation business and merging it with another company.
PPL Corp., based in Allentown, announced late Monday it would be spinning off PPL Energy Supply LLC, the parent company of PPL Generation LLC and PPL EnergyPlus LLC, to shareowners of PPL and then immediately combining that business with Riverstone Holdings LLC, which has offices in New York and Houston.
The new company, which will own and operate 15,320 megawatts of generating capacity in U.S. competitive energy markets, will be called Talen Energy Corp., according to a news release from PPL. Based on current generating capacity statistics, Talen Energy would be the third-largest investor-owned independent power provider in the nation.
Talen will be an independent, publicly traded company expected to be listed on the New York Stock Exchange, according to the release.
Upon closing, PPL’s shareowners will own 65 percent of Talen Energy and Riverstone will own 35 percent, according to the release. PPL will have no continuing ownership interest in Talen Energy.
PPL’s shareowners will receive a pro-rata distribution of Talen Energy shares at closing based on the number of PPL shares owned as of the spinoff record date, according to the release. The spinoff will have no effect on their ownership of PPL Corp. common stock and there will be no change in the number of shares of PPL Corp. common stock outstanding. The transaction is designed to be tax-free to PPL Corp. and its shareowners, the company said.
As part of the deal, upon closing, Paul A. Farr, PPL’s executive vice president and chief financial officer, will be Talen Energy’s president and CEO and a director of the new corporation. To facilitate the transition process, Farr is being named president of PPL Energy Supply, effective today, William H. Spence, PPL chairman, president and CEO, said in the release. Also effective today, Vincent Sorgi, currently vice president and controller for PPL, is being named a senior vice president of PPL and its chief financial officer.
“As stand-alone companies, PPL Corporation and Talen Energy each will have compelling growth prospects, and we expect the financial markets will ascribe valuations that more appropriately recognize the inherent strengths of each company,” Spence said in the news release. “As PPL has grown its rate-regulated business portfolio significantly over the past several years, PPL’s Energy Supply business has not — in our view — achieved appropriate equity valuation.”
Following the spinoff, PPL Corp. will focus on the high-performing regulated utilities it owns and operates in the United Kingdom, Kentucky and Pennsylvania, serving more than 10 million customers, according to the release. These regulated businesses, which had 2013 revenues of $7.2 billion, provided more than 85 percent of PPL Corp.’s 2013 earnings from ongoing operations.
Spence said PPL will maintain the current dividend rate — $1.49 per share on an annualized basis — on its common stock until the close of the transaction and intends to grow the dividend under the fully regulated business model.
He also said the company is maintaining its current 2014 forecast of ongoing earnings of $2.15 to $2.30 per share.
“We also are providing 2015 earnings guidance, excluding the Supply segment, of $2.05 to $2.25 per share,” he said. “And, going forward, we are targeting a minimum of 4 percent compound annual growth in PPL’s earnings per share, based on the $2.05 per share midpoint of our projected 2014 ongoing earnings, excluding Supply.”
While the transaction represents a significant change, Spence said PPL decided on this direction following an in-depth analysis of its business mix.
“Given the challenges, uncertainties and opportunities in the wholesale power markets, maintaining the status quo was not a viable option,” he said. “This transaction provides greater clarity for shareowners, our PPL Energy Supply employees, customers and the communities we serve.”
Citigroup Global Markets Inc. and Morgan Stanley & Co. LLC served as financial advisers to PPL Corp. Simpson Thacher & Bartlett LLP served as PPL Corp.’s legal adviser. Riverstone was advised by J.P. Morgan and Vinson & Elkins.