A few more follow-up thoughts from analysts on Dynegy’s announcements yesterday:
Simmons & Co.’s Neel Mitra notes that the transaction is essentially like Dynegy doing a buyback of 30 percent of its shares for $2 per share, which is quite low:
“While we would obviously prefer DYN’s share price to be above $2/share, a share repurchase of this magnitude at the bottom of the cycle is more accretive to existing shareholders than if conducted at a higher price.”
Deutsche Bank’s Ameet Thakkar said the new 2010 EBITDA guidance of $425 million to $550 million was “disappointing” and with regard to the deal:
“While we appreciate DYN’s need to shore up its balance sheet and liquidity, we believe today’s transaction likely illustrates that the option value related to a power market recovery in the Midwest is likely a more distant prospect and are moving to a Hold rating and $2.00 price target.”
And at Tudor Pickering Holt Becca Followill, Brandon Blossman and Jessica Chipman think LS Power “paid full freight for the cash-generating [combined cycle gas turbine plants] and got the peakers for a song.” As far as what’s next for Dynegy?
“Probably not much. Management deflected all M&A-related questions during the earning’s call, but the market excited about possibilities nonetheless. We acknowledge that a DYN combination will be easier with a single class of stock and LS Power’s right of first refusal no longer in place. But, fundamentally little has changed.”
The Wall Street Journal says a big M&A boom isn’t likely either.