) announced that it has entered into a definitive agreement to
divest its merchant generation business, Ameren Energy Resources
Company or AER, to an affiliate of
). AER consists primarily of Ameren Energy Generating Company or
Genco, including Genco's 80% ownership interest in Electric
Energy, Inc.; AmerenEnergy Resources Generating Company or AERG;
and Ameren Energy Marketing Company.
Total value benefits associated with the divestiture are
estimated to be approximately $900 million for Ameren. This
includes removal of the $825 million principal amount of Genco
senior notes from Ameren's consolidated balance sheet and an
estimated $180 million, at present value, of tax benefits
expected to be substantially realized in 2015. These benefits are
partially offset by transaction-related costs and liabilities
retained by Ameren. These liabilities include retention of
certain employee retirement obligations.
In addition, Ameren said it will retain Genco's Meredosia and
Hutsonville energy centers, which are no longer in operation, and
related obligations. Further, Ameren will provide guarantees and
collateral support, secured by AER assets and a $25 million
Dynegy guarantee, for up to 24 months for certain existing
contracts. Ameren will receive no cash proceeds as a result of
Genco's existing senior notes will remain outstanding after
the transaction closes and will continue to be solely obligations
Before entering into the divestiture agreement, the existing
Genco put option agreement was amended and exercised. As a
result, an affiliate of Ameren that is not a member of the
divested group will acquire the Elgin, Gibson City and Grand
Tower gas-fired energy centers prior to completion of the
divestiture transaction. The agreement also provides that the
buyer will honor collective bargaining agreements for AER union
employees and provide those AER management employees who continue
to work for the buyer with competitive pay and benefits.
Ameren also expects to record an after-tax charge to earnings
estimated to be in the vicinity of $300 million to write down the
carrying value of the divested business and transaction-related
costs. The transaction is expected to be completed in the fourth
quarter of 2013.
The targeted synergies, along with the current forward market
for natural gas prices and Dynegy's associated view on forward
power and capacity prices, are expected to result in AER being
accretive to Dynegy's adjusted EBITDA in 2014 and to free cash
flow by 2015.
St. Louis-based Ameren Corporation is a holding company which
operates in the generation and distribution of electricity and
natural gas to residential, commercial, industrial and wholesale
end markets in Missouri and Illinois. Through its utility
subsidiaries the company distributes electricity to 2.4 million
customers and natural gas to approximately 1 million customers in
Missouri and Illinois.
Ameren's stable and regulated electric power operations in the
Midwest market generate a relatively stable and growing earnings
stream. Future growth will be guided by improved plant
operations, higher rates in Missouri and Illinois, lower
operations and maintenance expenses, and installation of
emissions reduction equipment at its generation plants.
Our cautious stance on Ameren takes into account its
significant fossil fuel based generating units and uncertainty
about the rate of recovery of the economy. To comply with state
and federal regulations, the company has to invest a significant
chunk to reduce emissions from its generation assets, including
installation of selective catalytic reduction and overfire air to
control nitrogen oxide emissions and the use of activated carbon
injection to control mercury emissions.
Given these headwinds, we believe that Ameren's current
valuation adequately reflects its fairly balanced risk/reward
profile. As such, we see limited upside from current levels. The
company presently retains a short-term Zacks Rank #3 (Hold).
Other Stocks to Consider
Other stocks to consider are
Pike Electric Corporation
Otter Tail Corporation
), all carrying a Zacks Rank #1 (Strong Buy).
AMEREN CORP (AEE): Free Stock Analysis Report
DYNEGY INC-NEW (DYN): Free Stock Analysis
OTTER TAIL CORP (OTTR): Free Stock Analysis
PIKE ELECTRIC (PIKE): Free Stock Analysis
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