) announced that it will spin-off its competitive energy business
to create an independent entity, Talen Energy Corporation ("Talen
Energy"), in collaboration with an energy and power investment firm
Riverstone Holdings LLC. ("Riverstone Holdings"). Subject to
different regulatory approval, the deal is expected to be completed
within 9 to 12 months.
Talen Energy - A New Power Producer
Per the contract, PPL Corp. will spin-off its unit PPL Energy
Supply, LLC and merge its merchant power generation business with
Riverstone Holdings' operations. Post transaction, the merged
entity will work as a stand alone Independent Power Producer (IPP),
trading on the New York Stock Exchange.
The shareholders of PPL Corp. will obtain 65% ownership in Talen
Energy while Riverstone Holdings will hold the rest. But, PPL Corp
will not have continuing ownership interest in Talen Energy.
Post transaction, Pennsylvania-based Talen Energy will own and
operate 15,320 megawatts (MW) of power generating capacity and will
be third-largest investor-owned IPP in the U.S. Talen Energy will
have diversified fuel-fired generation assets, including coal,
natural gas and nuclear.
Talen Energy can capitalize its locational advantage as 83% of its
generating assets are located in the Pennsylvania-New
Jersey-Maryland (PJM) region, where demand for wholesale
electricity is high. Talen Energy can tap the increasing demand for
the vital U.S. competitive energy markets while strengthening its
presence in the growing Electric Reliability Council of Texas
In addition, Talen Energy is expected to obtain annual synergy
benefits of around $0.12 billion in 2015. The transaction is
expected to generate adjusted earnings before interest, taxes,
depreciation, and amortization of roughly $1.07 billion in 2015.
PPL Corp. - Post Spin-off
The spin-off is expected to benefit PPL Corp. as performance from
its Supply segment was lower than expectation in the past few
quarters. In this scenario, we consider the spin-off as a positive
move for PPL Corp.'s future growth.
The separation of the competitive energy operations will enable PPL
Corp. to manage its regulated operations in the United Kingdom,
Kentucky and Pennsylvania more efficiently and control the scale of
Currently, PPL Corp. is retaining its ongoing earnings expectation
for 2014 in the range of $2.15 to $2.30 per share. The company also
provided its 2015 earnings guidance in the band of $2.05 to $2.25
per share, excluding Supply segment. The company also maintains its
existing annual dividend rate at $1.49 per share. In the long run,
PPL Corp. is aiming at least 4% compound annual growth from its
earnings per share based on 2014 projection.
The transaction is expected to enable both companies to
proficiently implement their long-term growth plans and concentrate
on their strategic objectives, while improving shareholders' value.
PPL Corp. currently has a Zacks Rank #3 (Hold). However, some
better-ranked stocks in the sector include
NRG Energy, Inc.
). All the stocks carry a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
DYNEGY INC-NEW (DYN): Free Stock Analysis
ENTERGY CORP (ETR): Free Stock Analysis Report
PPL CORP (PPL): Free Stock Analysis Report
NRG ENERGY INC (NRG): Free Stock Analysis
To read this article on Zacks.com click here.