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Why Dynegy Inc's Shares Popped 15% Today

Coal power plant with smoke billowing into the air.

What happened

Shares of wholesale power producer Dynegy Inc. (NYSE: DYN) jumped as much as 14.8% in early trading Monday after announcing it is merging with Vistra EnergyCorp. (NYSE: VST) . At 11:20 a.m. EDT shares were still up 10.3% on the day.

So what

The two energy companies will join forces with Dynegy shareholders getting 0.652 shares of Vistra Energy for each share of stock. At the end of the day, current Vistra shareholders will own 79% of the company and Dynegy shareholders will own 21%. While Dynegy's stock is up on Monday, Vistra's shares are down 4.4%, so the reaction isn't all positive for shareholders.

Coal power plant with smoke billowing into the air.

Image source: Getty Images.

Big drivers of the merger are anticipated synergies and other cost savings. The press release announcing the deal anticipated $350 million in annual run-rate EBITDA that could be added through lower administrative costs and operational improvements across the fleet.

Now what

Dynegy's problems haven't been costs, they have been low wholesale prices that are squeezing margins across the industry. This merger won't do anything to change low natural gas and renewable energy prices that have driven the low wholesale prices, so I don't think it will add much value for investors either. Consolidating power in the generation industry is a trend that will likely gain steam as companies face financial hardship , but consolidation won't fundamentally improve the industry's outlook, no matter how big Dynegy's pop was on Monday.

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Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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