Private Equity Returns, Blackstone & Electricity (BX, DYN, KKR, NRG)

The Blackstone Group, L.P. (NYSE: BX) has agreed to purchase electricity generator Dynegy Inc. (NYSE: DYN). Blackstone will pay $4.50/share in cash, for a total of about $543 million, and assume Dynegy’s existing debt. The total deal is valued at about $4.7 billion. Blackstone’s cash offers represents a premium of 62% over Dynegy’s closing price last night of $2.78.

While just a tenth the size of the $48 billion deal that Kohlberg Kravis Roberts & Co. (NYSE: KKR) made for TXU in 2007, this is Blackstone’s largest ever acquisition of an electricity generation company.

The acquisition is expected to be completed by the end of 2010, and requires regulatory and shareholder approvals. Blackstone is not using any financing, instead putting up all the cash itself. Dynegy expects to issue a preliminary proxy statement within 15 days, and is permitted to seek other bids for a period of 40 days.

Blackstone has also entered into a deal with NRG Energy, Inc.  (NYSE: NRG), in which NRG will purchase four natural gas-fired plants from Blackstone for $1.36 billion, once the acquisition of Dynegy is completed. The sale to NRG is contingent on the Dynegy acquisition.

That deal leaves Blackstone with a cash profit of about $800 million, but debt amounting to roughly $4.1 billion. The four plants represent about a third of Dynegy’s generating capacity, and 90% of its generating capacity in California, where three of the plants are located.

Blackstone says that it “look[s] forward to working together with Dynegy’s employees to realize the full potential of the company’s attractive portfolio of power generation assets.” Dynegy employees might not want to buy Blackstone-logo gear on the strength of that statement.

Dynegy shares are up about 60% this morning. Blackstone shares are off about 0.5%.

Paul Ausick