Energy Capital said to hold advanced talks to buy Calpine

[SAN FRANCISCO] Energy Capital Partners, the private equity firm that owns the largest stake in US power generator Dynegy Inc, is now in advanced talks to buy its rival Calpine Corp, according to people familiar with the matter.

Energy Capital may announce a deal to buy the Houston-based company as soon as next week, said the people, who asked not to be identified because the matter isn't public. No final agreement has been reached and talks may still fall apart, the people said.

A spokesman for Calpine declined to comment. Representatives for Energy Capital didn't immediately respond to requests for comment.

Calpine is one of the few publicly listed US power generators still selling their supplies directly into wholesale power markets. These companies have seen their margins squeezed by cheap natural gas, a surge in renewable energy resources and subsidies that some states have created for nuclear power. The rout has touched off a wave of consolidation with companies including FirstEnergy Corp and American Electric Power Co looking to get out of the business altogether.

Calpine's shares closed at US$13.85 apiece on Wednesday, giving the company an equity market value of about US$5 billion, according to data compiled by Bloomberg. MorningStar Inc analysts had estimated the generator was worth about US$14 to US$15 a share.

Shares surged as much as 9.8 per cent in after-hours trading to US$15.20.

Rival Dynegy is also said to be a potential takeover target, and NRG Energy Inc. is looking to unload as much as US$4 billion of assets.  In addition to selling electricity into wholesale markets, Calpine receives payments from power grid operators to guarantee supplies when customers most need them. During a May auction for such capacity in the eastern U.S., Calpine secured US$326 million in payments for committing supplies for a year starting in 2020.

BLOOMBERG