Vistra Energy Corp. (NASDAQ:VST) announced it is acquiring Dynegy Inc (NYSE:DYN) in an all-stock deal valued at $1.74 billion. Debt-laden Dynegy has seen its margins shrink in the face of cheaper electricity prices. The merger of the two Texas-based energy producers will create one of the largest integrated power companies in the U.S., with a combined valued in excess of $20.0 billion. Unfortunately, it is widely expected that the merger will result in potentially hundreds of layoffs when Dynegy shutters its headquarters in Houston. The company currently employs around 370 in those offices.
Low energy prices have also led to additional mergers and acquisitions in the Texas power industry. In addition to the Vistra/Dynegy merger, Sempra Energy (NYSE:SRE) is looking to acquire Oncor Electric Delivery and Calpine Corporation (NYSE:CPN) agreed to be acquired by a consortium of investors led by Energy Capital Partners.
Dynegy-Vistra Merger: Job Cuts Expected
Irving, Texas-based Vistra Energy is acquiring Dynegy for $1.74 billion. Vistra is the parent company of TXU Energy and Luminant and is the largest retailer and generator of electricity in Texas,. Dynegy is headquartered in Houston, but the majority of its power plants are in the northeast part of the country and Illinois.
The combined business will have a market capitalization in excess of $10.0 billion and be worth more than $20.0 billion. It will serve 240,000 commercial and industrial customers and 2.7-million residential customers in six of the largest electricity markets in the U.S.
Vistra has said the acquisition will actually help it save $350.0 million annually through streamlining and other savings. It’s not all good news, though; those savings have to come from somewhere, after all.
The combined company’s headquarters will be in Irving, Texas. As a result, it is looking more and more likely that Dynegy will need to cut a large number of jobs next year when it closes its downtown headquarters.
Dynegy has said it’s too early to say just how many employees will be given pink slips, but the company has said it will be vacating its headquarters at 601 Travis Street in Houston, where 370 people work.
Not so cryptically, Dynegy said the job cuts would account for a majority of the savings that come as a result of the combined operations.
Texas Power Market Closures & Consolidations Due to Low Power Prices
The proposed merger between Vistra and Dynegy is just one in a growing list of consolidations in the Texas power market. More and more energy companies are looking to cut costs and streamline operations amid shrinking margins as natural gas and renewable resources drive electricity prices lower.
Thanks to an abundance of crude oil, natural gas, and coal, Texas has been an energy powerhouse for 100 years. But traditional, non-renewable sources of energy are being replaced by renewable ones, like wind and solar power. As a result, increased competition from clean, renewable energy sources is squeezing out coal.
As recently as 2008, coal-fired power plants generated half of all U.S. electricity. Since then, demand for coal and the price of wholesale electricity has dropped significantly. Since 2010, more than half of the country’s coal-fired plants have closed. Meanwhile, since 2014, wholesale electricity prices have tumbled from $49.00 per megawatt to $25.00 today.
In October, Luminant announced it is closing two power plants in 2018, Sandow and Big Brown; both use coal. Because of low wholesale power prices, an oversupply of renewable power, and low natural gas prices, coal-fired plants are being shuttered at an alarming rate.
Sempra Energy said it is looking to purchase Oncor Electricity Delivery for $9.45 billion. Sempra is based in San Diego, but has 10-million customers in Texas. Back in August, Houston-based Calpine Corporation announced it agreed to be purchased by a consortium, led by Energy Capital Partners, for $5.6 billion. Calpine had been struggling with persistently low power prices, a growing debt load, and three consecutive quarters of losses.
“Vistra Energy and Dynegy To Combine To Create Leading Integrated Power Company,” Dynegy Inc, October 30, 2017.
“Houston layoffs expected in Vistra takeover of Dynegy,” Houston Chronicle, October 31, 2017.
“Low Electricity Prices Doom Two Coal Plants in Texas,” Oilman, October 22, 2017.
“Luminant To Close Two Texas Power Plants,” Vistra Energy Corp., October 13, 2017.
“Sempra Energy Announces Agreement To Acquire Ownership Interest In Oncor,” Sempra Energy, August 21, 2017.
“Calpine Agrees To Be Acquired by Investor Consortium Led By Energy Capital Partners,” Calpine Corporation, August 18, 2017.