CORRECTED-UPDATE 1-PPL, Riverstone to combine merchant power businesses

Tue Jun 10, 2014 8:53am EDT

(Corrects headline and paragraph 1 to say Riverstone is not buying PPL'S energy unit. The two companies are combining their merchant power generation businesses. Removes reference to Reverse Morris Trust)

June 10 (Reuters) - PPL Corp and Riverstone Holdings LLC said on Monday they would combine their merchant power generation businesses into a new stand-alone, publicly traded independent power producer.

The new company, which will own and operate a diverse mix of 15,320 megawatts of generating capacity in key U.S. energy markets, will be called Talen Energy Corp and will be listed on the New York Stock Exchange.

"As PPL has grown its rate-regulated business portfolio significantly over the past several years, PPL's Energy Supply business has not -- in our view -- achieved appropriate equity valuation," PPL's Chief Executive William Spence said in a statement.

Utilities have been shedding plants after a drop in natural gas costs caused electricity prices to decline. Duke Energy Corp , the largest U.S. utility owner, said in February it plans to sell its interest in 13 Midwestern power units.

PPL said following the spinoff, it will focus on the regulated utilities it owns and operates in the United Kingdom, Kentucky and Pennsylvania.

The spinoff is expected to eliminate a number of positions at plant locations and in corporate support services but PPL did not provide further details.

The company maintained its 2014 forecast of ongoing earnings of $2.15 to $2.30 per share, and said it expects 2015 earnings of $2.05 to $2.25 per share, excluding the supply business.

New York-based private equity company Riverstone, founded in 2000, has committed to $26 billion to 108 investments in the energy and power sectors, according to its website.

DEAL STRUCTURE

PPL shareholders will receive a pro-rata distribution of Talen Energy shares based on the number of PPL shares owned, and the spinoff will have no effect on the ownership of PPL's common stock and the number of shares outstanding, the companies said.

Upon closing, PPL's shareowners will own 65 percent of Talen Energy and Riverstone will own 35 percent. PPL will have no continuing ownership interest in Talen Energy.

The deal does not include the 8,100 megawatts of regulated generating capacity owned by PPL's Kentucky utilities, which will continue to be owned and operated by Louisville Gas and Electric Company and Kentucky Utilities Company.

Paul Farr, PPL's chief financial officer, will be Talen Energy's Chief Executive, and Jeremy McGuire, PPL's vice president of strategic development, will become the CFO.

Citigroup Global Markets and Morgan Stanley were financial advisers to PPL. Riverstone was advised by J.P. Morgan. Simpson Thacher & Bartlett LLP served as PPL's legal adviser and Vinson & Elkins was Riverstone's legal counsel. (Reporting by Supriya Kurane in Bangalore; Editing by Gopakumar Warrier)

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