(Reuters) - U.S. power producer Calpine Corp (CPN.N) said it would sell itself to a group of investors led by Energy Capital Partners for $5.6 billion, as the debt-laden company struggles with depressed natural gas prices.
Shares of the company were up 10.2 percent at $14.88, below the offer price of $15.25, in afternoon trading on Friday.
Calpine’s deal comes at a time when the U.S. wholesale power generation industry is struggling with margin pressure as cheap natural gas from shale fields in recent years has been driving down electricity prices.
In July, Calpine’s larger rival NRG Energy (NRG.N) had laid out plans to raise about $4 billion through asset sales and slash debt by $13 billion over the next six years.
Houston-based Calpine, which relies mostly on natural gas to generate power, too had said in July it was looking at strategic alternatives, including a sale, after reporting losses for three quarters in a row.
Calpine operates in a weak power market and its fundamentals are not great, said Guggenheim Securities analyst Shahriar Pourreza, adding that the company could not find a way to use its cash flow to reduce its debt.
The company, which emerged from bankruptcy in 2008, has $11.31 billion in debt, as a net of current portion, as of June 30.
On Friday, Calpine agreed to be bought for $15.25 in cash per share, representing a 13 percent premium to its closing price on Thursday.
“For ECP and their consortium, it’s a cash flow picture,” Pourreza said.
Billionaire industrialist Leonard Blavatnik’s Access Industries and Canada Pension Plan Investment Board (CPPIB), the country’s biggest pension fund, are part of investor group led by Energy Capital.
CPPIB, which has been actively expanding its energy assets in international markets, said it would invest $750 million in the Calpine deal.
Lazard was Calpine’s financial adviser and White & Case LLP was its legal adviser. Barclays Capital Inc was Energy Capital’s financial adviser and Latham & Watkins LLP its legal adviser.
Reporting by John Benny in Bengaluru; Editing by Arun Koyyur