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Dynegy to Sell Its Gas Processing Unit to Targa

From Associated Press

Dynegy Inc. announced plans Tuesday to sell its natural-gas processing business to Houston neighbor Targa Resources Inc. in a cash deal of nearly $2.5 billion.

The sale, approved by directors at both companies, would position Dynegy as solely a power generator primed for consolidation with other energy companies. Targa Resources, which also would acquire Dynegy’s storage, transportation, distribution and marketing assets, is affiliated with private-equity investor Warburg Pincus. The deal is expected to close in the fourth quarter.

Dynegy announced in May its intention to sell essentially half its business. Dynegy Chief Executive Bruce Williamson told shareholders then that the company believed its processing business was worth $2.5 billion to $3 billion. Dynegy could use the proceeds to slash debt or to prepare to combine with another company.

Williamson said Tuesday that the company believed the deal would “provide us with opportunities to evaluate new strategic directions for our power generation business. We will consider organic growth, growth through opportunistic expansion or participation in the anticipated power sector consolidation.”

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Nearly 800 Dynegy employees would join Targa.

The business has operations in West Texas and southwest Louisiana with more than 2,000 miles of pipeline and five gas plants.

Williamson has repeatedly declined to speculate whether Dynegy would later sell its power generation assets or acquire such assets from others, reiterating only that he anticipates consolidation in a debt-ridden sector with too many companies unable to sustain themselves.

Dynegy shares fell 39 cents to $5.14.

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Last year Dynegy sold its utility, Illinois Power, to St. Louis-based Ameren Corp. for $500 million in cash and $1.8 billion in assumed debt and preferred stock, leaving the Houston energy company to focus on its remaining unregulated businesses.

Tuesday’s sale would be yet another step in Dynegy’s methodical efforts to right itself after nearing bankruptcy in 2002 in the aftermath of Enron Corp.'s collapse.

Dynegy was among the hardest hit in the energy sector as investors fled and scrutiny increased, pushing the company’s stock below $1. Williamson took the helm in October 2002 and Dynegy has since shed money-losing businesses and resolved legal issues.

Those legal issues include a federal judge’s final approval given last month for Dynegy to pay $468 million to settle a class-action shareholder lawsuit. The suit stemmed from a 2001 natural gas deal wrongly used to boost cash flow.

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