Dynegy Agrees to Acquire LS Power for $2.3 Billion

Power generator Dynegy Inc. said Friday that it had agreed to acquire closely held power plant developer LS Power Group for $2.3 billion in cash and stock, continuing a consolidation of the U.S. merchant power business.

The resulting company would be headed by Dynegy Chief Executive Bruce Williamson. LS Power would get three of the 11 board seats. Current LS Power shareholders would hold 40% of the new company’s shares.

The company would own 20,000 megawatts of generating capacity concentrated in the Midwest, Northeast and California.

Deals to combine merchant power companies -- those that build power plants without the security of a utility’s customer base -- are an outgrowth of a rebound in U.S. power markets. Prices for electricity and the profitability of generating it have climbed along with the price of natural gas, a key fuel for power plants.

Houston-based Dynegy, which is buying East Brunswick, N.J.-based LS Power, is the whittled-down remains of a company that once tried to buy Enron Corp. and then struggled to stay afloat as power prices crashed and credit tightened early this decade.

Under the deal, LS Power would get 340 million shares of Dynegy, $100 million in cash and a $275-million Dynegy note.

Dynegy also agreed to assume $1.8 billion in debt owed by LS Power.

Shares of Dynegy rose 31 cents to $6.07.

Two-thirds of Dynegy’s shareholders must approve the acquisition. Chevron Corp., the company’s largest shareholder, has agreed to support the deal.