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Blackstone to buy power producer Dynegy

Private-equity firm Blackstone Group struck a deal Friday to buy power producer Dynegy Inc. for $543 million in cash and sell Dynegy plants in California and Maine to NRG Energy Inc. in the latest shake-up in the electricity industry.

The deal values Dynegy at $4.7 billion including debt, which would make it one of the biggest buyouts of a power company since Kohlberg Kravis Roberts, TPG Capital and Goldman Sachs Group Inc. bought power company TXU Corp. for $32 billion in 2007.

Dynegy, like other power producers, has been hurt by slack power sales as the weak U.S. economy sapped consumption and pressured prices. The company’s shares have fallen more than 90% since 2001.

Blackstone has bet on power before. It made about six times its money when it, along with other private-equity firms, bought and then quickly sold Texas Genco to NRG in 2005.

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Buyout firms are sitting on lots of unspent capital and have been under pressure to invest those funds. Blackstone said in July that the backlog of deals it was working on was the highest in years, but getting financing remained difficult.

Under the deal, Dynegy shareholders would receive $4.50 a share in cash, a 62% premium over Dynegy’s closing price Thursday, which was an eight-year low.

Shares of Dynegy jumped nearly 63%, or $1.75, to $4.53 on Friday.

Dynegy has long sought to merge with a peer, but weak market conditions made winning a deal difficult.

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The deal is subject to regulatory approval. Although utility deals are difficult to complete because the companies need approvals from state and federal regulators, Dynegy’s assets are unregulated, so Blackstone’s path to approval will be easier than in a typical power deal.

Dynegy, which once sought to challenge Enron Corp. in the power trading business and even sought to buy the disgraced energy company shortly before its demise, has focused in the last several years on operating its power plants in the West, Midwest and Northeast.

Dynegy sells power to the wholesale markets and operates plants that generate more than 12,000 megawatts of power. Dynegy’s remaining assets are a mix of gas-fired and coal plants.

The deal means the year-to-date value of leveraged buyouts in the U.S. has reached $42.3 billion, the highest level since 2007 and up from just $2.7 billion for the same period last year, according to Thomson Reuters data. It is the largest acquisition by Blackstone since 2007, when the firm acquired Hilton Hotels Corp. for $26.7 billion.

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