- Vistra Corp. (NYSE: VST) announced a deal to buy Energy Harbor for over $3 billion. These are the details.
Vistra Corp. (NYSE: VST) announced that it has executed a definitive agreement with Energy Harbor, pursuant to which Energy Harbor will merge with and into a newly-formed subsidiary of Vistra. The deal will combine Energy Harbor’s nuclear and retail businesses with Vistra’s nuclear and retail businesses and Vistra Zero renewables and storage projects under a newly-formed subsidiary holding company referred to generally as “Vistra Vision.”
This combination creates a leading integrated retail electricity and zero-carbon generation company with the second-largest competitive nuclear fleet in the country, along with a growing renewable and energy storage portfolio. And the agreement has been approved by both companies boards of directors. Sufficient stockholder approval for the transaction has been committed through support agreements signed by a majority of the Energy Harbor stockholders.
Vistra is going to form a new subsidiary holding company, referred to generally as Vistra Vision, which will own all of Vistra’s nuclear and retail businesses, as well as Vistra Zero assets. At the closing of the transaction, Energy Harbor will merge with and into a subsidiary of Vistra, thereby becoming a wholly owned subsidiary of Vistra Vision.
The total compensation will consist of $3 billion cash and a 15% equity interest in Vistra Vision. Most Energy Harbor shareholders will receive cash at closing, and the two largest shareholders, Avenue Capital Group and Nuveen will receive a combination of cash and the 15% ownership interest. In addition, Vistra Vision will assume ~$430 million of net debt from Energy Harbor in the transaction.
Vistra will continue to own 85% of Vistra Vision, as well as 100% of Vistra Tradition, Vistra’s highly efficient gas and coal generation fleet. And Vistra plans to finance the majority of the $3 billion of cash consideration through debt financing at Vistra Operations, with all or a portion of the debt expected to be invested in Vistra Vision via an inter-company loan. At the closing of the deal, it is expected that the net debt of Vistra Vision will be about $3.430 billion.
Vistra committed financing sufficient to fund the cash consideration and plans to execute long-term financings prior to the closing of the transaction. And Vistra will not acquire Energy Harbor’s legacy conventional generation fleet. Energy Harbor has previously signed definitive agreements to sell these assets to third parties.
Vistra Vision will be a premier zero-carbon generation and retail growth company. And with a continuing safety-first culture, it will operate the second-largest competitive nuclear fleet in the country with four nuclear plants totaling more than 6,400 MW across ERCOT and PJM.
This fleet provides critical, zero-carbon baseload generation that produces enough electricity to power 3.2 million U.S. homes. Vistra Vision will also own a portfolio of about 340 MW of operating solar assets and ~1,020 MW of operating storage assets, including 350 MW of storage through the Phase 3 expansion of its Moss Landing Energy Storage Facility, expected online in mid-2023.
The operating portfolio is expected to grow through time, including through an identified development pipeline of about 1,100 MW of renewables and storage assets; this growth is expected to be primarily funded by non-recourse financing and free cash flow generated by the Vistra Zero assets.
Plus Vistra Vision will operate one of the largest retail businesses in the country with ~5 million customers across 18 states. Through Vistra Vision and Vistra Tradition, Vistra will continue to operate as a fully integrated power company, leveraging commercial acumen and back office and fleet support.
Vistra Vision and Vistra Tradition will each produce significant Adjusted EBITDA and Adjusted FCFbG for Vistra shareholders. And Vistra Vision’s earnings power and free cash flows are expected to benefit from significant downside protection through the nuclear production tax credit, for which all four of the nuclear assets it will own following this transaction are eligible through at least 2032.
Throughout the past several months, Vistra has performed detailed diligence of the Energy Harbor assets, including site visits and extensive third-party operational analysis. Vistra has also identified a significant amount of synergy opportunities through scale efficiencies by combining the businesses. Specifically, Vistra expects the combination to result in at least $125 million of run-rate annual synergies by year-end 2025 from optimized operations and cost structure efficiencies.
As of Feb. 23, 2023, Vistra had about $800 million remaining under its $3.25 billion share repurchase authorization. And on March 5, 2023, Vistra’s board authorized an additional $1 billion of share repurchases, effective immediately. Vistra expects to complete the upsized ~$1.8 billion authorization by year-end 2024. Plus Vistra continues to expect to repurchase $1 billion of stock each year 2025-2026, as well as pay $300 million in aggregate dividends in each year 2023-2026 (subject to board approval), in line with its original capital allocation plan announced in November 2021.
Following the close of the transaction, the combined company will be led by Jim Burke, Vistra’s president and CEO, and will continue to trade on the NYSE under ticker VST. And the Energy Harbor senior leadership is expected to remain with that company through at least the closing of the transaction. The combined company will be headquartered in Irving, Texas, with retail offices in Texas, Ohio, Pennsylvania, and Illinois.
KEY QUOTES:
“We are excited to announce this unique combination and the many benefits it brings to our key stakeholders – customers, employees, communities, and shareholders. Vistra has been focused on responsibly transitioning our power generation profile, and though we’ve made significant progress over the past several years, there are few opportunities to grow a reliable and dispatchable zero-carbon generation portfolio at scale this quickly. As our country navigates a massive energy transition to cleaner sources of electricity, nuclear energy provides the unique capability of being both carbon-free and a dependable, always-on source of reliable power. With the enactment of the zero-emission nuclear production tax credit (I.R.C. Sec. 45U), nuclear power generation now has down-side protection against lower power prices, resulting in tremendous upside opportunity compared to other generation with similar attributes.”
“This transaction provides the first opportunity to unlock the value of our Vistra Zero portfolio, and we’ve structured it in a way that aligns squarely with our capital allocation plan so that we can continue our share repurchase program and dividend payments as we originally announced in November 2021. Importantly, Vistra will continue its focus on an integrated model, ensuring customers are served in a reliable, affordable, and sustainable manner. We have a tremendous business platform with Vistra Vision and a portfolio of efficient, reliable, dispatchable generation assets with Vistra Tradition. We operate assets that are well run, meet the customers’ needs, and are supported by strong risk management and commercial capabilities. Vistra is well-positioned to lead in the competitive electric sector.”
“We look forward to welcoming the Energy Harbor generation and retail teams in Ohio and Pennsylvania to Vistra. We focus on being a preferred place to work and a core member of the communities where our plants, retail offices, and customers are located, which will soon include Akron among other locations in Ohio and Pennsylvania. Our purpose at Vistra, ‘Lighting up lives, powering a better way forward,’ will be greatly reinforced with this exciting opportunity. I want to thank Energy Harbor for their confidence in our team at Vistra.”
— Vistra President and CEO Jim Burke
“As an active investor committed to the global energy transition, we believe Vistra has designed an attractive investment and structure that will create value for all stakeholders while continuing to advance zero-carbon solutions. This new platform will be a meaningful force for decarbonization in the energy industry, and we look forward to being part of it.”
— John Miller, head of municipals at Nuveen
“We are proud of Avenue’s four-year partnership with the Energy Harbor team and look forward to our unique investment in Vistra Vision, which combines a growing set of nuclear, solar, and storage assets with an innovative retail business essential for the energy transition.”
— Avenue Capital Group’s Senior Portfolio Manager Matt Kimble
