NRG surges on TXU deal, buyout hopes; Calpine gains with sector; Skyworks, Xilinx launch deals

By Kenneth Lim

Boston, Feb. 26 - NRG Energy Inc. jumped on Monday to lead utility names after a buyout offer for TXU Corp. pumped up interest in the sector.

Calpine Corp. also gained outright on the TXU news, which fueled optimism about prospects and merger and acquisition opportunities in the utility space.

Off the power generation sector, Skyworks Solutions Inc. planned to sell $200 million of convertible subordinated notes in an overnight deal.

Xilinx Inc. also announced a $900 million deal, which is expected to price Tuesday after the market closes.

The rest of the convertible market had a slow session.

"There's not a lot going on," a sellside convertible trader said. "There's very, very little trading."

NRG surges on TXU bid

NRG Energy's 4% convertible preferred and its 5.75% convertible mandatory preferred due 2009 rose by several points outright on Monday after the company was noted as a possible takeover target and a key beneficiary of a possible buyout at TXU.

The 4% convertible reached as high as 1,788.75 bid, 1,796.25 offered against a stock price of $68. It closed higher by 10.14% or 165.17 points at 1,793.75 against the closing stock price of $67.75. The 5.75% convertible rose 5.15% or 15.35 points to 313.58 with the stock at $67.80. NRG stock (NYSE: NRG) climbed 6.66% or $4.23 to close at $67.75.

"It's a good day for guys who are trading the delta for these," a sellside trader said.

Dallas-based TXU on Monday said it agreed to a $44 billion buyout offer, including debt, by private equity firms Kohlberg Kravis Roberts & Co. and Texas Pacific Group. The firms offered to pay $69.25 per TXU common share, which would make the deal the largest leveraged buyout in history, if successful. The deal does not require approval from the Public Utility Commission of Texas, but must be approved by the Texas state legislature. TXU may also solicit competing offers until April 16, and if accepted the deal is slated to close in the second half of 2007.

If approved, the deal will cut back TXU's plans to build new coal-generation plants to three from 11, a move supported by two environmental groups that had previously fought TXU's expansion plans. A private TXU will also cut prices by 10%.

"It made headlines," a sellside convertible analyst said. "I think the size was the surprise. The other surprise is that M&A is hard to do in the utilities sector. They've tried to get buy-in from all the constituencies, like discontinuing the coal plans...They're making the environmentalists happy and they're offering rebates that make the consumers happy."

The analyst explained that Princeton, N.J.-based NRG, also a power utility provider, will likely benefit from the deal on two fronts. First, the reduced expansion at TXU will keep supply tight for other energy producers in the market. Second, NRG is also seen as a possible takeover target.

"If they don't build more coal plants, it makes supply tighter," the analyst said. "Also, people think NRG could be an LBO target...They have good, strong cash flow, excellent operations, lots of prime generation assets."

Merrill Lynch equity analyst Jonathan Arnold also highlighted NRG as one of the main beneficiaries of the TXU deal. Arnold said tighter supply in Texas will be positive for NRG and other merchant utilities, which sell power on in the wholesale market. Arnold raised his price target for NRG stock to $80 from $72.

Calpine also gains with sector

Calpine's 4.75% convertible due 2023 also jumped about 3 points outright on Monday as the utilities sector climbed across the board.

The Calpine convertible traded at 97 against a stock price of $1.57. Calpine stock (CPNLQ) improved by almost a quarter to close at $1.57, up by 23.62% or 30 cents. Calpine is a San Jose, Calif.-based power company.

Power utility names were primed to move higher on Monday after speculation mounted in past weeks about possible deals in the space, market sources said.

"Names like KKR have been thrown around for months, and these guys have all been in play," a sellside trader said.

A convertible analyst noted that "there's been a lot of talk the past couple of weeks that target equity's been sniffing around them [power generation companies]."

"The valuations are pretty much soaring across the board," the analyst said.

The deal's proposal to cut back on TXU's plans to build new plants was a positive development in terms of supply for the entire sector, the analyst said. But the size of the deal also forced a relook at the worth of the companies in the industry.

"It establishes higher benchmarks for asset prices in Texas, which benefits companies in Texas like NRG and Calpine," the analyst said. "All the merchants are in play."

Skyworks plans overnight deals

Skyworks announced a $200 million offering of three- and five-year convertible subordinated notes that will price before the market opens on Tuesday.

The three-year notes are talked at a coupon of 1% to 1.5%, while the five-year notes are talked at a coupon of 1.25% to 1.75%. The initial conversion premium is talked at 30% to 35% for both series.

The notes will be offered at par and are sold in equal tranches of $100 million each.

There is no over-allotment option.

Credit Suisse is the bookrunner of the overnight Rule 144A offering.

Skyworks, a Woburn, Mass.-based supplier of mobile communications semiconductors, plans to use the proceeds of the deal to buy back up to $50 million of its common stock, repay its outstanding debt and fund general purposes, which may include acquisitions.

Skyworks common stock (Nasdaq: SWKS) fell 3.54% or 25 cents to $6.81 in after-hours trading following the announcement of the deals.

Xilinx launches offering

Xilinx's planned $900 million of 30-year convertible junior subordinated debentures will price later on Tuesday, after the market closes. Its deal is talked at a coupon of 3.125% to 3.625% and an initial conversion premium of 18% to 20%.

The debentures will be offered at par.

There is an over-allotment option for a further $100 million.

JP Morgan is the bookrunner of the Rule 144A offering.

The debentures will have dividend and takeover protection.

Xilinx, a San Jose, Calif.-based maker of electronic equipment and systems, plans to use the proceeds of the deal to concurrently repurchase its common stock through an accelerated share buyback program and from institutional investors in negotiated transactions. It will also use the proceeds to fund general corporate purposes.

Xilinx stock (Nasdaq: XLNX) gained 1.06% or 28 cents in after-hours trading to settle at $26.62.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.