Energy Capital Partners, the private equity firm that owns the largest stake in U.S. power generator Dynegy Inc., is now in advanced talks to buy its rival Calpine Corp., according to people familiar with the matter.
Energy Capital may announce a deal to buy the Houston-based company as soon as next week, said the people, who asked not to be identified because the matter isn’t public. No final agreement has been reached and talks may still fall apart, the people said. Shares surged almost 10 percent in after-hours trading to $15.20.
A spokesman for Calpine declined to comment. Representatives for Energy Capital didn’t immediately respond to requests for comment.
Calpine is one of the few publicly listed U.S. power generators still selling their supplies directly into wholesale power markets. These companies have seen their margins squeezed by cheap natural gas, a surge in renewable energy resources and subsidies that some states have created for nuclear power. The rout has touched off a wave of consolidation with companies including FirstEnergy Corp. and American Electric Power Co. looking to get out of the business altogether.
Calpine’s shares closed at $13.85 apiece on Wednesday, giving the company an equity market value of about $5 billion, according to data compiled by Bloomberg. A deal to take the company private would probably be in the $15-a-share range, analysts for Citigroup Inc. said in a report earlier this month.
For more on how shrinking power payouts are weighing on takeover targets, read this story.
Rival power producer Dynegy is also said to be a potential takeover target, and NRG Energy Inc. is looking to unload as much as $4 billion of assets.
Energy Capital, with offices in Short Hills, New Jersey, Houston and San Diego, is one of the most active private equity investors in the U.S. power sector.
The company formed a joint venture last year with Dynegy to buy Engie SA’s U.S. power portfolio for $3.3 billion; it agreed to sell its stake in that joint venture to Dynegy before the deal closed. The firm also bought a natural gas plant from Calpine in South Carolina in 2012 for more than $400 million.
In 2014, Energy Capital said it raised more than $5 billion for an investment fund.
In addition to selling electricity into wholesale markets, Calpine receives payments from power grid operators to guarantee supplies when customers most need them. During a May auction for such capacity in the eastern U.S., Calpine secured $326 million in payments for committing supplies for a year starting in 2020.