Energy company PPL Corp. will spin off part of its U.S. generation business into a venture with New York private-equity firm Riverstone Holdings Ltd. PPL's Kentucky subsidiaries, Kentucky Utilities and Louisville Gas and Electric, will not be affected by the deal, the company said.
The new company, to be called Talen Energy Corp., will operate 15,320 megawatts of capacity in the United States, with PPL shareholders owning 65 percent and Riverstone the remainder, the companies said in a statement late Monday.
Talen will be listed in New York and will rank as the third-largest independent U.S. power producer owned by investors, the companies said.
The tax-free spinoff allows Allentown, Pa.-based PPL, formerly known as Pennsylvania Power & Light, to shed 12 stations in its home state and Montana without cutting this year's forecast earnings of $2.15 to $2.30 a share.
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PPL, which will have no control of or equity in Talen, said it plans to refocus on its "high-performing" utility assets in Kentucky, Pennsylvania and Great Britain, which last year accounted for more than 85 percent of earnings from ongoing operations.
The deal's timing comes at the "near peak" of the power market, analysts at Tudor Pickering Holt & Co. wrote Tuesday in a note to investors. They called the news positive.
Merging the Maryland, New Jersey, Pennsylvania, Texas and Massachusetts power plants owned by Riverstone with the 9,995 megawatts of capacity that PPL is carving out will create a business that derives 40 percent of its electricity from coal, 40 percent from gas and 15 percent from nuclear. The majority of the plants will sell power into the mid-Atlantic market overseen by PJM Interconnection.
The transaction is expected to be complete in the first or second quarter of 2015, PPL said.
PPL said in a release that LG&E and KU will continue to own and operate the 8,100 megawatts of regulated generating capacity they generate to serve 1.2 million customers in Kentucky and southwestern Virginia.
Talen expects to generate $912 million in adjusted earnings before interest taxes, depreciation and amortization next year, according to company slides released Tuesday.
PPL Chairman and CEO William H. Spence said in the statement, "As stand-alone companies, PPL Corp. and Talen Energy each will have compelling growth prospects, and we expect the financial markets will ascribe valuations that more appropriately recognize the inherent strengths of each company."