Why Calpine Corporation's Shares Popped 10% Today
Shares of Calpine Corporation (NYSE: CPN) jumped as much as 10.4% in trading Friday after the wholesale utility company agreed to sell itself to a group led by private equity firm Energy Capital Partners for $5.6 billion. The offer price is $15.25 per share in cash, which is still a small premium from where shares are trading, at $14.85 at around 3:00 p.m. EDT.
Wholesale power markets have been hammered in recent years as cheap natural gas and zero marginal cost wind and solar power have taken away a lot of the formerly peak energy prices. Calpine and most of its competitors have seen earnings shrink as a result and that's called into question how the company will pay back $11.9 billion in debt.
What Energy Capital Partners sees is a cash flow business that could improve in the future. The company still expects $875 million to $1,025 million in cash from operations this year and $1.8 billion to $1.95 billion in adjusted EBITDA.
Shares have a small amount of upside for investors who want to hold out until the buyout takes place at $15.25 per share. The risk is that, in the due diligence phase, Energy Capital Partners will back out if it finds something materially wrong with the business or financial markets go into turmoil. If you're not willing to take on that risk, you should take some gains off the table now because it's unlikely a buyer will emerge with a better offer than what Calpine got today.
10 stocks we like better than CalpineWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Calpine wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of August 1, 2017
Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.