Amit Chokshi

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  • 7 Reasons Why NRG’s Offer for Calpine is Laughable
    ATM,

    You state that I'm trying to intentionally mislead readers when you seem to be unable to read what I clearly stated in regards to certain points or ignore it in an attempt to create hollow criticisms for my points. For example, in Exiting Bankruptcy Dynamics you ask "are you saying that power cos out of Ch 11 will always experience share price appreciation" when I specifically and clearly wrote that there's "no guarantee" that CPN would perform in the same fashion to NRG and MIR in the second sentence of that segment.

    For Valuation you ask me where I got my multiples. I explicitly mention that the multiples are from highly levered IPPs like MIR and DYN for EV/EBITDA and for EVLTM Revenues for DYN, MIR, and NRG could also be used to value CPN. I don't see how when I explain the methodology how I'm fooling or misleading anyone, I'm clearly showing what I'm using for valuation. Secondly, using NRG's EV/EBITDA comp is not useful because it's gone through the deleveraging process in recent years. NRG was levered at 10.0x EV/EBITDA when it emerged from bankruptcy and valued in the mid teens EV/EBITDA in the first year coming out of bk.

    NOLs - CPN was unprofitable for one quarter yet you assume they won't generate profits such that the $5+B in NOLs would be worth very little. Discount the $5+B over a long period of time and it's still worth something to CPN as a stand alone. Secondly, part of what contributed to CPN's Q1 loss was higher than usual interest expense tied to liabilities subject to compromise which were part of exiting bk and will not repeat and on top of that CPN has been divesting assets for gains. You say I mislead readers yet you try to suggest a Q1 loss would carry on so that those NOLs would have little value.

    Peak Season - Yes summer comes around every year but NG is higher now than it was last year.

    Geographic concentration - I didn't imply that NRG is buying CPN for its geographic concentration. I stated, as with the other 6 points, why the NRG offer undervalues CPN and why CPN's concentration in those two regions is a benefit. But since you brought it up, have you read what NRG intends to do if it acquires CPN? NRG will sell its own plants in TX and keep CPN's and part of that strategy by NRG ties to the other points you take issue with in green power and CPN's fleet age.

    Green Power: Sure, we don't know what carbon legislation will entail but a company that generates power using gas and geothermal vs a company that relies on coal for 40% of its power generation is probably going to be on the right side of any legislation. I never assigned a specific value there but I IMO rightly suggest in an environment of increasing legislation focused on emission control, CPN is the best positioned out of all IPPs and provide data on emmission/air pollutants to back that assertion up.

    Fleet Age: Yes I realize CPN's fleet was younger when it was in bk, so what? When looking at major IPPs, CPN has the youngest fleet, NRG has an old fleet with a skew towards higher pollution plants. With longer lead times and higher material costs for new plants, the age of CPN's fleet, basically brand new, is a huge plus. Yeah, when CPN was in bk its fleet was that many years younger and the problem back then was massive overcapacity in the power markets. Now with the opposite occurring, having essentially brand new plants is an advantage. Even against other NG plants, CPN's fleet has superior heat rates (better fuel efficiency).

    Finally, I should have mentioned this earlier but let me point readers to NRG's situation just two years ago. Back in May 2006, MIR made a hostile offer to buy NRG for about $7.7B in equity and a total enterprise value of about $16B. That was a 33% premium to NRG's share price and that deal valued NRG at 5.0x LTM Revenues and 20x EV/EBITDA. If you used those multiples for CPN, the share price would be at a minimum of $36 per share. But more importantly, NRG laughed off the offer and was able to remain independent and over two years, basically went from being worth $5.8B pre MIR to $7.7B pre offer to now $10B+ in equity value. But apparently, what I've presented is just a twisted attempt to squeeze a few pennies out of my holding in CPN.
    May 28 23:12 pm |Rating: 0 0 |Link to Comment |View article

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