Vistra Energy (VST) 'Talked Down' Prospects for Corporate M&A, Says UBS (DYN)
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Vistra Energy (NYSE: VST) didn't close the door on M&A but "talked down" the prospects and highlighted that any sizable combination would require significant and detailed synergies during a conference call yesterday, said UBS analyst Julien Dumoulin-Smith. Comments may have impacted shares of rumored takeover target Dynegy (NYSE: DYN).
Commenting on management's discussion regarding the need for substantial synergies, the analyst said, "These would likely be achieved first on the SG&A side as a merger would bring headcount savings and real estate consolidation, but also on the fuel procurement side as the increased coal demand could be leveraged to reduce rail cost for example. While the magnitude of these synergies remains the big unknown, we highlight that the two IPPs that have been front and center on the M&A front (DYN and CPN) already have fairly lean SG&A structures at ~$5-6/kW-year."
The question then becomes how much can be achieved on VST's side, continued Dumoulin-Smith, "although we suspect the large majority of the company's SG&A (~$690 Mn in 2016) is related to the retail business, where the associated synergies are likely less clear than with generation. We include $100 Mn of M&A-related synergies in our VST model, which contributes to ~$2/Sh."
UBS has a Sell rating on Vistra Energy with a price target of $14.00
Shares of Vistra Energy closed at $14.96 yesterday.
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