Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Why Shares of Dynegy Inc. Popped 29% Today

What happened 

Shares of independent power producer Dynegy Inc. (NYSE: DYN  ) jumped as much as 29.5% in trading Friday morning after reports of a potential buyout hit the market. At 12:06 p.m. EDT shares were still trading 24.2% higher on the day. 

So what

The Wall Street Journal is reporting that Vistra Energy is in talks to buy  Dynegy in an effort to diversify out of the Texas market. There are even analysts today who think the current bid is low, and could go even higher in coming weeks. 

Power plant at dusk.

Image source: Getty Images.

While this is currently just a reported buyout negotiation, I wouldn't be surprised to see more consolidation among independent power producers in the next few years. They've been rocked by falling wholesale prices due to slow demand growth and pressure from low cost renewable energy. Consolidation could give them a little more muscle in the market, and help rationalize some excess supply, which would push prices higher. 

Now what

While this could be great news for Dynegy's shares in the short term, and their prices could go higher if a bid forms and even increases as analysts predict, I don't think this is a reason to get bullish on the sector. The pressures on wholesale power prices show no signs of easing, and companies will need more than geographical diversification to keep their businesses afloat. I've argued that they need to rethink their entire model, focusing on new technologies, to stay alive

If the independent power producer model is failing overall, this deal isn't a buying sign for the industry. This news might be good for Dynegy today, but long term, I don't think it makes Vistra a buy, and an offer for anything other than cash could be a bad deal for Dynegy's investors in the long term.

10 stocks we like better than Dynegy
When 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 Dynegy 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 May 1, 2017

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 4020274, ~/Articles/ArticleHandler.aspx, 5/26/2017 5:28:07 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 8 hours ago Sponsored by:
Change up DOW 21083.0 70.5 0.3%
Change up S&P 500 2415.1 10.7 0.4%
Change up NASD 6205.3 42.2 0.7%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

5/25/2017 4:03 PM
DYN $8.65 Up +0.06 +0.70%
Dynegy CAPS Rating: ***