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Updated: Vistra Provides Further Details On Strategic Rationale For Transaction, Post-Close Market Position

Vistra Energy Announces Increased Purchase Price For Crius Energy

Hike Follows Unsolicited Third Party Acquisition Proposal For Crius That Was Higher Than Original Price

February 20, 2019

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Copyright 2010-19 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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Note: This story has been updated with additional detail, see the update below

Vistra Energy and Crius Energy Trust have entered into an amendment to their existing purchase agreement pursuant to which Vistra has agreed to increase its acquisition price for Crius Energy such that unitholders of Crius Energy will now receive C$8.80 per trust unit (reflecting a purchase price of approximately US$378 million), an increase of C$1.23 per trust unit from the parties' prior agreement.

The purchase price is in addition to Crius Energy's previously-declared C$0.209 per unit distribution for the first quarter of 2019.

"Vistra and Crius Energy negotiated the amendment in response to the receipt by the Crius Energy Board of Directors of an unsolicited acquisition proposal from a third party bidder dated Feb. 14, 2019 that was higher than the purchase price previously agreed by Vistra and Crius Energy. Vistra's management and Board of Directors carefully reviewed the terms of the third party acquisition proposal and determined that the Crius Energy transaction remained attractive and accretive at the new price of C$8.80 per trust unit, or approximately US$378 million plus the assumption of Crius Energy net debt of approximately US$108 million," the companies said

The original proposal has reflected an Approximately US$328 million purchase price (assuming an exchange rate of US$0.76 for each C$1), plus assumption of Crius Energy net debt of approximately US$108 million

Curt Morgan, Vistra's president and chief executive officer, stated, "Vistra's decision to increase the purchase price for the Crius Energy portfolio came after a careful evaluation of the economics of the transaction. At a purchase price of approximately 4x EV/EBITDA, this transaction is still projected to be EBITDA and free cash flow accretive and to exceed Vistra's investment threshold of 500-600 basis points above our cost of capital, while not interfering with Vistra's previously announced capital allocation and deleveraging plans."

Morgan added, "Since we first announced the transaction with Crius Energy on Feb. 7, our teams have had the opportunity to continue diligence work, which has only reinforced Vistra's confidence in the strategic and cultural fit of the two organizations, as well as our ability to achieve the synergy targets we previously announced. As a result, the Vistra management team and Board of Directors agreed it would be in the best interest of Vistra and its shareholders to pursue the Crius Energy transaction at a higher price, enabling Vistra to acquire this attractive platform while still remaining disciplined on the overall deal economics."

Brian Burden, chairman of Crius Energy's Board of Directors, commented, "After receiving an unsolicited third-party acquisition proposal reflecting a higher per-unit purchase price for Crius Energy, the Crius Energy management team and Board of Directors advised Vistra of the proposal, which led to subsequent discussions. Following these discussions, our Board unanimously approved the amendment to the purchase agreement, which reflects an increase in proceeds to Crius Energy unitholders of more than C$1 per unit, which is higher than the unsolicited third-party acquisition proposal received by the Board. At an approximately 60 percent premium to Crius Energy's unit price as of market close on Feb. 6, 2019, we believe the proposed transaction with Vistra, as amended, is in the best interest of the Crius Energy unitholders, customers, and employees, and Crius Energy's Independent Directors and Board unanimously support the transaction."

Transaction Highlights

The companies listed transaction highlights as follows:

"Strategic acquisition accelerating Vistra's Midwest and Northeast growth strategy via Crius Energy's presence in 19 states and the District of Columbia, selling both electricity and natural gas products primarily to high value residential and small business customers"

"High degree of overlap with Vistra's generation fleet; approximately 11.6 TWhs of load acquired, improving Vistra's match of its generation to load profile to approximately 45 percent"

"Establishes a platform for future growth, leveraging Vistra's existing retail marketing capabilities and Crius Energy's experienced team"

"Enhances integrated value proposition through collateral and transaction efficiencies, particularly via Crius Energy's largely residential portfolio consistent with Vistra's industry-leading retail capabilities"

"Complements Vistra's municipal aggregation and large commercial and industrial portfolio acquired from Dynegy in April 2018 and part of a broader organic expansion effort"

"Acquisition economics exceed Vistra's investment threshold of mid-to-high teens unlevered returns; achieved only through the expertise and scale of the Vistra retail business and ownership of complementary generation assets"

"Attractive premium of approximately 60 percent above Crius Energy's Feb. 6, 2019 closing price to be received by Crius Energy unitholders under the proposed transaction"

"Tuck-in acquisition with no anticipated changes to Vistra's capital allocation or deleveraging plans"

"Continued 'focus on the customer' approach enhancing Vistra's stable earnings and cash flow in a risk-reducing manner"

"Unanimous recommendation of Crius Energy's Independent Directors in favor of the transaction, with voting and support agreements representing approximately 17 percent of Crius Energy's units executed in support of the transaction"

Transaction and Approvals

The companies said that, "The definitive agreement (as amended) includes customary deal protections, including non-solicitation covenants, the right of Vistra to match any competing proposals, and the payment of a termination fee to Vistra under certain circumstances. In the amendment, in consideration for the increased purchase price, the parties agreed to increase the termination fee payable to Vistra under the agreement to C$25.1 million from C$10.4 million, together with a corresponding increase in the reverse termination fee payable to Crius Energy under the agreement."

"In addition to the C$8.80 per trust unit to be received by Crius Energy unitholders under the proposed transaction, Crius Energy unitholders will also continue to be entitled to receive Crius Energy's C$0.209 per unit distribution for the first quarter of 2019 previously declared on Jan. 16, 2019, resulting in total consideration in the amount of C$9.009 per unit. The declared distribution was amended on Feb. 15, 2019 such that (a) the distribution record date will be Mar. 26, 2019, and (b) the distribution payment date will be the earlier of June 17, 2019 and the closing date of the transaction. Under the definitive agreement, Crius Energy has agreed not to declare any further distributions prior to the closing," the companies said

"The proposed transaction is subject to the approval of at least two-thirds of Crius Energy's unitholders voting at the special unitholder meeting scheduled for March 28, 2019. Unitholders of Crius Energy representing approximately 17 percent of the units, including all of the directors and senior officers of Crius Energy, previously entered into voting and support agreements with Vistra in support of the transaction (including as amended)," the companies said

"In addition to satisfying the closing conditions and consents customary for a transaction of this nature, the transaction is also subject to applicable regulatory approvals, including the expiration or termination of any applicable waiting period under the United States Hart-Scott-Rodino Antitrust (HSR) Improvements Act, and approval by the Federal Energy Regulatory Commission (FERC). Vistra and Crius Energy made the HSR and FERC filings on Feb. 19, 2019," the companies said

Pending the receipt of all necessary approvals and the fulfillment of all other customary closing conditions, the parties expect the transaction to close in the second quarter of 2019.

Crius Energy's Board of Directors, on the unanimous recommendation of its Independent Directors, approved the transaction and the related amendment, and will recommend that Crius Energy's unitholders vote in favor of the transaction.

Update:

Vistra also posted a presentation further outlining the strategic rationale for the acquisition, including post-transaction pro forma market share data.

As previously reported, Vistra Energy will be the leading residential competitive electric load provider in the nation upon close of the transaction

Vistra provided further detail in the presentation, stating that it would have 21% of U.S. Residential market share in competitive electric markets (based on volumes) upon closing of the transaction, ahead of NRG's 20% share, and Centrica's 7% share. Vistra's volumes include municipal aggregation volumes

Vistra listed 2019 pro forma retail electric volumes as 83 TWh, up from 64 TWh in 2018

Vistra's post-transaction business electric market share would be 6% (competitive electric markets based on volumes), ranked 6th (behind Constellation at 21%, Centrica at 13%, and other providers in single digit market shares)

The Crius acquisition expands Vistra’s retail presence from 5 to 19 states and the District of Columbia, grows Vistra’s customer count to nearly 4 million customers, and adds retail gas to Vistra’s product offering

Vistra listed additional transaction highlights as follows:

Value Creation

• "Attractive economics (~4x 2019E EV/EBITDA pro forma for run-rate synergies) exceeding Vistra’s investment threshold of mid-to-high teens unlevered returns"

• "Tuck-in acquisition with no anticipated changes to Vistra’s capital allocation or deleveraging plans of achieving its net debt to EBITDA targets"

• "Assuming full run-rate synergies, projected annual pro forma adjusted EBITDA contribution of approximately $120 million"

Transaction Benefits

• "Vistra is executing on its strategy of selective, value-accretive Retail acquisitions with its agreement to purchase Crius Energy Trust ("Crius")"

• "The addition of Crius Energy expands Vistra’s Retail presence from 5 to 19 states and the District of Columbia, adds dual-fuel market offerings and augments an experienced team – all bolstering a platform for future growth"

• "After closing, Vistra Retail will be the leading U.S. residential retail electric provider"

• "The acquisition of Crius Energy expands Vistra into higher margin channels ex-ERCOT with quality operations and a portfolio comprised primarily of residential and small business customers; the result – industry leading operations, margins, and cost discipline"

• "Complements Vistra’s recent acquisition of the Dynegy municipal aggregation and large business portfolio"

• "The additional Retail load bolsters Vistra’s integrated Retail – Wholesale model and improves Vistra’s generation to load match to approximately 45%"

Consideration

• "US$378 million cash consideration (reflecting C$8.80/unit)"

• "Assumption of approximately US$108 million of net debt"

Vistra also affirmed that it would continue organic retail growth, utilizing its integrated model capabilities and acquisition "beachheads" to enable further organic growth in Midwest and Northeast

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