In early 2017, a newsletter subscriber who works in the utility sector suggested I look at Vistra Energy (NYSE:VST) as a potential utility turnaround selection. I reviewed the company and its situation and decided my subscriber was probably on to something. In March 2017, I wrote a SA article on VST’s potential business turnaround and followed up in April of that year with an SA article suggesting management look at acquiring rural natural gas local distribution companies as a means of expanding into less risky segments of the utility sector. I sold out of the position in mid-2018, after their acquisition of Dynegy. Now, Vistra seems to be back on my radar screen.
It is important for investors to appreciate the difference between Vistra and your father’s old-fashion regulated utility. Vistra was created from the bankruptcy of sprawling Texas utility Energy Future Holdings EFH, caused by their high debt accumulated through a leveraged buyout. Vistra was formed by the combination of the competitive market position from EFH, both power generation/merchant power and retail power sales. Large bond holders, such as Brookfield Assets Management (BAM) and Apollo Asset Management (APO), owned a substantial percentage of shares upon exiting Chapter 11, with their combined positions accounted for 26% equity ownership. Both firms have been sellers, with BAM currently holding 20.0 million shares, or 4.1% of shares outstanding, and APO holding 8.8 million shares, or 1.8%. In April 2018, with a clean balance sheet (for a capital-intensive utility company) from its bankruptcy proceedings, Vistra acquired financially strapped Dynegy, also a merchant power producer. The $2.3 billion acquisition almost tripled VST’s power generating capacities and expanded its retail business past the state of Texas. Last year, VST purchased retail energy sellers Crius Energy and Ambit Energy for $900 million, expanding its retail footprint to the Midwest and Northeast, and adding to its already strong position in retail markets in Texas. The
