Orion Power Holdings Inc., which acquires and operates power plants, said yesterday that it will receive a $200 million investment from two Japanese companies as the Baltimore-based company eyes going public.
Under terms of the agreement, the Japanese trading company Mitsubishi Corp. will invest $120 million and Tokyo Electric Power Corp., Japan's largest utility, will invest $80 million in Orion, a joint venture of the New York investment firm, Goldman Sachs Group Inc., and an affiliate of Constellation Energy Group, the parent of Baltimore Gas and Electric Co.
The Japanese companies will jointly appoint an additional member to Orion's five-member board of directors and receive an undisclosed stake in the company, said Jack Fusco, Orion's chief operating officer.
The deal is expected to close in the fourth quarter.
Ronald S. Tanner, an analyst with Legg Mason Wood Walker in Baltimore, said the Japanese investment is a prelude to the company going public, possibly as soon as late next year.
The investment "brings in another equity partner that owns the company," Tanner said. "It demonstrates that someone else thinks Orion is a good investment. It makes it a little easier when they decide to go to the market.
"But, of course, they'll do it when the timing is right and when they'll get the best price," he said. "Utility stocks are not doing very well. Goldman Sachs is the expert at this."
Fusco confirmed that Orion plans to go public, but said a time frame has not been set.
"We desire to be a publicly traded company," he said. "We intend to continue our acquisition program and therefore we need access to capital. One way to achieve that is through the public capital markets."
Profit from industry change
Founded last year, Orion received $300 million from Goldman Sachs and $175 million from Constellation.
The company has started to take advantage of energy industry changes. Some states are mandating that energy companies sell plants as part of a shift toward deregulation and competition.
At the same time, utilities nationwide are shedding generating plants to devote themselves to energy distribution and transmission, rather than production.
Last month, Orion agreed to buy seven power plants in Pennsylvania and Ohio from Pittsburgh-based Duquesne Light Co., for $1.7 billion in cash. Orion's portfolio also includes power plants throughout New York.
Once the Duquesne acquisition is completed, Orion will have invested more than $2.7 billion in power plants that have more than 5,200 megawatts of capacity.
Investors like plans
"The two investors were very interested in getting involved in Orion because of our strategy and our ability to execute our strategy," Fusco said.
"When Mitsubishi and TEPCO met the management of Orion, and we discussed our vision for the company, they were comfortable we could grow our business in a meaningful way," he said.
Shares of Constellation closed yesterday at $28.9375, down 62.5 cents. Shares in Goldman Sachs closed at $63.1875, down 81.25 cents.