Calpine Corporation (NYSE:CPN) stock continues to edge higher ahead of the proposed $5.6 billion takeover by private equity firm Energy Capital Partners. Shares of the company have surged from lows of $10 a share in May, to highs of $14 a share in anticipation of the proposed merger.
Shares of Calpine Corporation have a small amount of upside given that they are trading close to 52-week highs of $14.94 a share pending the acquisition. The risk of Energy Capital backing down on the deal if something materially wrong comes up from the due diligence phase could continue to affect the stock sentiments going forward.
Institutional Holdings
Institutional investors have already started to take advantage of the impressive run ahead of the proposed merger. BlackRock which is one of the biggest investors in Calpine has started to trim its stake in the company in what analysts believe is a profit taking move.
The hedge fund has trimmed its stake in the company to 4.4% accounting for 15.78 million shares. As of the end of June, the fund owned 15.88 million shares of Calpine Corporation. Hotchkis & Wiley Capital Management LLC increased its stake in the company by 1.1% in the second quarter. The firm owned 47.28 million shares as of the end of the quarter valued at $639.66 million.
SailingStone Capital Partners owns 42.81 million shares making it the second biggest investor in Calpine Corporation. Vanguard comes a distant third with 29.99 million shares valued at 405.84 million shares. PNC financials also increased its stake in the company by 47.2% in the second quarter.
Calpine Takeover
Calpine Corporation is trading as a takeover play awaiting the closure of the $5.6 billion deal. The takeover comes at a time when the power markets have been hammered by cheap natural gas and zero marginal cost wind and solar power.
Just like other companies in the industry, Calpine has seen its earnings shrink in recent years a problem compounded further by its $11.9 billion debt. Energy Capital Partners is acquiring the company purely on its cash flow prospects. The equity firm expects the company to generate $875 million to $1 billion in cash from operations this year.
