Exhibit (c)(6)
Project Revere Valuation Sensitivities January 14, 2016 Corporate and Investment Banking | Global Power Strictly Private and Confidential |
Confidential Material Disclaimer The following pages contain material provided to the Board of Directors of Talen Energy Corporation (“Talen” or the “Company”) by Citigroup Global Markets Inc. (“Citi”) in connection with a proposal from Riverstone Holdings LLC (“Riverstone”). The accompanying material was compiled or prepared on a confidential basis solely for the use of the Board of Directors of the Company and not with a view toward public disclosure under any securities laws or otherwise. The information contained in the accompanying material was obtained from the Company and other sources. Any estimates and projections contained herein have been prepared or adopted by management of the Company, obtained from public sources, or are based upon such estimates and projections, and involve numerous and significant subjective determinations, and there is no assurance that such estimates and projections will be realized. Citi does not take responsibility for such estimates and projections, or the basis on which they were prepared. No representation or warranty, express or implied, is made as to the accuracy or completeness of such information and nothing contained herein is, or shall be relied upon as, a representation, whether as to the past, the present or the future. In preparing the accompanying material, Citi assumed and relied, without independent verification, upon the accuracy and completeness of all financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with Citi and upon the assurances of the management of the Company, that they are not aware of any relevant information that has been omitted or that remains undisclosed to Citi. The accompanying material was not prepared for use by readers not as familiar with the Company as the Board of Directors of the Company and, accordingly, neither the Company nor Citi nor their respective legal or financial advisors or accountants take any responsibility for the accompanying material if used by persons other than the Board of Directors of the Company. The accompanying material is necessarily based upon information available to Citi, and financial, stock market and other conditions and circumstances existing and disclosed to Citi, as of the date of the accompanying material. Citi does not have any obligation to update or otherwise revise the accompanying material. Nothing contained herein shall be construed as legal, regulatory, tax or accounting advice. 1 |
Talen Summary Projections and Case Comparison Adjusted EBITDA1 ($ in millions) Unlevered Free Cash Flow ($ in millions) Source: Talen 2016 – 2020 Business Plan- Post Mitigation and FactSet. Note: Market data as of January 7, 2016. 1. Consistent with Reg G disclosure. Consensus EBITDA Base Case Gas and Power Prices 2 Levered Free Cash Flow ($ in millions) $774 $717 $666 $691 $685 $772 $646 $596 $620 $614 $811 $830 $774 $802 $809 2016 2017 2018 2019 2020 $306 $254 $228 $265 $303 $312 $191 $195 $221 $254 $335 $344 $313 $351 $386 2016 2017 2018 2019 2020 $275 $164 $145 $160 $197 $282 $101 $110 $114 $144 $304 $254 $231 $246 $280 2016 2017 2018 2019 2020 $833 $720 $646 $594 NA Downside Case: 20% Gas and 10% Power Decrease Upside Case: 20% Gas and 10% Power Increase Gas Prices ($/mmBtu) 2016 2017 2018 2019 2020 Henry Hub Gas Base Case $2.58 $2.84 $3.02 $3.19 $3.59 Downside Case 2.06 2.28 2.42 2.55 2.87 Upside Case 3.09 3.41 3.62 3.83 4.31 TETCO-M3/D Base Case $2.32 $2.80 $3.05 $3.26 $3.50 Downside Case 1.86 2.24 2.44 2.61 2.80 Upside Case 2.79 3.36 3.66 3.91 4.20 Power Prices ($/MWh) 2016 2017 2018 2019 2020 PJM West Hub ATC Base Case $35.07 $34.34 $32.77 $33.36 $34.26 Downside Case 31.56 30.90 29.49 30.02 30.84 Upside Case 38.58 37.77 36.04 36.69 37.69 ERCOT NorthHub ATC Base Case $25.56 $27.84 $27.59 $28.32 $29.09 Downside Case 23.00 25.06 24.83 25.49 26.18 Upside Case 28.11 30.62 30.35 31.15 31.99 NEPOOL Hub ATC Base Case $42.88 $43.66 $43.18 $42.92 $42.22 Downside Case 38.59 39.29 38.86 38.63 38.00 Upside Case 47.17 48.03 47.50 47.21 46.45 |
Talen Valuation Summary Analysis Valuation Summary Assumptions • 4-year unlevered DCF (2016 – 2019) • Unlevered cash taxes based on 40% tax rate and company-provided taxes • 2015 net debt balance of $3,414mm • 128.9mm share outstanding • Terminal value based on 7.3x average of Dynegy and NRG’s 2017 EV/EBITDA multiple applied to 2020 EBITDA (FY+1) and 0.5 step for low and high cases, respectively • WACC range of 6.7% – 7.3% • Downside sensitivity based on 20% gas and 10% power decrease • Upside sensitivity based on 20% gas and 10% power increase • Citi has not had the opportunity to diligence the Downside and Upside Cases Source: Talen 2016 – 2020 Business Plan- Post Mitigation and FactSet. Note: Market data as of January 7, 2016. 1. Talen 2017 Adjusted EBITDA of $717mm for Base Case, $646mm for Downside Case and $830mm for Upside Case. $11.00 per Share Proposal (74% premium to current share price) Current Share Price: $6.32 Implied EV/2017 EBITDA1 Equity Value per Share Reference Range Low High Base Case 6.2x 7.0x Downside Case: 20% Gas and 10% Power Decrease 6.1 7.0 Upside Case: 20% Gas and 10% Power Increase 6.4 7.3 $7.92 $4.23 $14.77 $12.68 $8.49 $20.40 3 |
Appendix |
Discounted Cash Flow Analysis – Base Case Source: Talen 2016 – 2020 Business Plan- Post Mitigation. 1. Unlevered cash taxes based on 40% tax rate and company-provided taxes. Discounted Cash Flow Analysis 2016 2017 2018 2019 2020 ($ in millions) 12/31/2015 6/30/2016 6/30/2017 6/30/2018 6/30/2019 6/30/2020 Gross Margin $1,771 $1,720 $1,681 $1,695 $1,712 O&M Expense (1,066) (1,057) (1,062) (1,049) (1,076) Other Income / (Expense) (14) (8) (8) (10) (10) Non-Cash Adjustments 82 62 55 56 60 Adjusted EBITDA $774 $717 $666 $691 $685 Adj. Cash Taxes1 (55) (85) (82) (82) (97) Nuclear Fuel 143 136 137 135 136 Other Cash Adjustments 9 (24) (15) (12) 5 Capital Expenditures (565) (490) (478) (466) (427) Unlevered Free Cash Flow $0 $306 $254 $228 $265 $303 Unlevered Free Cash Flow Utilized For Valuation 306 254 228 265 0 Unlevered Valuation Analysis (in millions, except per share values) Terminal Values Key Metrics Low Mid High 12/31/2015 12/31/2020 2020 EBITDA $685 $685 $685 Debt $4,459 $2,973 FY+1 EV/EBITDA 6.8x 7.3x 7.8x Cash (1,045) (359) Terminal Enterprise Value $4,657 $4,999 $5,342 Net Debt $3,414 $2,614 Terminal EBITDA NA $685 Shares Outstanding 128.9 128.9 Present Value of Cash Flows Present Value of Terminal Value EV/EBITDA 6.8x 7.3x 7.8x 6.7% $931 $931 $931 6.7% $3,589 $3,853 $4,117 7.0 927 927 927 7.0 3,551 3,812 4,074 7.3 922 922 922 7.3 3,514 3,772 4,031 Enterprise Value Equity Value EV/EBITDA 6.8x 7.3x 7.8x EV/EBITDA 6.8x 7.3x 7.8x 6.7% $4,520 $4,784 $5,048 6.7% $1,106 $1,370 $1,634 7.0 4,478 4,739 5,000 7.0 1,064 1,325 1,586 7.3 4,436 4,694 4,953 7.3 1,022 1,280 1,539 Equity Value per Share Implied EV/2017 EBITDA EV/EBITDA 6.8x 7.3x 7.8x EV/EBITDA 6.8x 7.3x 7.8x 6.7% $8.58 $10.63 $12.68 6.7% 6.3x 6.7x 7.0x 7.0 8.25 10.28 12.30 7.0 6.2 6.6 7.0 7.3 7.92 9.93 11.94 7.3 6.2 6.5 6.9 WACC WACC WACC WACC WACC WACC 4 |
Discounted Cash Flow Analysis – Downside Case Source: Source: Talen 2016 – 2020 Business Plan- Post Mitigation and Business Plan with Downside Sensitivities prepared by Talen Management. 1. Unlevered cash taxes based on 40% tax rate and company-provided taxes. Discounted Cash Flow Analysis 2016 2017 2018 2019 2020 ($ in millions) 12/31/2015 6/30/2016 6/30/2017 6/30/2018 6/30/2019 6/30/2020 Adjusted EBITDA $772 $646 $596 $620 $614 Adj. Cash Taxes1 (46) (78) (45) (55) (75) Nuclear Fuel 143 136 137 135 136 Other Cash Adjustments 9 (22) (15) (12) 5 Capital Expenditures (565) (490) (478) (466) (427) Unlevered Free Cash Flow $0 $312 $191 $195 $221 $254 Unlevered Free Cash Flow Utilized For Valuation 312 191 195 221 0 Unlevered Valuation Analysis (in millions, except per share values) Terminal Values Key Metrics Low Mid High 12/31/2015 12/31/2020 2020 EBITDA $614 $614 $614 Debt $4,459 $2,973 FY+1 EV/EBITDA 6.8x 7.3x 7.8x Cash (1,045) (359) Terminal Enterprise Value $4,174 $4,481 $4,789 Net Debt $3,414 $2,614 Terminal EBITDA NA $614 Shares Outstanding 128.9 128.9 Present Value of Cash Flows Present Value of Terminal Value EV/EBITDA 6.8x 7.3x 7.8x 6.7% $817 $817 $817 6.7% $3,217 $3,454 $3,691 7.0 814 814 814 7.0 3,183 3,418 3,652 7.3 810 810 810 7.3 3,150 3,381 3,613 Enterprise Value Equity Value EV/EBITDA 6.8x 7.3x 7.8x EV/EBITDA 6.8x 7.3x 7.8x 6.7% $4,035 $4,272 $4,508 6.7% $621 $858 $1,094 7.0 3,997 4,231 4,465 7.0 583 817 1,051 7.3 3,960 4,191 4,423 7.3 546 777 1,009 Equity Value per Share Implied EV/2017 EBITDA EV/EBITDA 6.8x 7.3x 7.8x EV/EBITDA 6.8x 7.3x 7.8x 6.7% $4.81 $6.65 $8.49 6.7% 6.2x 6.6x 7.0x 7.0 4.52 6.34 8.16 7.0 6.2 6.5 6.9 7.3 4.23 6.03 7.83 7.3 6.1 6.5 6.8 WACC WACC WACC WACC WACC WACC 5 |
Discounted Cash Flow Analysis – Upside Case Source: Source: Talen 2016 – 2020 Business Plan- Post Mitigation and Business Plan with Upside Sensitivities prepared by Talen Management. 1. Unlevered cash taxes based on 40% tax rate and company-provided taxes. Discounted Cash Flow Analysis 2016 2017 2018 2019 2020 ($ in millions) 12/31/2015 6/30/2016 6/30/2017 6/30/2018 6/30/2019 6/30/2020 Adjusted EBITDA $811 $830 $774 $802 $809 Adj. Cash Taxes1 (62) (107) (104) (107) (138) Nuclear Fuel 143 136 137 135 136 Other Cash Adjustments 8 (25) (15) (12) 5 Capital Expenditures (565) (490) (478) (466) (427) Unlevered Free Cash Flow $0 $335 $344 $313 $351 $386 Unlevered Free Cash Flow Utilized For Valuation 335 344 313 351 0 Unlevered Valuation Analysis (in millions, except per share values) Terminal Values Key Metrics Low Mid High 12/31/2015 12/31/2020 2020 EBITDA $809 $809 $809 Debt $4,459 $2,973 FY+1 EV/EBITDA 6.8x 7.3x 7.8x Cash (1,045) (359) Terminal Enterprise Value $5,499 $5,904 $6,308 Net Debt $3,414 $2,614 Terminal EBITDA NA $809 Shares Outstanding 128.9 128.9 Present Value of Cash Flows Present Value of Terminal Value EV/EBITDA 6.8x 7.3x 7.8x 6.7% $1,182 $1,182 $1,182 6.7% $4,238 $4,550 $4,862 7.0 1,176 1,176 1,176 7.0 4,194 4,502 4,811 7.3 1,170 1,170 1,170 7.3 4,149 4,455 4,760 Enterprise Value Equity Value EV/EBITDA 6.8x 7.3x 7.8x EV/EBITDA 6.8x 7.3x 7.8x 6.7% $5,420 $5,732 $6,044 6.7% $2,006 $2,318 $2,630 7.0 5,369 5,678 5,986 7.0 1,955 2,264 2,572 7.3 5,319 5,624 5,930 7.3 1,905 2,210 2,516 Equity Value per Share Implied EV/2017 EBITDA EV/EBITDA 6.8x 7.3x 7.8x EV/EBITDA 6.8x 7.3x 7.8x 6.7% $15.56 $17.98 $20.40 6.7% 6.5x 6.9x 7.3x 7.0 15.16 17.56 19.95 7.0 6.5 6.8 7.2 7.3 14.77 17.14 19.51 7.3 6.4 6.8 7.1 WACC WACC WACC WACC WACC WACC 6 |
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