DEFM14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

 

 

Filed by the Registrant  ☒                            Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Under §240.14a-12

Dynegy Inc.

(Name of Registrant as Specified in its Charter)

N/A

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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Title of each class of securities to which transaction applies:

 

     

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  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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JOINT PROXY STATEMENT AND PROSPECTUS

 

LOGO    LOGO

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

January 25, 2018

To the Stockholders of Vistra Energy Corp. and the Stockholders of Dynegy Inc.:

The board of directors (the “Vistra Energy Board”) of Vistra Energy Corp. (“Vistra Energy”) and the board of directors (the “Dynegy Board”) of Dynegy Inc. (“Dynegy”) each has approved an Agreement and Plan of Merger, dated as of October 29, 2017 (the “Merger Agreement”), by and between Vistra Energy and Dynegy, pursuant to which Dynegy will, subject to certain regulatory approvals, stockholder approvals and other customary closing conditions, merge with and into Vistra Energy (the “Merger”), with Vistra Energy continuing as the surviving corporation. The combined company resulting from the Merger will retain the name “Vistra Energy Corp.” and will continue to trade on the New York Stock Exchange (the “NYSE”) under the symbol “VST”.

Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger, each outstanding share of common stock, par value $0.01 per share, of Dynegy (the “Dynegy Common Stock”) (other than those owned by Vistra Energy or any wholly owned subsidiary of Vistra Energy, or held in treasury by Dynegy or owned by any wholly owned subsidiary of Dynegy, which will be automatically cancelled and cease to exist) will be converted into the right to receive 0.652 newly issued, fully paid and nonassessable shares of common stock, par value $0.01 per share, of Vistra Energy (the “Vistra Energy Common Stock”).

Vistra Energy and Dynegy will each hold a special meeting of its stockholders.

Vistra Energy’s special meeting will be held at 1601 Bryan Street, 11th Floor, Dallas, Texas 75201 on March 2, 2018, at 9:00 a.m., Central Time. At the Vistra Energy special meeting, the holders of Vistra Energy Common Stock will be asked (a) to consider and vote on a proposal to adopt the Merger Agreement (the “Merger Proposal”), (b) to consider and vote on a proposal to approve the issuance of Vistra Energy Common Stock to the Dynegy stockholders (the “Stock Issuance”) in connection with the Merger as contemplated by the Merger Agreement (the “Stock Issuance Proposal”) and (c) to consider and vote on a proposal to approve the adjournment of the Vistra Energy special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Merger Proposal and the Stock Issuance Proposal (the “Vistra Energy Adjournment Proposal”). The Vistra Energy Board recommends that holders of Vistra Energy Common Stock vote “FOR” the Merger Proposal, “FOR” the Stock Issuance Proposal, and “FOR” the Vistra Energy Adjournment Proposal.

Dynegy’s special meeting will be held at the Chase Center, 601 Travis Street, Houston, Texas 77002 on March 2, 2018, at 10:00 a.m., Central Time. At the Dynegy special meeting, the holders of Dynegy Common Stock will be asked (i) to consider and vote on the Merger Proposal, (ii) to consider and vote in an advisory capacity on compensation payable to executive officers of Dynegy in connection with the Merger (the “Dynegy Compensation Proposal”) and (iii) to consider and vote on a proposal to approve the adjournment of the Dynegy special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Merger Proposal (the “Dynegy Adjournment Proposal”). The Dynegy Board unanimously recommends that holders of Dynegy Common Stock vote “FOR” the Merger Proposal, “FOR” the Dynegy Compensation Proposal and “FOR” the Dynegy Adjournment Proposal.

This joint proxy statement and prospectus provides you with detailed information about the special meetings of Vistra Energy and Dynegy, the Merger Agreement, the Merger and the other transactions contemplated by the


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Merger Agreement, including the Stock Issuance. A copy of the Merger Agreement is included as Annex A to this joint proxy statement and prospectus. Vistra Energy and Dynegy encourage you to read this joint proxy statement and prospectus, the Merger Agreement and the other annexes to this joint proxy statement and prospectus carefully and in their entirety. In particular, you should carefully consider the discussion in the section of this joint proxy statement and prospectus entitled “Risk Factors” beginning on page 35.

Your vote is very important, regardless of the number of shares you own. The Merger cannot be completed unless stockholders of both Vistra Energy and Dynegy approve certain proposals related to the Merger.

Whether or not you plan to attend the Vistra Energy special meeting or the Dynegy special meeting, as applicable, please submit a proxy to vote your shares as promptly as possible to make sure that your shares are represented at the Vistra Energy special meeting or Dynegy special meeting, as applicable. Please note that the failure to vote your Vistra Energy Common Stock or Dynegy Common Stock, as applicable, is the equivalent of a vote against the Merger Proposal.

Thank you in advance for your continued support.

Sincerely,

 

LOGO

   LOGO

Curtis A. Morgan

President and Chief Executive Officer

Vistra Energy Corp.

  

Robert C. Flexon

President and Chief Executive Officer

Dynegy Inc.

Neither the U.S. Securities and Exchange Commission (the “SEC”) nor any state securities regulatory agency has approved or disapproved of the securities to be issued in connection with the Merger or passed upon the adequacy or accuracy of this joint proxy statement and prospectus. Any representation to the contrary is a criminal offense.

This joint proxy statement and prospectus is dated January 25, 2018, and is first being mailed to the stockholders of Vistra Energy and the stockholders of Dynegy on or about January 29, 2018.


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LOGO

6555 Sierra Drive

Irving, Texas 75039

 

 

NOTICE OF SPECIAL MEETING TO VISTRA ENERGY STOCKHOLDERS

TO BE HELD ON MARCH 2, 2018

 

 

To the Stockholders of Vistra Energy:

A special meeting of stockholders of Vistra Energy Corp., a Delaware corporation (“Vistra Energy”), will be held at 1601 Bryan Street, 11th Floor, Dallas, Texas 75201 on March 2, 2018, starting at 9:00 a.m., Central Time, for the following purposes:

 

  1. to consider and vote on a proposal (the “Merger Proposal”) to adopt the Agreement and Plan of Merger, dated as of October 29, 2017 (the “Merger Agreement”), by and between Vistra Energy and Dynegy Inc., a Delaware corporation (“Dynegy”), as it may be amended from time to time, a copy of which is attached as Annex A to the joint proxy statement and prospectus accompanying this notice, pursuant to which, among other things, Dynegy will merge with and into Vistra Energy, with Vistra Energy continuing as the surviving corporation (the “Merger”);

 

  2. to consider and vote on a proposal (the “Stock Issuance Proposal”) to approve the issuance of shares of Vistra Energy Common Stock in connection with the Merger, as contemplated by the Merger Agreement (the “Stock Issuance”); and

 

  3. to consider and vote on a proposal to approve the adjournment of the Vistra Energy special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Merger Proposal and the Stock Issuance Proposal (the “Vistra Energy Adjournment Proposal”).

Vistra Energy will transact no other business at the Vistra Energy special meeting or any adjournment or postponement thereof. These items of business are described in the enclosed joint proxy statement and prospectus. The Vistra Energy board of directors (the “Vistra Energy Board”) has designated the close of business on January 19, 2018 as the record date for the purpose of determining the holders of shares of Vistra Energy’s common stock, par value $0.01 per share (the “Vistra Energy Common Stock”) who are entitled to receive notice of, and to vote at, the Vistra Energy special meeting and any adjournments or postponements of the special meeting, unless a new record date is fixed in connection with any adjournment or postponement of the special meeting. Only holders of record of Vistra Energy Common Stock at the close of business on the record date are entitled to notice of, and to vote at, the Vistra Energy special meeting and at any adjournment or postponement of the special meeting.

The Vistra Energy Board has (i) determined that it is in the best interest of Vistra Energy and the holders of Vistra Energy Common Stock to enter into the Merger Agreement, (ii) declared entry into the Merger Agreement to be advisable, (iii) authorized and approved Vistra Energy’s execution, delivery and performance of the Merger Agreement in accordance with its terms and Vistra Energy’s consummation of the transactions contemplated thereby, including the Merger and the Stock Issuance, (iv) directed that the adoption of the Merger Agreement and the approval of the Stock Issuance be submitted to a vote at a meeting of the holders of Vistra Energy Common Stock and (v) recommended that the holders of Vistra Energy Common Stock adopt the Merger Agreement and approve the Stock Issuance. The Vistra Energy Board recommends that holders of Vistra Energy Common Stock vote “FOR” the Merger Proposal, “FOR” the Stock Issuance Proposal and “FOR” the Vistra Energy Adjournment Proposal.


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Your vote is very important, regardless of the number of shares of Vistra Energy Common Stock you own. The Merger cannot be completed unless stockholders of both Vistra Energy and Dynegy approve certain proposals related to the Merger. Whether or not you plan to attend the Vistra Energy special meeting, please submit a proxy to vote your shares as promptly as possible to make sure that your shares are represented at the special meeting. Properly executed proxy cards with no instructions indicated on the proxy card will be voted “FOR” the Merger Proposal, “FOR” the Stock Issuance Proposal and “FOR” the Vistra Energy Adjournment Proposal. Even if you plan to attend the Vistra Energy special meeting in person, Vistra Energy requests that you complete, sign, date and return the enclosed proxy card in the accompanying envelope prior to the special meeting to ensure that your shares will be represented and voted at the special meeting if you are unable to attend.

You may also submit a proxy over the Internet using the Internet address on the enclosed proxy card or by telephone using the toll-free number on the enclosed proxy card. If you submit your proxy through the Internet or by telephone, you will be asked to provide the control number from the enclosed proxy card. If you are not a stockholder of record, but instead hold your shares in “street name” through a broker, bank, trust or other nominee, you must provide a proxy executed in your favor from your broker, bank, trust or other nominee in order to be able to vote in person at the special meeting.

If you do not vote on the Merger Proposal, it will have the same effect as a vote by you against the approval of the Merger Proposal.

If you attend the Vistra Energy special meeting, you may revoke your proxy and vote in person, even if you have previously returned your proxy card or submitted your proxy through the Internet or by telephone. If your Vistra Energy shares are held by a broker, bank, trust or other nominee, and you plan to attend the Vistra Energy special meeting, please bring to the special meeting your statement evidencing your beneficial ownership of your Vistra Energy shares. Please carefully review the instructions in the enclosed joint proxy statement and prospectus and the enclosed proxy card or the information forwarded by your broker, bank, trust or other nominee regarding each of these options.

January 25, 2018

Irving, Texas

By Order of the Vistra Energy Board

 

LOGO

Cecily Small Gooch

Senior Vice President, Associate General Counsel, Chief Compliance Officer and Corporate Secretary

Vistra Energy Corp.


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LOGO

601 Travis Street, Suite 1400

Houston, Texas 77002

 

 

NOTICE OF SPECIAL MEETING TO DYNEGY STOCKHOLDERS

TO BE HELD ON MARCH 2, 2018

 

 

To the Stockholders of Dynegy:

A special meeting of stockholders of Dynegy Inc., a Delaware corporation (“Dynegy”), will be held at the Chase Center, 601 Travis Street, Houston, Texas 77002 on March 2, 2018, starting at 10:00 a.m., Central Time, for the following purposes:

 

  1. to consider and vote on a proposal (the “Merger Proposal”) to adopt the Agreement and Plan of Merger (the “Merger Agreement”), dated as of October 29, 2017, by and between Vistra Energy Corp., a Delaware corporation (“Vistra Energy”), and Dynegy, as it may be amended from time to time, a copy of which is attached as Annex A to the joint proxy statement and prospectus accompanying this notice, pursuant to which, among other things, Dynegy will merge with and into Vistra Energy, with Vistra Energy continuing as the surviving corporation (the “Merger”);

 

  2. to consider and vote on a non-binding advisory vote on compensation payable to executive officers of Dynegy in connection with the Merger (the “Dynegy Compensation Proposal”); and

 

  3. to consider and vote on a proposal to approve the adjournment of the Dynegy special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Merger Proposal (the “Dynegy Adjournment Proposal”).

Dynegy will transact no other business at the Dynegy special meeting or any adjournment or postponement thereof. These items of business are described in the enclosed joint proxy statement and prospectus. The Dynegy board of directors (the “Dynegy Board”) has designated the close of business on January 19, 2018 as the record date for the purpose of determining the holders of shares of Dynegy’s common stock, par value $0.01 per share (the “Dynegy Common Stock”) who are entitled to receive notice of, and to vote at, the Dynegy special meeting and any adjournments or postponements of the special meeting, unless a new record date is fixed in connection with an adjournment or postponement of the special meeting. Only holders of record of Dynegy Common Stock at the close of business on the record date are entitled to notice of, and to vote at, the Dynegy special meeting and at any adjournment or postponement of the special meeting.

The Dynegy Board has unanimously (i) determined that it is in the best interest of Dynegy and holders of Dynegy Common Stock to enter into the Merger Agreement, (ii) declared entry into the Merger Agreement to be advisable, (iii) authorized and approved Dynegy’s execution, delivery and performance of the Merger Agreement in accordance with its terms and Dynegy’s consummation of the transactions contemplated thereby, including the Merger, (iv) directed that the adoption of the Merger Agreement be submitted to a vote at a meeting of the holders of Dynegy Common Stock and (v) recommended that the holders of Dynegy Common Stock adopt the Merger Agreement. The Dynegy Board unanimously recommends that holders of Dynegy Common Stock vote “FOR” the Merger Proposal, “FOR” the Dynegy Compensation Proposal and “FOR” the Dynegy Adjournment Proposal.

Your vote is very important, regardless of the number of shares of Dynegy Common Stock you own. The Merger cannot be completed unless stockholders of both Vistra Energy and Dynegy approve certain proposals related to the Merger. Whether or not you plan to attend the Dynegy special meeting, please submit a proxy to vote your shares as promptly as possible to make sure that your shares are represented


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at the special meeting. Properly executed proxy cards with no instructions indicated on the proxy card will be voted “FOR” the Merger Proposal, “FOR” the Dynegy Compensation Proposal and “FOR” the Dynegy Adjournment Proposal. Even if you plan to attend the Dynegy special meeting in person, Dynegy requests that you complete, sign, date and return the enclosed proxy card in the accompanying envelope prior to the special meeting to ensure that your shares will be represented and voted at the special meeting if you are unable to attend.

You may also submit a proxy over the Internet using the Internet address on the enclosed proxy card or by telephone using the toll-free number on the enclosed proxy card. If you submit your proxy through the Internet or by telephone, you will be asked to provide the control number from the enclosed proxy card. If you are not a stockholder of record, but instead hold your shares in “street name” through a broker, bank, trust or other nominee, you must provide a proxy executed in your favor from your broker, bank, trust or other nominee in order to be able to vote in person at the special meeting.

If you do not vote on the Merger Proposal, it will have the same effect as a vote by you against the approval of the Merger Proposal.

If you attend the Dynegy special meeting, you may revoke your proxy and vote in person, even if you have previously returned your proxy card or submitted your proxy through the Internet or by telephone. If your Dynegy shares are held by a broker, bank, trust or other nominee, and you plan to attend the Dynegy special meeting, please bring to the special meeting your statement evidencing your beneficial ownership of your Dynegy shares. Please carefully review the instructions in the enclosed joint proxy statement and prospectus and the enclosed proxy card or the information forwarded by your broker, bank, trust or other nominee regarding each of these options.

January 25, 2018

Houston, Texas

By Order of the Dynegy Board

LOGO

Pat Wood III

Chairman of the Dynegy Board


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ADDITIONAL INFORMATION

This joint proxy statement and prospectus incorporates important business and financial information about Dynegy from other documents that are not included in or delivered with this joint proxy statement and prospectus. This information is available to you without charge upon your request. You can obtain the documents incorporated by reference into this joint proxy statement and prospectus by requesting them from Dynegy as follows:

MacKenzie Partners, Inc.

105 Madison Avenue

New York, NY 10016

Toll Free: (800) 322-2885

Email: proxy@mackenziepartners.com

or

601 Travis Street, Suite 1400

Houston, Texas 77002

Telephone: (713) 507-6466

Attention: Investor Relations

If you would like to request any of the Dynegy documents that are incorporated by reference into this joint proxy statement and prospectus, please do so by February 23, 2018 in order to receive them before the Vistra Energy special meeting and the Dynegy special meeting.

Investors may also consult Vistra Energy’s or Dynegy’s website for more information concerning the Merger and other related transactions described in this joint proxy statement and prospectus. Vistra Energy’s website is www.vistraenergy.com. Dynegy’s website is www.dynegy.com. Each company’s public filings are also available at www.sec.gov. The information contained on Vistra Energy’s and Dynegy’s websites is not part of this joint proxy statement and prospectus. The references to Vistra Energy’s and Dynegy’s websites are intended to be inactive textual references only.

For more information, see “Where You Can Find More Information and Incorporation by Reference” beginning on page 309.

 

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ABOUT THIS JOINT PROXY STATEMENT AND PROSPECTUS

This joint proxy statement and prospectus, which forms part of a registration statement on Form S-4 (Registration Statement No. 333-222049) filed by Vistra Energy with the SEC constitutes a prospectus of Vistra Energy for purposes of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the offering and sale of Vistra Energy Common Stock to be issued to holders of Dynegy Common Stock pursuant to the Merger Agreement, as such agreement may be amended or modified from time to time. This joint proxy statement and prospectus also constitutes a proxy statement for Vistra Energy and Dynegy, respectively, for purposes of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Delaware law. In addition, it constitutes a notice of special meeting to the Vistra Energy stockholders with respect to the Vistra Energy special meeting and a notice of special meeting to the Dynegy stockholders with respect to the Dynegy special meeting.

You should rely only on the information contained in or incorporated by reference into this joint proxy statement and prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this joint proxy statement and prospectus. This joint proxy statement and prospectus is dated January 25, 2018, and you should not assume that the information contained in, or incorporated by reference into, this joint proxy statement and prospectus is accurate as of any date other than that date (or, in the case of documents incorporated by reference, their respective dates). Neither the mailing of this joint proxy statement and prospectus to Vistra Energy’s stockholders or Dynegy’s stockholders nor the Stock Issuance pursuant to the Merger Agreement will create any implication to the contrary.

Certain industry and market data and other statistical information used throughout this joint proxy statement and prospectus are based on independent industry publications, government publications, reports by market research firms or other published independent sources, including certain data published by ERCOT, the PUCT and NYMEX. Neither Vistra Energy nor Dynegy commissioned any of these publications, reports or other sources.

Some Vistra Energy-related data is also based on good faith estimates, which are derived from Vistra Energy’s review of internal surveys, as well as the independent sources listed above. Industry publications, reports and other sources generally state that they have obtained information from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. While Vistra Energy and Dynegy believe that each of these publications, reports and other sources is reliable, neither party has independently investigated or verified the information contained or referred to therein or makes any representation as to the accuracy or completeness of such information. Forecasts are particularly likely to be inaccurate, especially over long periods of time, and what assumptions were used in preparing such forecasts are often unknown. Statements regarding industry and market data and other statistical information used throughout this joint proxy statement involve risks and uncertainties and are subject to change based on various factors, including those discussed under the headings “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.”

This joint proxy statement and prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or to any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in this joint proxy statement and prospectus regarding Vistra Energy has been provided by Vistra Energy and information contained in this joint proxy statement and prospectus regarding Dynegy has been provided by Dynegy.

 

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TABLE OF CONTENTS

 

DEFINED TERMS

     1  

QUESTIONS AND ANSWERS

     7  

SUMMARY

     17  

The Companies

     17  

The Merger

     18  

Recommendation of the Vistra Energy Board and Its Reasons for the Merger

     18  

Dynegy’s Reasons for the Merger; Recommendation of the Dynegy Board

     18  

Opinion of Vistra Energy’s Financial Advisor

     19  

Opinions of Dynegy’s Financial Advisors

     19  

Interests of Vistra Energy’s Directors and Executive Officers in the Merger

     21  

Interests of Dynegy’s Directors and Executive Officers in the Merger

     21  

Directors and Management of the Combined Company After the Merger

     21  

The Merger Consideration and Exchange Ratio

     21  

Termination of the Merger Agreement, Termination Fees and Expense Amounts

     23  

Regulatory Approvals Required to Complete the Merger

     24  

Litigation Relating to the Merger

     24  

Material U.S. Federal Income Tax Consequences

     24  

The Vistra Energy Special Meeting

     24  

Proposals Submitted to the Vistra Energy Stockholders

     25  

The Dynegy Special Meeting

     25  

Proposals Submitted to the Dynegy Stockholders

     25  

Listing of Vistra Energy Common Stock and Deregistration of Dynegy Common Stock

     25  

Anticipated Accounting Treatment

     25  

No Appraisal Rights and Dissenters’ Rights

     25  

Comparison of Rights of Vistra Energy Stockholders and Dynegy Stockholders

     25  

Summary of Risk Factors Related to the Merger

     26  

RISK FACTORS

     35  

Risks Related to the Merger

     35  

Risks Related to Vistra Energy

     42  

Risks Related to Dynegy

     60  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     61  

THE MERGER

     64  

General

     64  

Background of the Merger

     64  

Recommendation of the Vistra Energy Board and Its Reasons for the Merger

     78  

Dynegy’s Reasons for the Merger; Recommendation of the Dynegy Board

     82  

Opinion of Vistra Energy’s Financial Advisor

     88  

Opinions of Dynegy’s Financial Advisors

     96  

Certain Unaudited Prospective Financial Information Prepared by Vistra Energy

     117  

Certain Unaudited Prospective Financial Information Prepared by Dynegy

     120  

Interests of Vistra Energy’s Directors and Executive Officers in the Merger

     125  

Interests of Dynegy’s Directors and Executive Officers in the Merger

     126  

Directors and Management of the Combined Company After the Merger

     132  

Regulatory Approvals Required to Complete the Merger

     132  

Listing of Vistra Energy Common Stock and Deregistration of Dynegy Common Stock

     135  

Anticipated Accounting Treatment

     135  

No Appraisal Rights and Dissenters’ Rights

     135  

THE MERGER AGREEMENT

     136  

Effect of the Merger on Capital Stock

     136  

Procedures for Surrendering Dynegy Stock

     137  

 

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Treatment of Dynegy Stock Options, RSUs, PSUs, Phantom Stock Units and Stock Deferral Accounts

     138  

Post-Merger Governance of Vistra Energy; Headquarters

     139  

Completion of the Merger

     139  

Conditions to Completion of the Merger

     139  

Representations and Warranties

     142  

Conduct of Business Prior to Closing

     143  

Non-Solicitation of Alternative Acquisition Proposals

     146  

Change of Board Recommendations or Termination of Merger Agreement for Superior Offer

     148  

Commercially Reasonable Efforts to Obtain Required Stockholder Approvals

     150  

Reasonable Best Efforts to Obtain Required Regulatory Approvals

     150  

Employee Benefits Matters

     151  

Financing

     152  

Other Covenants and Agreements

     152  

Termination of the Merger Agreement

     154  

Effect of Termination; Termination Fees and Expense Reimbursement

     155  

AGREEMENTS RELATED TO THE MERGER

     158  

The Merger Support Agreements

     158  

The Oaktree Letter Agreement

     158  

LITIGATION RELATING TO THE MERGER

     160  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

     161  

THE VISTRA ENERGY SPECIAL MEETING

     164  

Date, Time, Place and Purpose of the Vistra Energy Special Meeting

     164  

Recommendation of the Vistra Energy Board

     164  

Record Date; Voting Rights; Proxies

     164  

PROPOSALS SUBMITTED TO THE VISTRA ENERGY STOCKHOLDERS

     168  

Merger Proposal

     168  

Stock Issuance Proposal

     168  

Vistra Energy Adjournment Proposal

     169  

THE DYNEGY SPECIAL MEETING

     171  

Date, Time, Place and Purpose of the Dynegy Special Meeting

     171  

PROPOSALS SUBMITTED TO THE DYNEGY STOCKHOLDERS

     175  

Merger Proposal

     175  

Dynegy Compensation Proposal

     175  

Dynegy Adjournment Proposal

     176  

INFORMATION ABOUT DYNEGY

     177  

Business

     177  

Portfolio

     178  

INFORMATION ABOUT VISTRA ENERGY

     180  

Business

     180  

Quantitative and Qualitative Disclosures About Market Risk

     200  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     203  

Executive Summary

     237  

Certain Relationships and Related Party Transactions

     271  

Vistra Energy Board Composition and Director Independence

     276  

INFORMATION ABOUT THE COMBINED COMPANY FOLLOWING THE MERGER

     278  

Business and Portfolio

     278  

Directors and Management Following the Merger

     278  

DESCRIPTION OF VISTRA ENERGY CAPITAL STOCK

     282  

COMPARISON OF RIGHTS OF VISTRA ENERGY STOCKHOLDERS AND DYNEGY STOCKHOLDERS

     288  

COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION

     296  

 

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COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED PER SHARE FINANCIAL INFORMATION

     297  

PRINCIPAL AND MANAGEMENT STOCKHOLDERS OF VISTRA ENERGY

     298  

PRINCIPAL AND MANAGEMENT STOCKHOLDERS OF DYNEGY

     302  

EXPERTS

     306  

LEGAL MATTERS

     307  

STOCKHOLDER OR STOCKHOLDER PROPOSALS

     308  

WHERE YOU CAN FIND MORE INFORMATION AND INCORPORATION BY REFERENCE

     309  

MULTIPLE STOCKHOLDERS OR STOCKHOLDERS SHARING ONE ADDRESS

     311  

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION

     312  

INDEX TO VISTRA ENERGY’S FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

     F-1  

ANNEX A: Agreement and Plan of Merger

     A-1  

ANNEX B: Opinion of Citigroup Global Markets Inc. (Vistra Energy’s Financial Advisor)

     B-1  

ANNEX C: Opinion of Morgan Stanley & Co. LLC (Dynegy’s Financial Advisor)

     C-1  

ANNEX D: Opinion of PJT Partners LP (Dynegy’s Financial Advisor)

     D-1  

 

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DEFINED TERMS

Unless stated otherwise, when the following terms and abbreviations appear in the text of this joint proxy statement and prospectus, they have the meanings indicated below:

 

Apollo Entities    collectively, certain affiliates of Apollo Management Holdings L.P.
Brookfield Entities    collectively, certain affiliates of Brookfield Asset Management Private Institutional Capital Adviser (Canada), L.P.
CAISO    the California Independent System Operator.
CCGT    combined cycle gas turbine.
CFTC    United States Commodity Futures Trading Commission.
Chapter 11 Cases    cases being heard in the US Bankruptcy Court for the District of Delaware (Bankruptcy Court) concerning voluntary petitions for relief under Chapter 11 of the US Bankruptcy Code (Bankruptcy Code) filed on April 29, 2014 by the Debtors. On the Plan Effective Date, the TCEH Debtors (together with the Contributed EFH Debtors) emerged from the Chapter 11 Cases.
CME    Chicago Mercantile Exchange.
CO2    carbon dioxide.
Code    the Internal Revenue Code of 1986, as amended.
Contributed EFH Debtors    certain EFH Debtors that became subsidiaries of Vistra Energy on the Plan Effective Date.
CSAPR    Cross-State Air Pollution Rule issued by the EPA in July 2011.
Debtors    EFH Corp. and the majority of its direct and indirect subsidiaries, including EFIH, EFCH and TCEH but excluding the Oncor Ring-Fenced Entities. Prior to the Plan Effective Date, also included the TCEH Debtors and the Contributed EFH Debtors.
Delta Transaction    Dynegy’s acquisition, completed on February 7, 2017, through Dynegy’s indirect wholly owned subsidiary Atlas Power Finance, LLC, of the GSENA Thermal Assets from International Power S.A.
DGCL    Delaware General Corporation Law.
DIP Facility    TCEH’s $3.375 billion debtor-in-possession financing facility, which was repaid in August 2016.
DIP Roll Facilities    TCEH’s $4.250 billion debtor-in-possession and exit financing facilities, which was converted to the Vistra Operations Credit Facilities on the Plan Effective Date.
Dynegy    Dynegy Inc., and/or its subsidiaries, depending on context.
Dynegy Adjournment Proposal    the proposal to approve the adjournment of the Dynegy special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Merger Proposal.
Dynegy Board    the board of directors of Dynegy.
Dynegy Common Stock    the common stock, par value $0.01 per share, of Dynegy.

 

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Dynegy Compensation Proposal    the non-binding advisory proposal to approve compensation arrangements for certain Dynegy executive officers in connection with the Merger Agreement, the Merger and the transactions contemplated by the Merger Agreement.
Dynegy Investor Rights Agreement    the investor rights agreement, dated as of February 8, 2017, by and between Dynegy and Terawatt, as amended on September 5, 2017.
Dynegy Stockholder Support Agreements    collectively, the Merger Support Agreement, dated as of October 29, 2017, by and between Vistra Energy and certain affiliates of Oaktree and the Merger Support Agreement, dated as of October 29, 2017, by and between Vistra Energy and Terawatt.
EFCH    Energy Future Competitive Holdings Company LLC, a direct, wholly owned subsidiary of EFH Corp. and, prior to the Plan Effective Date, the indirect parent of the TCEH Debtors, depending on context.
EFH Corp.    Energy Future Holdings Corp. and/or its subsidiaries, depending on context, whose major subsidiaries include Oncor and, prior to the Plan Effective Date, included the TCEH Debtors and the Contributed EFH Debtors.
EFH Debtors    EFH Corp. and its subsidiaries that are Debtors in the Chapter 11 Cases, including EFIH and EFIH Finance Inc., but excluding the TCEH Debtors and the Contributed EFH Debtors.
EFH Shared Services Debtors    collectively: (a) EFH Corporate Services; (b) Dallas Power and Light Company, Inc.; (c) EFH CG Holdings Company LP; (d) EFH CG Management Company LLC; (e) Lone Star Energy Company, Inc.; (f) Lone Star Pipeline Company, Inc.; (g) Southwestern Electric Service Company, Inc.; (h) Texas Electric Service Company, Inc.; (i) Texas Energy Industries Company, Inc.; (j) Texas Power and Light Company, Inc.; (k) Texas Utilities Company, Inc.; (l) Texas Utilities Electric Company, Inc.; and (m) TXU Electric Company, Inc.
EFIH    Energy Future Intermediate Holding Company LLC, a direct, wholly owned subsidiary of EFH Corp. and the direct parent of Oncor Holdings.
Emergence    emergence of the TCEH Debtors and the Contributed EFH Debtors from the Chapter 11 Cases as subsidiaries of a newly formed company, Vistra Energy, on the Plan Effective Date.
EPA    U.S. Environmental Protection Agency.
ERCOT    Electric Reliability Council of Texas, Inc., the ISO and the regional coordinator of various electricity systems within Texas.
Exchange Act    Securities Exchange Act of 1934, as amended.
Exchange Ratio    0.652 validly issued, fully paid and nonassessable shares of Vistra Energy Common Stock per share of Dynegy Common Stock.
Federal and State Income Tax Allocation Agreements    prior to the Plan Effective Date, EFH Corp. and certain of its subsidiaries (including EFCH, EFIH and TCEH, but not including Oncor Holdings and Oncor) were parties to a Federal and State Income Tax Allocation Agreement, executed in May 2012 but effective as of January 2010. The Agreement was rejected by the TCEH Debtors and the Contributed EFH Debtors on the Plan Effective Date.
FERC    U.S. Federal Energy Regulatory Commission.

 

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GAAP    generally accepted accounting principles.
GHG    greenhouse gas.
GSENA    GDF SUEZ Energy North America, Inc.
GSENA Thermal Assets    carved-out assets of GSENA that Dynegy acquired on February 7, 2017 pursuant to the Delta Transaction.
GW    gigawatt.
GWh    gigawatt-hours.
HSR Act    Hart-Scott-Rodino Antitrust Improvements Act of 1976.
IPH    IPH, LLC.
IPP    independent power producer.
IRS    U.S. Internal Revenue Service.
ISO    independent system operator.
ISO-NE    Independent System Operator New England.
LIBOR    London Interbank Offered Rate, an interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market.
load    demand to electricity.
Luminant    certain subsidiaries of Vistra Energy engaged in competitive market activities consisting of electricity generation and wholesale energy sales and purchases as well as commodity risk management, all largely in Texas.
market heat rate    heat rate is a measure of the efficiency of converting a fuel source to electricity. Market heat rate is the implied relationship between wholesale electricity prices and natural gas prices and is calculated by dividing the wholesale market price of electricity, which is based on the price offer of the marginal supplier in ERCOT (generally natural gas plants), by the market price of natural gas.
Merger    the proposed merger of Dynegy with and into Vistra Energy, with Vistra Energy as the surviving corporation.
Merger Agreement    the Agreement and Plan of Merger, dated as of October 29, 2017, by and between Vistra Energy and Dynegy, as it may be amended or modified from time to time, a copy of which is attached as Annex A to this joint proxy statement and prospectus.
Merger Proposal    the proposal by each of Vistra Energy and Dynegy to adopt the Merger Agreement.
MISO    Midcontinent Independent System Operator, Inc.
MMBtu    million British thermal units.
MW    megawatts.
MWh    megawatt-hours.
NERC    North American Electricity Reliability Corporation.
NOx    nitrogen oxide.

 

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NYISO    New York Independent System Operator.
NY/NE    ISO-NE/NYISO.
NYMEX    New York Mercantile Exchange, a commodity derivatives exchange.
NYPSC    New York Public Service Commission.
NYSE    New York Stock Exchange.
NRC    U.S. Nuclear Regulatory Commission.
Oaktree Entities    collectively, certain affiliates of Oaktree Capital Management, L.P.
Oncor    Oncor Electric Delivery Company LLC, a direct, majority-owned subsidiary of Oncor Holdings and an indirect subsidiary of EFH Corp., that is engaged in regulated electricity transmission and distribution activities.
Oncor Holdings    Oncor Electric Delivery Holdings Company LLC, a direct, wholly owned subsidiary of EFIH and the direct majority owner of Oncor, and/or its subsidiaries, depending on context.
ORDC    Operating Reserve Demand Curve, pursuant to which wholesale electricity prices in the ERCOT real-time market increase automatically as available operating reserves decrease below defined threshold levels.
PJM    PJM Interconnection, LLC.
Plan Effective Date    October 3, 2016, the date the TCEH Debtors and the Contributed EFH Debtors completed their reorganization under the Bankruptcy Code and emerged from the Chapter 11 Cases.
Plan of Reorganization or Plan    Third Amended Joint Plan of Reorganization filed by the Debtors in August 2016 and confirmed by the Bankruptcy Court in August 2016 solely with respect to the TCEH Debtors and the Contributed EFH Debtors.
PPAs    power purchase agreements.
PrefCo    Vistra Preferred Inc.
PrefCo Preferred Stock Sale    as part of the Spin-Off, the contribution of certain of the assets of the Predecessor and its subsidiaries by a subsidiary of TEX Energy LLC to PrefCo in exchange for all of PrefCo’s authorized preferred stock, consisting of 70,000 shares, par value $0.01 per share.
PUCT    Public Utility Commission of Texas.
PURA    Public Utility Regulatory Act.
RCT    Railroad Commission of Texas, which has oversight of lignite mining activity in Texas, among other things.
REP    retail electric provider.
RSU    restricted stock units.
RTO    Regional Transmission Organization.
S&P    Standard & Poor’s Ratings (a credit rating agency).
SEC    U.S. Securities and Exchange Commission.
Securities Act    Securities Act of 1933, as amended.

 

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SG&A    selling, general and administrative.
Settlement Agreement    Amended and Restated Settlement Agreement among the Debtors, the Sponsor Group, settling TCEH first lien creditors, settling TCEH second lien creditors, settling TCEH unsecured creditors and the official committee of unsecured creditors of TCEH (collectively, the Settling Parties), approved by the Bankruptcy Court in December 2015.
SO2    sulfur dioxide.
Spin-Off    the tax-free spin-off from EFH Corp. executed pursuant to the Plan of Reorganization on the Plan Effective Date by the TCEH Debtors and the Contributed EFH Debtors.
Sponsor Group    collectively, certain investment funds affiliated with Kohlberg Kravis Roberts & Co. L.P., TPG Global, LLC (together with its affiliates, TPG) and GS Capital Partners, an affiliate of Goldman, Sachs & Co., that have an ownership interest in Texas Energy Future Holdings Limited Partnership, a limited partnership controlled by the Sponsor Group, that owns substantially all of the common stock of EFH Corp.
Stock Issuance    the issuance of Vistra Energy Common Stock to holders of Dynegy Common Stock, in connection with the Merger, as contemplated by the Merger Agreement.
Stock Issuance Proposal    the proposal by Vistra Energy to approve the Stock Issuance.
Tax Matters Agreement    Tax Matters Agreement, dated as of the Plan Effective Date, by and among EFH Corp., EFIH, EFIH Finance Inc. and EFH Merger Co. LLC.
Tax Receivable Agreement    Tax Receivable Agreement, containing certain rights (TRA Rights) to receive payments from Vistra Energy related to certain tax benefits, including those it realized as a result of certain transactions entered into at Emergence.
TCEH or Predecessor    Texas Competitive Electric Holdings Company LLC, a direct, wholly owned subsidiary of EFCH, and, prior to the Plan Effective Date, the parent company of the TCEH Debtors, depending on context, that were engaged in electricity generation and wholesale and retail energy market activities, and whose major subsidiaries included Luminant and TXU Energy.
TCEH Debtors    the subsidiaries of TCEH that were Debtors in the Chapter 11 Cases.
TCEH Senior Secured Facilities    collectively, the TCEH First Lien Term Loan Facilities, TCEH First Lien Revolving Credit Facility and TCEH First Lien Letter of Credit Facility with a total principal amount of $22.616 billion. The claims arising under these facilities were discharged in the Chapter 11 Cases on the Plan Effective Date pursuant to the Plan of Reorganization.
TCEQ    Texas Commission on Environmental Quality.
Terawatt    Terawatt Holdings, LP, a Delaware limited partnership affiliated with Energy Capital Partners III, LLC.
TRA Payment    an amount payable in accordance with the Tax Receivable Agreement.
TWh    terawatt-hours.
TXU Energy    TXU Energy Retail Company LLC, a direct, wholly owned subsidiary of Vistra Energy that is a REP in competitive areas of ERCOT and is engaged in the retail sale of electricity to residential and business customers.

 

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U.S. or United States    United States of America.
Vistra Energy or Successor    Vistra Energy Corp., formerly known as TCEH Corp., and/or its subsidiaries, depending on context. On the Plan Effective Date, the TCEH Debtors and the Contributed EFH Debtors emerged from Chapter 11 and became subsidiaries of Vistra Energy Corp.
Vistra Energy Adjournment Proposal    the proposal to approve the adjournment of the Vistra Energy special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Merger Proposal and the Stock Issuance Proposal.
Vistra Energy Board    the board of directors of Vistra Energy.
Vistra Energy Common Stock    the common stock, par value $0.01 per share, of Vistra Energy.
Vistra Energy Stockholder Support Agreement    the Merger Support Agreement, dated as of October 29, 2017, by and between Dynegy, the Apollo Entities, the Brookfield Entities and the Oaktree Entities, as it may be amended or modified from time to time.
Vistra Operations Credit Facilities    Vistra Operations Company LLC’s $5.360 billion senior secured financing facilities.
VOLL    value of lost load.

 

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QUESTIONS AND ANSWERS

The following questions and answers are intended to address briefly some commonly asked questions regarding the Merger Agreement, the Merger, the Stock Issuance and the other transactions contemplated by the Merger Agreement. Vistra Energy and Dynegy urge you to read carefully this entire joint proxy statement and prospectus, including the annexes and the other documents referred to or incorporated by reference into this joint proxy statement and prospectus, because the information in this section does not provide all of the information that might be important to you.

About the Merger

 

Q: What are the proposed transactions for which the holders of Vistra Energy Common Stock are being asked to vote?

 

A: The holders of Vistra Energy Common Stock are being asked to consider and vote on the Merger Proposal and the Stock Issuance Proposal. The approval of the Merger Proposal and the Stock Issuance Proposal by the holders of Vistra Energy Common Stock is a condition to the effectiveness of the Merger.

 

Q: What is the proposed transaction for which the holders of Dynegy Common Stock are being asked to vote?

 

A: The holders of Dynegy Common Stock are being asked to consider and vote on the Merger Proposal and the Dynegy Compensation Proposal. The approval of the Merger Proposal by the holders of Dynegy Common Stock is a condition to the effectiveness of the Merger.

 

Q: Why are Vistra Energy and Dynegy proposing the Merger?

 

A: The Vistra Energy Board and the Dynegy Board believe that the Merger will provide a number of significant potential strategic benefits and opportunities that will be in the best interests of their respective stockholders. To review the reasons for the Merger in greater detail, see “The Merger—Recommendation of the Vistra Energy Board and Its Reasons for the Merger” beginning on page 78 and “The Merger—Dynegy’s Reasons for the Merger; Recommendation of the Dynegy Board” beginning on page 82.

 

Q: What happens if the market price of Vistra Energy Common Stock or Dynegy Common Stock changes before the closing of the Merger?

 

A: Changes in the market price of Vistra Energy Common Stock or the market price of Dynegy Common Stock at or prior to the effective time of the Merger will not change the number of shares of Vistra Energy Common Stock that holders of Dynegy Common Stock will receive because the Exchange Ratio is fixed at 0.652 shares of Vistra Energy Common Stock per share of Dynegy Common Stock.

 

Q: Are there any conditions to completion of the Merger?

 

A: Yes. In addition to the approval of the Merger Proposal and the Stock Issuance Proposal, as described herein, there are a number of conditions that must be satisfied or waived for the Merger to be consummated. For a description of all of the conditions to the Merger, see “The Merger Agreement—Conditions to Completion of the Merger” beginning on page 139.

For Vistra Energy Stockholders

 

Q: When and where is the Vistra Energy special meeting?

 

A: The special meeting of Vistra Energy stockholders will be held at 1601 Bryan Street, 11th Floor, Dallas, Texas 75201 on March 2, 2018, starting at 9:00 a.m., Central Time.

 

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Q: What matters will be voted on at the Vistra Energy special meeting?

 

A: You will be asked to consider and vote on the following proposals:

 

    the Merger Proposal;

 

    the Stock Issuance Proposal; and

 

    the Vistra Energy Adjournment Proposal.

Vistra Energy will transact no other business at the Vistra Energy special meeting or any adjournment or postponement thereof.

 

Q: How does the Vistra Energy Board recommend that I vote on the proposals?

 

A: After careful consideration, the Vistra Energy Board (i) determined that it is in the best interest of Vistra Energy and the holders of Vistra Energy Common Stock to enter into the Merger Agreement, (ii) declared entry into the Merger Agreement to be advisable, (iii) authorized and approved Vistra Energy’s execution, delivery and performance of the Merger Agreement in accordance with its terms and Vistra Energy’s consummation of the transactions contemplated thereby, including the Merger and the Stock Issuance, (iv) directed that the adoption of the Merger Agreement and the approval of the Stock Issuance be submitted to a vote at a meeting of the holders of Vistra Energy Common Stock and (v) recommended that the holders of Vistra Energy Common Stock adopt the Merger Agreement and approve the Stock Issuance. The Vistra Energy Board recommends that holders of Vistra Energy Common Stock vote “FOR” the Merger Proposal, “FOR” the Stock Issuance Proposal and “FOR” the Vistra Energy Adjournment Proposal. For a more complete description of the recommendation of the Vistra Energy Board, see “The Merger—Recommendation of the Vistra Energy Board and Its Reasons for the Merger” beginning on page 78.

 

Q: What will happen to my shares of Vistra Energy Common Stock?

 

A: Nothing. You will continue to own the same shares of Vistra Energy Common Stock that you own prior to the effective time of the Merger. As a result of the Stock Issuance, however, the overall ownership percentage of the Vistra Energy stockholders in the combined company will be diluted.

 

Q: Do the Vistra Energy directors and executive officers have any interests in the Merger?

 

A: Yes. In connection with the consummation of the Merger, Vistra Energy’s directors and executive officers have interests in the Merger that may be different from, or in addition to, those of the stockholders of Vistra Energy generally. The Vistra Energy Board was aware of these interests and considered them, among other things, in reaching its decision to approve the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, including the Stock Issuance. These interests are described in more detail in “The Merger—Interests of Vistra Energy’s Directors and Executive Officers in the Merger” beginning on page 125.

 

Q: What constitutes a quorum?

 

A: Vistra Energy’s bylaws provide that a majority of the voting power of the stock outstanding and entitled to vote at the Vistra Energy special meeting, present in person or represented by proxy, shall constitute a quorum at each meeting of Vistra Energy stockholders.

 

Q: What vote is required for holders of Vistra Energy Common Stock to approve the Merger Proposal?

 

A: Approval of the Merger Proposal will require the affirmative vote of the holders of a majority of the outstanding Vistra Energy Common Stock entitled to vote at the Vistra Energy special meeting, which is the only vote of holders of securities of Vistra Energy required for such approval. Only holders of Vistra Energy Common Stock at the close of business on the record date will be entitled to vote on the Merger Proposal.

 

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Q: What vote is required for Vistra Energy stockholders to approve the Stock Issuance Proposal?

 

A: Approval of the Stock Issuance Proposal by a majority of the votes cast on such proposal at the Vistra Energy special meeting, as required by Sections 312.03(b), 312.03(c) and 312.07 of the NYSE Listed Company Manual, is the only vote of holders of securities of Vistra Energy required for such approval. Only holders of Vistra Energy Common Stock at the close of business on the record date will be entitled to vote on the Stock Issuance Proposal.

 

Q: What vote is required for Vistra Energy stockholders to approve the Vistra Energy Adjournment Proposal?

 

A: Approval of the Vistra Energy Adjournment Proposal will require the affirmative vote of the holders of a majority of the Vistra Energy Common Stock present in person or represented by proxy and entitled to vote at the Vistra Energy special meeting, which is the only vote of holders of securities of Vistra Energy required for such approval. Only holders of Vistra Energy Common Stock at the close of business on the record date will be entitled to vote on the Vistra Energy Adjournment Proposal.

 

Q: How are votes counted?

 

A: For the Merger Proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN.” If you abstain or fail to return your proxy card, or fail to instruct your broker, bank, trust or other nominee to vote, it will have the same effect as a vote “AGAINST” the Merger Proposal.

For the Stock Issuance Proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN.” For purposes of the Stock Issuance Proposal, provided a quorum is present, a failure to vote, or a failure to instruct your bank, broker, trust or other nominee to vote, will have no effect on the outcome of a vote on the Stock Issuance Proposal. Under the NYSE rules, an abstention from voting will be considered as a vote cast and, accordingly, will have the same effect as a vote “AGAINST” the Stock Issuance Proposal.

For the Vistra Energy Adjournment Proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN.” For purposes of the Vistra Energy Adjournment Proposal, provided a quorum is present, a failure to vote, or a failure to instruct your bank, broker, trust or other nominee to vote, will have no effect on the outcome of a vote on the Vistra Energy Adjournment Proposal. An abstention from voting will have the same effect as a vote “AGAINST” the Vistra Energy Adjournment Proposal.

Properly executed proxy cards with no instructions indicated on the proxy card will be voted “FOR” the Merger Proposal, “FOR” the Stock Issuance Proposal and “FOR” the Vistra Energy Adjournment Proposal.

 

Q: Who is entitled to vote at the Vistra Energy special meeting?

 

A: All holders of Vistra Energy Common Stock as of the close of business on January 19, 2018, the record date for the Vistra Energy special meeting, are entitled to vote at the Vistra Energy special meeting, unless a new record date is fixed for any adjournment or postponement of the Vistra Energy special meeting. As of the record date, there were 428,425,233 issued and outstanding shares of Vistra Energy Common Stock. Each holder of record of Vistra Energy Common Stock on the record date is entitled to one vote per share.

 

Q: What happens if I sell my Vistra Energy Common Stock before the Vistra Energy special meeting?

 

A: The record date for the Vistra Energy special meeting is earlier than the date of the Vistra Energy special meeting. If you sell your shares of Vistra Energy Common Stock after Vistra Energy’s record date but before the date of the Vistra Energy special meeting, you will retain any right to vote at the Vistra Energy special meeting.

 

Q: How do I submit a proxy or vote my shares?

 

A: You may submit your proxy either by telephone, through the Internet or by mailing the enclosed proxy card, or you may vote in person at the Vistra Energy special meeting. If you hold your shares in more than one account, please be sure to submit a proxy with respect to each proxy card you receive.

 

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To submit your proxy by telephone, dial the toll-free telephone number set forth on the enclosed proxy card using a touch tone phone and follow the recorded instructions. You will be asked to provide the control number from the enclosed proxy card.

To submit your proxy through the Internet, visit the website set forth on the enclosed proxy card. You will be asked to provide the control number from the enclosed proxy card.

Your proxy card will indicate the deadline for submitting proxies by telephone or through the Internet.

To submit your proxy by mail, complete, date and sign the enclosed proxy card and return it as promptly as practicable in the enclosed prepaid envelope. If you sign and return your proxy card, but do not mark the boxes showing how you wish to vote, your shares will be voted “FOR” the Merger Proposal, “FOR” the Stock Issuance Proposal and “FOR” the Vistra Energy Adjournment Proposal.

Stockholders of record will be able to vote in person at the Vistra Energy special meeting. If you intend to vote in person, please bring proper identification, together with proof that you are a record owner of shares. If you are not a stockholder of record, but instead hold your shares in “street name” through a broker, bank, trust or other nominee, you must provide a proxy executed in your favor from your broker, bank, trust or other nominee in order to be able to vote in person at the Vistra Energy special meeting. For more information, please read the question and answer referencing “street name” shares below.

 

Q: If my shares are held in “street name” by my broker, bank, trust or other nominee, will my broker, bank, trust or other nominee vote my shares for me?

 

A: No. Unless you instruct your broker, bank, trust or other nominee to vote your shares held in street name, your shares will NOT be voted. If you hold your shares in a stock brokerage account or if your shares are held by a broker, bank, trust or other nominee (that is, in “street name”), you must provide your broker, bank, trust or other nominee with instructions on how to vote your shares. You should follow the procedures provided by your broker, bank, trust or other nominee regarding the voting of your shares.

 

Q: How can I revoke or change my vote?

 

A: You may revoke your proxy at any time before the vote is taken at the Vistra Energy special meeting in any of the following ways:

 

    submitting a later proxy by telephone or through the Internet prior to the telephone or Internet voting deadline indicated on your proxy card;

 

    filing with the Corporate Secretary of Vistra Energy, before the taking of the vote at the Vistra Energy special meeting, a written notice of revocation bearing a later date than the proxy card you wish to revoke;

 

    duly executing a later dated proxy card relating to the same shares and delivering it to the Corporate Secretary of Vistra Energy before the taking of the vote at the Vistra Energy special meeting; or

 

    voting in person at the Vistra Energy special meeting.

Your attendance at the Vistra Energy special meeting does not automatically revoke your previously submitted proxy. If you have instructed your broker, bank, trust or other nominee to vote your shares, the options described above for revoking your proxy do not apply. Instead, you must follow the directions provided by your broker, bank, trust or other nominee to change your vote.

 

Q: Will a proxy solicitor be used?

 

A:

Yes. Vistra Energy has engaged D.F. King & Co., Inc. to assist in the solicitation of proxies for the Vistra Energy special meeting, and Vistra Energy estimates it will pay D.F. King & Co., Inc. a fee of approximately $12,500, plus telecom charges and reimbursement for reasonable out-of-pocket expenses and disbursements incurred in connection with the proxy solicitation. Vistra Energy has also agreed to

 

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  indemnify D.F. King & Co., Inc. against certain losses, costs and expenses. In addition to mailing proxy solicitation material, Vistra Energy’s directors, officers and employees may also solicit proxies in person, by telephone or by any other electronic means of communication deemed appropriate. No additional compensation will be paid to Vistra Energy’s directors, officers or employees for such services.

 

Q: What else do I need to do now?

 

A: You are urged to read this joint proxy statement and prospectus carefully and in its entirety, including its annexes and the information incorporated by reference herein, and to consider how the Merger may affect you. Even if you plan to attend the Vistra Energy special meeting, please vote promptly.

For Dynegy Stockholders

 

Q: What will I receive for my Dynegy Common Stock in the Merger?

 

A: Under the terms of the Merger Agreement, you will receive 0.652 shares of Vistra Energy Common Stock for each share of Dynegy Common Stock owned by you immediately prior to the completion of the Merger.

 

Q: How will I receive the merger consideration if the Merger is completed?

 

A: For the Dynegy stockholders, you will receive a letter of transmittal with detailed written instructions for exchanging shares for the merger consideration. If you are not a stockholder of record, but instead hold your shares in “street name” through a broker, bank, trust or other nominee, you will receive instructions from your broker, bank, trust or other nominee as to how to effect the surrender of your “street name” shares in exchange for the merger consideration.

 

Q: When and where is the Dynegy special meeting?

 

A: The special meeting of Dynegy stockholders will be held at the Chase Center, 601 Travis Street, Houston, Texas 77002 on March 2, 2018, starting at 10:00 a.m., Central Time.

 

Q: What matters will be voted on at the Dynegy special meeting?

 

A: You will be asked to consider and vote on the following proposals:

 

    the Merger Proposal;

 

    the Dynegy Compensation Proposal; and

 

    the Dynegy Adjournment Proposal.

Dynegy will transact no other business at the Dynegy special meeting or any adjournment or postponement thereof.

 

Q: How does the Dynegy Board recommend that I vote on the proposals?

 

A:

The Dynegy Board has unanimously (i) determined that it is in the best interest of Dynegy and holders of Dynegy Common Stock to enter into the Merger Agreement, (ii) declared entry into the Merger Agreement to be advisable, (iii) authorized and approved Dynegy’s execution, delivery and performance of the Merger Agreement in accordance with its terms and Dynegy’s consummation of the transactions contemplated thereby, including the Merger, (iv) directed that the adoption of the Merger Agreement be submitted to a vote at a meeting of the holders of Dynegy Common Stock and (v) recommended that the holders of Dynegy Common Stock adopt the Merger Agreement. The Dynegy Board unanimously recommends that

 

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  holders of Dynegy Common Stock vote “FOR” the Merger Proposal, “FOR” the Dynegy Compensation Proposal and “FOR” the Dynegy Adjournment Proposal. For a more complete description of the recommendation of the Dynegy Board, see “The Merger—Dynegy’s Reasons for the Merger; Recommendation of the Dynegy Board” beginning on page 82.

 

Q: Do the Dynegy directors and executive officers have any interests in the Merger?

 

A: Yes. In connection with the consummation of the Merger, Dynegy’s directors and executive officers have interests in the Merger that may be different from, or in addition to, those of the stockholders of Dynegy generally. The Dynegy Board was aware of these interests and considered them, among other things, in reaching its decision to approve the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement. These interests are described in more detail in “The Merger—Interests of Dynegy’s Directors and Executive Officers in the Merger” beginning on page 126.

 

Q: What constitutes a quorum?

 

A: Dynegy’s bylaws provide that a majority of the outstanding shares entitled to vote at a meeting, represented in person or by proxy, shall constitute a quorum.

 

Q: What vote is required for Dynegy stockholders to approve the Merger Proposal?

 

A: Approval of the Merger Proposal will require the affirmative vote of the holders of a majority of the outstanding Dynegy Common Stock entitled to vote at the Dynegy special meeting, which is the only vote of holders of securities of Dynegy that is required to approve the Merger Proposal. Only holders of Dynegy Common Stock at the close of business on the record date will be entitled to vote on the Merger Proposal.

 

Q: What vote is required for Dynegy stockholders to approve the Dynegy Compensation Proposal?

 

A: Approval of the Dynegy Compensation Proposal, which is a non-binding, advisory vote, will require the affirmative vote of the holders of a majority of the Dynegy Common Stock present in person or represented by proxy and entitled to vote at the Dynegy special meeting, which is the only vote of holders of securities of Dynegy required for such approval. Only holders of Dynegy Common Stock at the close of business on the record date will be entitled to vote on the Dynegy Compensation Proposal.

 

Q: What vote is required for Dynegy stockholders to approve the Dynegy Adjournment Proposal?

 

A: Approval of the Dynegy Adjournment Proposal will require the affirmative vote of the holders of a majority of the Dynegy Common Stock present in person or represented by proxy and entitled to vote at the Dynegy special meeting, which is the only vote of holders of securities of Dynegy required for such approval. Only holders of Dynegy Common Stock at the close of business on the record date will be entitled to vote on the Dynegy Adjournment Proposal.

 

Q: How are votes counted?

 

A: For the Merger Proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN.” If you abstain or fail to return your proxy card, or fail to instruct your broker, bank, trust or other nominee to vote, it will have the same effect as a vote “AGAINST” the Merger Proposal.

For the Dynegy Compensation Proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN.” For purposes of the Dynegy Compensation Proposal, provided a quorum is present, a failure to vote, or a failure to instruct your bank, broker, trust or other nominee to vote, will have no effect on the outcome of a vote on the Dynegy Compensation Proposal. An abstention from voting will have the same effect as a vote “AGAINST” the Dynegy Compensation Proposal.

 

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For the Dynegy Adjournment Proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN.” For purposes of the Dynegy Adjournment Proposal, provided a quorum is present, a failure to vote, or a failure to instruct your bank, broker, trust or other nominee to vote, will have no effect on the outcome of a vote on the Dynegy Adjournment Proposal. An abstention from voting will have the same effect as a vote “AGAINST” the Dynegy Adjournment Proposal.

Properly executed proxy cards with no instructions indicated on the proxy card will be voted “FOR” the Merger Proposal, “FOR” the Dynegy Compensation Proposal and “FOR” the Dynegy Adjournment Proposal.

 

Q: Who is entitled to vote at the Dynegy special meeting?

 

A: All holders of Dynegy Common Stock as of the close of business on January 19, 2018, the record date for the Dynegy special meeting, are entitled to vote at the Dynegy special meeting, unless a new record date is fixed for any adjournment or postponement of the Dynegy special meeting. As of the record date, there were 144,384,491 issued and outstanding shares of Dynegy Common Stock. Each holder of record of Dynegy Common Stock on the record date is entitled to one vote per share.

 

Q: What happens if I sell my Dynegy Common Stock before the Dynegy special meeting?

 

A: The record date for the Dynegy special meeting is earlier than the date of the Dynegy special meeting and the date that the Merger is expected to be completed. If you sell your Dynegy Common Stock after Dynegy’s record date but before the date of the Dynegy special meeting, you will retain any right to vote at the Dynegy special meeting, but you will have transferred your right to receive the merger consideration. For Dynegy stockholders, in order to receive the merger consideration, you must hold your Dynegy Common Stock through completion of the Merger.

 

Q: How do I submit a proxy or vote my shares?

 

A: You may submit your proxy either by telephone, through the Internet or by mailing the enclosed proxy card, or you may vote in person at the Dynegy special meeting. If you hold your shares in more than one account, please be sure to submit a proxy with respect to each proxy card you receive.

To submit your proxy by telephone, dial the toll-free telephone number set forth on the enclosed proxy card using a touch tone phone and follow the recorded instructions. You will be asked to provide the control number from the enclosed proxy card.

To submit your proxy through the Internet, visit the website set forth on the enclosed proxy card. You will be asked to provide the control number from the enclosed proxy card.

Your proxy card will indicate the deadline for submitting proxies by telephone or through the Internet.

To submit your proxy by mail, complete, date and sign the enclosed proxy card and return it as promptly as practicable in the enclosed prepaid envelope. If you sign and return your proxy card, but do not mark the boxes showing how you wish to vote, your shares will be voted “FOR” the Merger Proposal, “FOR” the Dynegy Compensation Proposal and “FOR” the Dynegy Adjournment Proposal.

Stockholders of record will be able to vote in person at the Dynegy special meeting. If you intend to vote in person, please bring proper identification, together with proof that you are a record owner of shares. If you are not a stockholder of record, but instead hold your shares in “street name” through a broker, bank, trust or other nominee, you must provide a proxy executed in your favor from your broker, bank, trust or other nominee in order to be able to vote in person at the Dynegy special meeting. For more information, please read the question and answer referencing “street name” shares below.

 

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Q: If my shares are held in “street name” by my broker, bank, trust or other nominee, will my broker, bank, trust or other nominee vote my shares for me?

 

A: No. Unless you instruct your broker, bank, trust or other nominee to vote your shares held in street name, your shares will NOT be voted. If you hold your shares in a stock brokerage account or if your shares are held by a broker, bank, trust or other nominee (that is, in “street name”), you must provide your broker, bank, trust or other nominee with instructions on how to vote your shares. You should follow the procedures provided by your broker, bank, trust or other nominee regarding the voting of your shares.

 

Q: How can I revoke or change my vote?

 

A: You may revoke your proxy at any time before the vote is taken at the Dynegy special meeting in any of the following ways:

 

    submitting a later proxy by telephone or through the Internet prior to the telephone or Internet voting deadline indicated on your proxy card;

 

    filing with the Corporate Secretary of Dynegy, before the taking of the vote at the Dynegy special meeting, a written notice of revocation bearing a later date than the proxy card you wish to revoke;

 

    duly executing a later dated proxy card relating to the same shares and delivering it to the Corporate Secretary of Dynegy before the taking of the vote at the Dynegy special meeting; or

 

    voting in person at the Dynegy special meeting.

Your attendance at the Dynegy special meeting does not automatically revoke your previously submitted proxy. If you have instructed your broker, bank, trust or other nominee to vote your shares, the options described above for revoking your proxy do not apply. Instead, you must follow the directions provided by your broker, bank, trust or other nominee to change your vote.

 

Q: Will a proxy solicitor be used?

 

A: Yes. Dynegy has engaged MacKenzie Partners, Inc. to assist in the solicitation of proxies for the Dynegy special meeting, and Dynegy estimates it will pay MacKenzie Partners, Inc. a fee of approximately $35,000 plus reimbursement for reasonable out-of-pocket expenses and disbursements incurred in connection with the proxy solicitation. Dynegy has also agreed to indemnify MacKenzie Partners, Inc. against certain losses, costs and expenses. In addition to mailing proxy solicitation material, Dynegy’s directors, officers and employees may also solicit proxies in person, by telephone or by any other electronic means of communication deemed appropriate. No additional compensation will be paid to Dynegy’s directors, officers or employees for such services.

 

Q: What else do I need to do now?

 

A: You are urged to read this joint proxy statement and prospectus carefully and in its entirety, including its annexes and the information incorporated by reference herein, and to consider how the Merger affects you. Even if you plan to attend the Dynegy special meeting, please vote promptly.

For Both Vistra Energy Stockholders and Dynegy Stockholders

 

Q: When is the Merger expected to be completed?

 

A:

Vistra Energy and Dynegy expect to complete the Merger by the end of the second quarter of 2018, although Vistra Energy and Dynegy cannot assure completion by any particular date, if at all. Because the Merger is subject to a number of conditions, including regulatory approvals and the approval of the Merger Proposal and the Stock Issuance Proposal by the requisite vote of the holders of Vistra Energy Common

 

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  Stock and the approval of the Merger Proposal by the holders of Dynegy Common Stock, the exact timing of the Merger cannot be determined at this time and Vistra Energy and Dynegy cannot guarantee that the Merger will be completed at all.

 

Q: Following the Merger, what percentage of Vistra Energy Common Stock will the continuing Vistra Energy stockholders and former Dynegy stockholders own?

 

A: Following the completion of the Merger:

 

    continuing holders of Vistra Energy Common Stock are expected to own 79% of the combined company’s fully diluted equity; and

 

    former holders of Dynegy Common Stock are expected to own the remaining 21% of the combined company’s fully diluted equity.

 

Q: What happens if the Merger is not completed?

 

A: If the Merger Proposal and the Stock Issuance Proposal are not approved by holders of Vistra Energy Common Stock, if the Merger Proposal is not approved by holders of Dynegy Common Stock or if the Merger is not completed for any other reason, holders of Dynegy Common Stock will not have their Dynegy Common Stock exchanged for Vistra Energy Common Stock in connection with the Merger. Instead, each of Dynegy and Vistra Energy would remain a separate company. Under certain circumstances, Vistra Energy may be required to pay Dynegy a termination fee and/or an expense amount or Dynegy may be required to pay Vistra Energy a termination fee and/or expense amount, as described under “The Merger Agreement—Effect of Termination; Termination Fees and Expense Reimbursement” beginning on page 155.

 

Q: Am I entitled to exercise dissenters’ or appraisal rights?

 

A: No. No dissenters’ or appraisal rights will be available with respect to the Merger, the Stock Issuance or any of the other transactions contemplated by the Merger Agreement.

 

Q: Are there any risks associated with the Merger that I should consider in deciding how to vote?

 

A: Yes. A number of risks related to the Merger are discussed in this joint proxy statement and prospectus and described in the section entitled “Risk Factors” beginning on page 35.

 

Q: What are the material U.S. federal income tax consequences of the Merger to holders of Dynegy Common Stock?

 

A: Assuming that the Merger is completed as currently contemplated, Vistra Energy and Dynegy intend for the Merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. It is a condition to the obligation of Vistra Energy to complete the Merger that Vistra Energy receive the written opinion of Simpson Thacher & Bartlett LLP (or other Vistra Energy tax advisor reasonably satisfactory to Vistra Energy), dated as of the closing date, to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and it is a condition to the obligation of Dynegy to complete the Merger that Dynegy receive the written opinion of Skadden, Arps, Slate, Meagher & Flom LLP (or other Dynegy tax advisor reasonably satisfactory to Dynegy), dated as of the closing date, to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Provided that the Merger qualifies as a reorganization within the meaning of Section 368(a) of the Code, a U.S. holder (as defined under “Material U.S. Federal Income Tax Consequences”) of Dynegy Common Stock will not recognize any gain or loss for U.S. federal income tax purposes upon the exchange of Dynegy Common Stock for shares of Vistra Energy Common Stock in the Merger (other than gain or loss with respect to any cash received in lieu of a fractional share of Vistra Energy Common Stock).

 

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The particular consequences of the Merger to each Dynegy stockholder depend on such stockholder’s particular facts and circumstances. Dynegy stockholders should consult their tax advisors to understand fully the consequences to them of the Merger given their specific circumstances. For more information, see “Material U.S. Federal Income Tax Consequences” beginning on page 161.

 

Q: How can I obtain additional information about Vistra Energy and Dynegy?

 

A: Vistra Energy and Dynegy each files annual, quarterly and current reports, proxy statements and other information with the SEC. Each company’s filings with the SEC may be accessed on the Internet at http://www.sec.gov. Copies of the documents filed by Vistra Energy with the SEC will be available free of charge on Vistra Energy’s website at www.vistraenergy.com or by contacting Vistra Energy Investor Relations at investor@vistraenergy.com or at (214) 812-0046. Copies of the documents filed by Dynegy with the SEC will be available free of charge on Dynegy’s website at www.dynegy.com or by contacting Dynegy Investor Relations at ir@dynegy.com or at (713) 507-6466. The information provided on each company’s website is not part of this joint proxy statement and prospectus and is not incorporated by reference into this joint proxy statement and prospectus. For a more detailed description of the information available and information incorporated by reference, please see “Where You Can Find More Information and Incorporation by Reference” on page 309.

 

Q: Who can answer my questions?

 

A: If you have any questions about the Merger, the Stock Issuance or the other matters to be voted on at the Vistra Energy special meeting or the Dynegy special meeting, how to submit your proxy, or need additional copies of this joint proxy statement and prospectus, the enclosed proxy card or voting instructions, you should contact Vistra Energy’s and Dynegy’s respective proxy solicitors, as follows:

 

If you are a Vistra Energy stockholder:

 

D.F. King & Co., Inc.

48 Wall Street

New York, NY 10005

Toll Free: (866) 406-2283

Email: vst@dfking.com

  

If you are a Dynegy stockholder:

 

MacKenzie Partners, Inc.

105 Madison Avenue

New York, NY 10016

Toll Free: (800) 322-2885

Email: proxy@mackenziepartners.com

 

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SUMMARY

The following summary highlights selected information in this joint proxy statement and prospectus and may not contain all the information that may be important to you with respect to the Merger Agreement, the Merger, the Vistra Energy special meeting or the Dynegy special meeting. Accordingly, you are encouraged to read this joint proxy statement and prospectus, including its annexes and the information incorporated by reference herein, carefully and in its entirety. Each item in this summary includes a page reference directing you to a more complete description of that topic. See also “Where You Can Find More Information and Incorporation by Reference” on page 309 of this joint proxy statement and prospectus.

The Companies

Vistra Energy Corp. (Page 180)

Vistra Energy Corp.

6555 Sierra Drive

Irving, Texas 75039

Telephone: (214) 812-4600

Vistra Energy is a premier Texas-based energy company focused on the competitive energy and power generation markets through operation as the largest retailer and generator of electricity in the growing Texas market. Its integrated portfolio of competitive businesses consists primarily of TXU Energy and Luminant. TXU Energy sells retail electricity and value-added services (primarily through its market-leading TXU Energy™ brand) to approximately 1.7 million residential and business customers in Texas. Luminant generates and sells electricity and related products from its diverse fleet of generation facilities totaling approximately 13,600 MW of generation in Texas, including 2,300 MW fueled by nuclear power, 3,800 MW fueled by coal, and 7,500 MW fueled by natural gas, and is a large purchaser of renewable power including wind and solar-generated electricity. Vistra Energy is currently developing one of the largest solar facilities in Texas by capacity.

The Vistra Energy Common Stock is listed on the NYSE, trading under the symbol “VST”.

Vistra Energy’s principal executive offices are located at 6555 Sierra Drive, Irving, Texas 75039 and its telephone number is (214) 812-4600.

Dynegy Inc. (Page 177)

Dynegy Inc.

601 Travis Street, Suite 1400

Houston, Texas 77002

Telephone: (713) 507-6400

Throughout the Northeast, Mid-Atlantic, Midwest, and Texas, Dynegy operates approximately 27,000 MWs of power generating facilities capable of producing enough energy to supply more than 22 million American homes. Dynegy generates power safely and responsibly for 1.2 million electricity customers who depend on that energy to grow and thrive.

The Dynegy Common Stock is listed on the NYSE, trading under the symbol “DYN”.

Dynegy’s principal executive offices are located at 601 Travis Street, Suite 1400, Houston, Texas 77002 and its telephone number is (713) 507-6400.



 

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The Combined Company Following the Merger (Page 278)

The combined company will retain the name “Vistra Energy Corp.” and will continue to be a Delaware corporation. The combined company is expected to serve approximately 240,000 commercial and industrial (C&I) customers and 2.7 million residential customers in five top retail states. The combined company is expected to own approximately 40 GW of installed generation capacity. Of that capacity, more than 60% will be natural gas-fueled, and 84% will be in the ERCOT, PJM, and ISO-NE competitive power markets.

The common stock of the combined company will continue to be listed on the NYSE, trading under the symbol “VST”.

The combined company’s principal executive offices will be located at 6555 Sierra Drive, Irving, Texas 75039.

The Merger (Page 64)

Subject to the terms and conditions of the Merger Agreement, Dynegy will merge with and into Vistra Energy, with Vistra Energy continuing as the surviving corporation.

Upon completion of the Merger, the continuing Vistra Energy stockholders will own 79% of the combined company’s fully diluted equity, and the former holders of Dynegy Common Stock will own the remaining 21%. Once the Merger is consummated, the combined company will retain the name “Vistra Energy Corp.” and will continue to be listed on the NYSE, trading under the symbol “VST”.

Recommendation of the Vistra Energy Board and Its Reasons for the Merger (Page 78)

At its meeting on October 29, 2017, after careful consideration, the Vistra Energy Board (i) determined that it is in the best interest of Vistra Energy and the holders of Vistra Energy Common Stock to enter into the Merger Agreement, (ii) declared entry into the Merger Agreement to be advisable, (iii) authorized and approved Vistra Energy’s execution, delivery and performance of the Merger Agreement in accordance with its terms and Vistra Energy’s consummation of the transactions contemplated thereby, including the Merger and the Stock Issuance, (iv) directed that the adoption of the Merger Agreement and the approval of the Stock Issuance be submitted to a vote at a meeting of the holders of Vistra Energy Common Stock and (v) recommended that the holders of Vistra Energy Common Stock adopt the Merger Agreement and approve the Stock Issuance.

Certain factors considered by the Vistra Energy Board in reaching its determination can be found in the section entitled “The Merger—Recommendation of the Vistra Energy Board and Its Reasons for the Merger.”

Dynegy’s Reasons for the Merger; Recommendation of the Dynegy Board (Page 82)

At its meeting on October 29, 2017, after careful consideration, the Dynegy Board unanimously (i) determined that it is in the best interest of Dynegy and holders of Dynegy Common Stock to enter into the Merger Agreement, (ii) declared entry into the Merger Agreement to be advisable, (iii) authorized and approved Dynegy’s execution, delivery and performance of the Merger Agreement in accordance with its terms and Dynegy’s consummation of the transactions contemplated thereby, including the Merger, (iv) directed that the adoption of the Merger Agreement be submitted to a vote at a meeting of the holders of Dynegy Common Stock and (v) recommended that the holders of Dynegy Common Stock adopt the Merger Agreement.

Certain factors considered by the Dynegy Board in reaching its determination can be found in the section entitled “The Merger—Dynegy’s Reasons for the Merger; Recommendation of the Dynegy Board.”



 

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Opinion of Vistra Energy’s Financial Advisor (Page 88)

Citigroup Global Markets Inc., which is referred to herein as “Citi,” was retained by Vistra Energy to act as its financial advisor in connection with the Merger and to provide financial advice and assistance and, upon Vistra Energy’s request, to render a financial opinion, in each case in connection therewith. The Vistra Energy Board selected Citi to act as its financial advisor based on Citi’s qualifications, expertise and reputation, its knowledge of and involvement in recent transactions in Vistra Energy’s industry and its knowledge and understanding of the business and affairs of Dynegy. In connection with this engagement, Vistra Energy requested that Citi evaluate the fairness, from a financial point of view, of the Exchange Ratio of 0.652x provided for in the Merger Agreement. On October 29, 2017, at a meeting of the Vistra Energy Board, Citi rendered to the Vistra Energy Board (in its capacity as such) an oral opinion, which was subsequently confirmed by delivery of a written opinion, dated October 29, 2017, to the effect that, as of that date and based on and subject to the matters, considerations and limitations set forth in the opinion, Citi’s work and other factors it deemed relevant, each as described in greater detail in the section titled “The Merger—Opinion of Vistra Energy’s Financial Advisor,” the Exchange Ratio of 0.652x provided for in the Merger Agreement was fair, from a financial point of view, to Vistra Energy.

The full text of Citi’s written opinion, dated October 29, 2017, to the Vistra Energy Board, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by Citi in rendering its opinion, is attached to this joint proxy statement and prospectus as Annex B and is incorporated into this joint proxy statement and prospectus by reference in its entirety. You are encouraged to read the full text of Citi’s written opinion in its entirety. Citi’s opinion, the issuance of which was authorized by Citi’s fairness opinion committee, was provided to the Vistra Energy Board (in its capacity as such) in connection with its evaluation of the Merger and was limited to the fairness, from a financial point of view, as of the date of the opinion, to Vistra Energy of the Exchange Ratio. Citi’s opinion does not address any other aspects or implications of the Merger and does not constitute a recommendation to any stockholder as to how such stockholder should vote or act on any matters relating to the proposed merger or any related matter. Citi’s opinion does not address the underlying business decision of Vistra Energy to effect the Merger, the relative merits of the Merger as compared to any alternative business strategies that might exist for Vistra Energy or the effect of any other transaction in which Vistra Energy might engage.

For a summary of Citi’s opinion and the methodology that Citi used to render its opinion, see the section entitled “The Merger—Opinion of Vistra Energy’s Financial Advisor” beginning on page 88.

Opinions of Dynegy’s Financial Advisors (Page 96)

Opinion of Morgan Stanley

Morgan Stanley & Co. LLC (“Morgan Stanley”) was retained by Dynegy to act as its financial advisor in connection with the Merger and to provide financial advice and assistance and, upon Dynegy’s request, to render a financial opinion, in each case in connection therewith. The Dynegy Board selected Morgan Stanley to act as its financial advisor based on Morgan Stanley’s qualifications, expertise and reputation, its knowledge of and involvement in recent transactions in Dynegy’s industry and its knowledge and understanding of the business and affairs of Dynegy. On October 29, 2017, Morgan Stanley rendered its oral opinion, which was subsequently confirmed in writing, to the Dynegy Board to the effect that, as of that date, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in Morgan Stanley’s written opinion, the Exchange Ratio pursuant to the Merger Agreement was fair, from a financial point of view, to the holders of shares of Dynegy Common Stock (other than the holders of the cancelled shares).



 

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The full text of the written opinion of Morgan Stanley delivered to the Dynegy Board, dated October 29, 2017, is attached as Annex C and incorporated into this joint proxy statement and prospectus by reference in its entirety. The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion. Dynegy stockholders are urged to, and should, read the opinion carefully and in its entirety. Morgan Stanley’s opinion is directed to the Dynegy Board and addresses only the fairness, from a financial point of view, of the Exchange Ratio pursuant to the Merger Agreement to the holders of shares of Dynegy Common Stock (other than the holders of the cancelled shares) as of the date of the opinion. Morgan Stanley’s opinion did not address any other aspect of the Merger or other transactions contemplated by the Merger Agreement, including the price at which shares of Vistra Energy Common Stock might actually trade following consummation of the Merger or at any time, the relative merits of the Merger as compared to other business or financial strategies that might be available to Dynegy or the underlying business decision of Dynegy to enter into the Merger Agreement or proceed with any other transaction contemplated by the Merger Agreement. The opinion was not intended to, and does not, constitute advice or a recommendation to any holder of shares of Dynegy Common Stock or any holder of shares of Vistra Energy Common Stock as to how to vote at the stockholder’s meetings to be held in connection with the Merger. The summary of Morgan Stanley’s opinion set forth in this joint proxy statement and prospectus is qualified in its entirety by reference to the full text of Morgan Stanley’s opinion.

For a summary of Morgan Stanley’s opinion and the methodology that Morgan Stanley used to render its opinion, see the section entitled “The Merger—Opinions of Dynegy’s Financial Advisors—Opinion of Morgan Stanley” beginning on page 96.

Opinion of PJT Partners

PJT Partners LP (“PJT Partners”) was retained by Dynegy to act as its financial advisor in connection with the Merger and to provide financial advisory services and, upon Dynegy’s request, to render its financial opinion to the Dynegy Board in connection therewith. The Dynegy Board selected PJT Partners to act as its financial advisor based on PJT Partners’ qualifications, expertise and reputation, its knowledge of and involvement in recent transactions in Dynegy’s industry and its knowledge and understanding of the business and affairs of Dynegy. On October 29, 2017, PJT Partners rendered its oral opinion (which was subsequently confirmed in writing) to the Dynegy Board that, as of such date and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the Exchange Ratio pursuant to the Merger Agreement was fair to the holders of Dynegy Common Stock (other than the holders of the cancelled shares and the Dynegy Principal Stockholders) from a financial point of view.

The full text of PJT Partners’ written opinion delivered to the Dynegy Board, dated October 29, 2017, is attached as Annex D and incorporated into this joint proxy statement and prospectus by reference in its entirety. PJT Partners’ written opinion sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations upon the review undertaken by PJT Partners in rendering its opinion. You are encouraged to read the opinion carefully in its entirety. PJT Partners provided its opinion to the Dynegy Board, in its capacity as such, in connection with and for the purposes of its evaluation of the Merger only and PJT Partners’ opinion is not a recommendation as to any action the Dynegy Board should take with respect to the Merger or any aspect thereof. The opinion does not constitute a recommendation to any Dynegy stockholder or Vistra Energy stockholder as to how any such stockholder should vote or act with respect to the Merger or any other matter. The summary of PJT Partners’ opinion set forth in this joint proxy statement and prospectus is qualified in its entirety by reference to the full text of PJT Partners’ opinion.



 

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For a summary of PJT Partners’ opinion and the methodology that PJT Partners used to render its opinion, see the section entitled “The Merger—Opinions of Dynegy’s Financial Advisors—Opinion of PJT Partners” beginning on page 107.

Interests of Vistra Energy’s Directors and Executive Officers in the Merger (Page 125)

Vistra Energy’s directors and executive officers have interests in the Merger that may be different from, or in addition to, those of the stockholders of Vistra Energy generally. The Vistra Energy Board was aware of these interests and considered them, among other things, in reaching its decision to approve the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, including the Stock Issuance, and in recommending that the Vistra Energy stockholders vote to approve the Merger Proposal and the Stock Issuance Proposal.

For additional detail about these interests, see “The Merger—Interests of Vistra Energy’s Directors and Executive Officers in the Merger” beginning on page 125.

Interests of Dynegy’s Directors and Executive Officers in the Merger (Page 126)

Dynegy’s non-employee directors and executive officers have economic interests in the Merger that are different from, or in addition to, those of Dynegy’s stockholders generally. The Dynegy Board was aware of and considered those interests, among other matters, in (i) determining that it is in the best interest of Dynegy and holders of Dynegy Common Stock to enter into the Merger Agreement, (ii) declaring entry into the Merger Agreement to be advisable, (iii) authorizing and approving Dynegy’s execution, delivery and performance of the Merger Agreement in accordance with its terms and Dynegy’s consummation of the transactions contemplated thereby, including the Merger, (iv) directing that the adoption of the Merger Agreement be submitted to a vote at a meeting of the holders of Dynegy Common Stock and (v) recommending that the holders of Dynegy Common Stock adopt the Merger Agreement.

For additional detail about these interests, see “The Merger—Interests of Dynegy’s Directors and Executive Officers in the Merger” beginning on page 126.

Directors and Management of the Combined Company After the Merger (Page 132)

In connection with the consummation of the Merger, the board of directors of the combined company will be expanded to consist of eleven members, including: (i) eight of the directors of Vistra Energy and (ii) three of the directors of Dynegy immediately prior to the Merger (provided such directors are willing to serve on the board of the combined company). The eight directors of Vistra Energy are Curtis A. “Curt” Morgan, Gavin R. Baiera, Jennifer Box, Brian K. Ferraioli, Scott B. Helm, Jeff D. Hunter, Cyrus Madon and Geoffrey D. Strong. As of the date of this joint proxy statement and prospectus, it has not been determined which directors will be appointed from the Dynegy Board to the board of directors of the combined company. Effective as of closing of the Merger, the members of the management committee of the combined company will be Curtis A. “Curt” Morgan as President and Chief Executive Officer, James A. “Jim” Burke as Executive Vice President and Chief Operating Officer, Sara Graziano as Senior Vice President of Corporate Development and Strategy, J. William “Bill” Holden as Executive Vice President and Chief Financial Officer, Carrie Lee Kirby as Executive Vice President and Chief Administrative Officer, and Stephanie Zapata Moore as Executive Vice President and General Counsel.

The Merger Consideration and Exchange Ratio (Page 136)

At the closing of the Merger, each issued and outstanding share of Dynegy Common Stock, other than those owned by Vistra Energy or any wholly owned subsidiary of Vistra Energy, held in treasury by Dynegy or owned by any wholly owned subsidiary of Dynegy, will automatically be converted into the right to receive 0.652 shares of Vistra Energy Common Stock, except that cash will be paid in lieu of fractional shares.



 

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Treatment of Dynegy Stock Options, RSUs, Performance Stock Units and Phantom Stock Units (Page 138)

Upon completion of the Merger, each option to purchase shares of Dynegy Common Stock (each, a “Dynegy Stock Option”) and each other equity-based award in respect of Dynegy Common Stock outstanding immediately prior to the completion of the Merger will generally automatically convert upon completion of the Merger into stock options and equity-based awards, respectively, with respect to Vistra Energy Common Stock, or, in the case of Dynegy performance share units (each, a “Dynegy PSU”), into the right to receive shares of Vistra Energy Common Stock, in each case, after giving effect to the Exchange Ratio.

Conditions to Completion of the Merger (Page 139)

Completion of the Merger is subject to various customary conditions, including, among others, (a) approval by the Vistra Energy stockholders of the Stock Issuance Proposal, (b) approval by the Vistra Energy stockholders and the Dynegy stockholders of the Merger Proposal, (c) receipt of all requisite regulatory approvals, which includes approvals of the Federal Energy Regulatory Commission (“FERC”), the Public Utility Commission of Texas (“PUCT”) and the New York Public Service Commission (“NYPSC”), and the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”), and (d) effectiveness of the registration statement for the shares of Vistra Energy Common Stock to be issued in the Merger, and the approval of the listing of such shares on the NYSE. Each party’s obligation to consummate the Merger is also subject to certain additional customary conditions, including (i) subject to certain exceptions, the accuracy of the representations and warranties of the other party, (ii) performance in all material respects by the other party of its obligations under the Merger Agreement and (iii) the receipt by such party of an opinion from its counsel to the effect that the Merger will qualify as a tax-free reorganization within the meaning of the Code. The consummation of the Merger is not conditioned on either party obtaining any financing.

Non-Solicitation of Alternative Acquisition Proposals (Page 146)

Pursuant to the Merger Agreement, prior to the consummation of the Merger, each of Vistra Energy and Dynegy has agreed, among other things, that it and its subsidiaries will not, and will cause its and its subsidiaries’ respective officers, directors and employees not to, and will cause its and its subsidiaries’ representatives not to and will not authorize or give permission to its subsidiaries’ representatives to, directly or indirectly, (i) solicit, initiate, seek or knowingly encourage or facilitate the making, submission or announcement of any inquiry, discussion request, offer or proposal that constitutes or would reasonably be expected to lead to an alternative acquisition proposal (as defined in “The Merger Agreement—Non-Solicitation of Alternative Acquisition Proposals”), (ii) furnish any non-public information, or afford access to properties, books and records, to any third party in connection with or in response to, or that would be reasonably expected to lead to, an alternative acquisition proposal or any inquiry, proposal or indication of interest with respect thereto, (iii) engage or participate in any discussions or negotiations with any third party with respect to, or that would be reasonably expected to lead to, an alternative acquisition proposal or any inquiry, proposal or indication of interest with respect thereto, (iv) adopt or approve, an alternative acquisition proposal or (v) enter into any letter of intent or other agreement (other than a confidentiality agreement) providing for or related to, an alternative acquisition proposal or any inquiry, proposal or indication of interest with respect thereto, subject to certain limited exceptions.

Prior to obtaining its stockholder approval, either Vistra Energy or Dynegy may furnish nonpublic information with respect to itself and its subsidiaries to the third party who made the alternative acquisition proposal, and may participate in discussions and negotiations regarding the alternative acquisition proposal, so long as it receives a bona fide, written alternative acquisition proposal from a third party that did not result from a breach of the non-solicitation provisions of the Merger Agreement noted above and certain other conditions are met, including that its board of directors, after consultation with a financial advisor and outside legal counsel,



 

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determines in good faith that the alternative acquisition proposal constitutes or would reasonably be expected to result in a superior offer (as defined in “The Merger Agreement—Non-Solicitation of Alternative Acquisition Proposals”).

For more information regarding the non-solicitation obligations of the parties, see “The Merger Agreement—Non-Solicitation of Alternative Acquisition Proposals” beginning on page 146.

Change of Board Recommendations or Termination of Merger Agreement for Superior Offer (Page 148)

Before obtaining its stockholder approval, the Vistra Energy Board or the Dynegy Board, as the case may be, may effect a change of recommendation and/or authorize Vistra Energy or Dynegy, respectively, to terminate the Merger Agreement under certain specified conditions to accept a bona fide alternative acquisition proposal that did not result from a breach of the non-solicitation provisions of the Merger Agreement, that has not been withdrawn, and that is reflected in a written definitive agreement that would be binding, subject to the terms and conditions of such written definitive agreement, on the applicable third party if executed and delivered by Vistra Energy or Dynegy, respectively, and the Vistra Energy Board or the Dynegy Board, respectively determines in good faith, after consultation with its financial advisor and outside legal counsel that the alternative acquisition proposal constitutes a superior offer (as defined in “The Merger Agreement—Change of Board Recommendations or Termination of Merger Agreement for Superior Offer”) and that the failure to effect a change of recommendation or authorize the subject company to terminate the Merger Agreement would be inconsistent with the exercise of its fiduciary duties under applicable law. Among other things, Vistra Energy or Dynegy, respectively, must provide the other party with prior written notice that its board of directors intends to effect a change of recommendation or authorize Vistra Energy or Dynegy, respectively, to terminate the Merger Agreement and provide a matching period of at least four business days prior to terminating the Merger Agreement.

For more information regarding a change of recommendation or a termination of the Merger Agreement for superior offer, see “The Merger Agreement—Change of Board Recommendations or Termination of Merger Agreement for Superior Offer” beginning on page 148.

Termination of the Merger Agreement, Termination Fees and Expense Amounts (Page 154)

The Merger Agreement contains certain termination rights for both Vistra Energy and Dynegy, including in specified circumstances in connection with an alternative acquisition proposal that has been determined to be a superior offer. Upon termination of the Merger Agreement, under specified circumstances (a) for a failure to obtain certain requisite regulatory approvals, Vistra Energy may be required to pay Dynegy a termination fee of $100 million, (b) in connection with a superior offer, the Vistra Energy Board effecting a change of its recommendation in favor of the Merger, a Vistra Energy breach of its non-solicitation obligations in any material respect, the Vistra Energy Board’s failure to reaffirm its recommendation, Vistra Energy may be required to pay a termination fee to Dynegy of $100 million, and (c) in connection with a superior offer, the Dynegy Board effecting a change of its recommendation in favor of the Merger, a Dynegy breach of its non-solicitation obligations in any material respect, the Dynegy Board’s failure to reaffirm its recommendation, Dynegy may be required to pay to Vistra Energy a termination fee of $87 million. In addition, if the Merger Agreement is terminated (i) because Vistra Energy’s stockholders do not approve the Stock Issuance Proposal or do not approve the Merger Proposal, then Vistra Energy will be obligated to reimburse Dynegy for its reasonable out-of-pocket fees and expenses incurred in connection with the Merger Agreement, or (ii) because Dynegy’s stockholders do not approve the Merger Proposal, then Dynegy will reimburse Vistra Energy for its reasonable out-of-pocket fees and expenses incurred in connection with the Merger Agreement, each of which is subject to a cap of $22 million. Such expense reimbursement may be deducted from the abovementioned termination fees, if ultimately payable.



 

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For more information regarding termination of the Merger Agreement, termination fees and expense amounts, see “The Merger Agreement—Termination of the Merger Agreement” beginning on page 154 and “The Merger Agreement—Effect of Termination; Termination Fees and Expense Reimbursement” beginning on page 155.

Regulatory Approvals Required to Complete the Merger (Page 132)

Required regulatory approvals include approvals of the FERC, the PUCT and the NYPSC, and the expiration or termination of the applicable waiting period under the HSR Act.

See “The Merger—Regulatory Approvals Required to Complete the Merger” beginning on page 132.

Litigation Relating to the Merger (Page 160)

In January 2018, a purported Dynegy stockholder filed a putative class action lawsuit in the United States District Court for the Southern Division of Texas, Houston Division, alleging that Dynegy, each member of the Dynegy Board and Vistra Energy violated federal securities laws by filing a Form S-4 Registration Statement in connection with the Merger that omits purportedly material information. The lawsuit seeks to enjoin the Merger and to have the Dynegy and Vistra Energy issue an amended Form S-4 or, alternatively, damages if the Merger closes without an amended Form S-4 having been filed. Vistra Energy and Dynegy believe that the claims asserted by the lawsuit are not valid and intend to vigorously defend against the allegations.

See “Litigation Relating to the Merger” beginning on page 160.

Material U.S. Federal Income Tax Consequences (Page 161)

Assuming that the Merger is completed as currently contemplated, Vistra Energy and Dynegy intend for the Merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. It is a condition to the obligation of Vistra Energy to complete the Merger that Vistra Energy receive the written opinion of Simpson Thacher & Bartlett LLP (or other Vistra Energy tax advisor reasonably satisfactory to Vistra Energy), dated as of the closing date, to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and it is a condition to the obligation of Dynegy to complete the Merger that Dynegy receive the written opinion of Skadden, Arps, Slate, Meagher & Flom LLP (or other Dynegy tax advisor reasonably satisfactory to Dynegy), dated as of the closing date, to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Provided that the Merger qualifies as a reorganization within the meaning of Section 368(a) of the Code, a U.S. holder (as defined under “Material U.S. Federal Income Tax Consequences”) of Dynegy Common Stock will not recognize any gain or loss for U.S. federal income tax purposes upon the exchange of Dynegy Common Stock for shares of Vistra Energy Common Stock in the Merger (other than gain or loss with respect to any cash received in lieu of a fractional share of Vistra Energy Common Stock).

You should read “Material U.S. Federal Income Tax Consequences” beginning on page 161 for a more complete discussion of the material U.S. federal income tax consequences of the Merger. The tax consequences of the Merger to you will depend on your particular facts and circumstances. You should consult your tax advisor to determine the particular tax consequences of the Merger to you.

The Vistra Energy Special Meeting (Page 164)

The special meeting of Vistra Energy stockholders will be held at 1601 Bryan Street, 11th Floor, Dallas, Texas 75201 on March 2, 2018, starting at 9:00 a.m., Central Time.



 

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Proposals Submitted to the Vistra Energy Stockholders (Page 168)

Vistra Energy stockholders will be asked to consider and vote on the following proposals:

 

    the Merger Proposal;

 

    the Stock Issuance Proposal; and

 

    the Vistra Energy Adjournment Proposal.

Vistra Energy will transact no other business at the Vistra Energy special meeting or any adjournment or postponement thereof.

The Dynegy Special Meeting (Page 171)

The special meeting of Dynegy stockholders will be held at the Chase Center, 601 Travis Street, Houston, Texas 77002 on March 2, 2018, starting at 10:00 a.m., Central Time.

Proposals Submitted to the Dynegy Stockholders (Page 175)

Dynegy stockholders will be asked to consider and vote on the following proposals:

 

    the Merger Proposal;

 

    the Dynegy Compensation Proposal; and

 

    the Dynegy Adjournment Proposal.

Dynegy will transact no other business at the Dynegy special meeting or any adjournment or postponement thereof.

Listing of Vistra Energy Common Stock and Deregistration of Dynegy Common Stock (Page 135)

It is a condition to the completion of the Merger that the Vistra Energy Common Stock issuable in connection with the Merger be authorized for listing on the NYSE, subject to official notice of issuance.

After the Merger is completed, the Dynegy Common Stock will no longer be listed on the NYSE and will be deregistered under the Exchange Act.

Anticipated Accounting Treatment (Page 135)

Vistra Energy prepares its financial statements in accordance with GAAP. The Merger will be accounted for as a business combination by applying the acquisition method, with Vistra Energy considered as the acquirer for accounting purposes. For more information, see “The Merger—Anticipated Accounting Treatment” beginning on page 135.

No Appraisal Rights and Dissenters’ Rights (Page 135)

No dissenters’ or appraisal rights will be available with respect to the Merger, the Stock Issuance or any of the other transactions contemplated by the Merger Agreement.

Comparison of Rights of Vistra Energy Stockholders and Dynegy Stockholders (Page 288)

Holders of Dynegy Common Stock will have different rights following the effective time of the Merger because they will hold Vistra Energy Common Stock instead of Dynegy Common Stock, and there are



 

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differences between the governing documents of Vistra Energy and Dynegy. For more information regarding the differences in rights of Vistra Energy stockholders and Dynegy stockholders, see “Comparison of Rights of Vistra Energy Stockholders and Dynegy Stockholders” beginning on page 288.

Summary of Risk Factors Related to the Merger (Page 35)

You should carefully consider the following important risks, together with all of the other information included in this joint proxy statement and prospectus and the risks related to the Merger and the related transactions described under the section “Risk Factors” beginning on page 35:

 

    The Merger is subject to a number of conditions which, if not satisfied or waived in a timely manner, would delay the Merger or adversely impact the ability of Vistra Energy and Dynegy to complete the Merger on the terms set forth in the Merger Agreement or at all.

 

    Failure to consummate the Merger as currently contemplated or at all could adversely affect the price of Vistra Energy Common Stock or Dynegy Common Stock and the future business and financial results of Vistra Energy or Dynegy.

 

    Vistra Energy and Dynegy will be subject to business uncertainties and contractual restrictions while the Merger is pending that could adversely affect their financial results.

 

    Because the market prices of shares of Vistra Energy Common Stock and shares of Dynegy Common Stock will fluctuate and the Exchange Ratio is fixed, the market value of the merger consideration at the date of the closing may vary significantly from the date the Merger Agreement was executed, the date of this joint proxy statement and prospectus and the dates of Vistra Energy’s special meeting and Dynegy’s special meeting.

 

    The Merger Agreement contains provisions that limit the ability of Vistra Energy and Dynegy to pursue alternatives to the Merger, which could discourage a potential competing acquirer of Vistra Energy or Dynegy from making a favorable alternative transaction proposal and, in certain circumstances, could require Vistra Energy to pay a termination fee to Dynegy or Dynegy to pay a termination fee to Vistra Energy.

 

    Holders of Vistra Energy Common Stock and Dynegy Common Stock will have a reduced ownership and voting interest in the combined company after the Merger and will exercise less influence over management of the combined company.

 

    The Merger will result in changes to the board of directors that may affect the strategy and operations of the combined company.

 

    If the Merger is not consummated by the End Date (which is April 29, 2019, unless extended pursuant to the terms of the Merger Agreement), Vistra Energy or Dynegy may terminate the Merger Agreement in certain circumstances.

 

    An adverse judgment in any litigation challenging the Merger may prevent the Merger from becoming effective or from becoming effective within the expected timeframe.

 

    The unaudited pro forma condensed combined consolidated financial information included elsewhere in this joint proxy statement and prospectus are not intended to be representative of the combined company’s results after the Merger, and accordingly, you have limited financial information on which to evaluate the combined company following the Merger.

 

    Following the Merger, the combined company may be unable to integrate Vistra Energy’s business and Dynegy’s business successfully and realize the anticipated synergies and other expected benefits of the Merger on the anticipated timeframe or at all.


 

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    The Merger will combine two companies that are currently affected by developments in the electric utility industry, including changes in regulation and increased competition. A failure to adapt to the changing regulatory environment after the Merger could adversely affect the stability of the combined company’s earnings and could result in the erosion of its market positions, revenues and profits.

 

    Certain directors and executive officers of Vistra Energy and Dynegy have interests in the Merger that are different from, or in addition to, those of other Vistra Energy and Dynegy stockholders, which could have influenced their decisions to support or approve the Merger.

 

    The shares of Vistra Energy Common Stock to be received by Dynegy stockholders as a result of the Merger will have different rights from the shares of Dynegy Common Stock.

 

    The combined company will have a significant amount of indebtedness. As a result, it may be more difficult for the combined company to pay or refinance its debts or take other actions, and the combined company may need to divert its cash flow from operations to debt service payments.

 

    The terms of the credit agreements governing the combined company’s two separate credit facilities will restrict its current and future operations, particularly the combined company’s ability to respond to changes or to take certain actions.

 

    The combined company is expected to incur substantial expenses related to the Merger and the integration of Vistra Energy and Dynegy.


 

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Summary Selected Historical Consolidated Financial Information of Vistra Energy

On October 3, 2016, which Vistra Energy refers to as the Plan Effective Date, the Plan of Reorganization became effective with respect to the TCEH Debtors and the Contributed EFH Debtors, including TCEH (the “Predecessor”), which consummated their reorganization under the Bankruptcy Code and emerged from the Chapter 11 Cases. The following tables set forth the summary selected historical consolidated financial information for Vistra Energy (the “Successor”) for periods subsequent to the Plan Effective Date and the Predecessor for periods prior to the Plan Effective Date. The financial statements of the Successor are not comparable to the financial statements of the Predecessor as those periods prior to the Plan Effective Date do not give effect to any adjustments to the carrying values of assets or amounts of liabilities that resulted from the Plan of Reorganization, and the related application of fresh-start reporting, which includes accounting policies implemented by Vistra Energy that may differ from the Predecessor. The selected historical consolidated financial information of the Successor as of September 30, 2017 and for the nine months ended September 30, 2017 and of the Predecessor for the nine months ended September 30, 2016 has been derived from Vistra Energy’s unaudited historical condensed consolidated financial statements and related notes included elsewhere in this document. The selected historical consolidated financial data of the Successor as of December 31, 2016 and for the period from October 3, 2016 through December 31, 2016 and of the Predecessor as of December 31, 2015 and the period from January 1, 2016 through October 2, 2016 and for the year ended December 31, 2015 has been derived from Vistra Energy’s historical audited consolidated financial statements and related notes included elsewhere in this document. The selected historical consolidated financial data of the Predecessor as of December 31, 2014, 2013 and 2012 and for the years ended December 31, 2014, 2013 and 2012 has been derived from Vistra Energy’s Predecessor’s historical audited consolidated financial statements and related notes that are not included in this document. The selected historical consolidated financial data should be read in conjunction with Vistra Energy’s audited consolidated financial statements and related notes and with Vistra Energy’s unaudited condensed consolidated financial statements and related notes.

 

     Successor           Predecessor     Successor           Predecessor  
     Nine
Months
Ended
September 30,
2017
(Unaudited)
          Nine
Months
Ended
September 30,
2016
(Unaudited)
    Period
from
October 3,
2016

through
December 31,
2016
          Period
from
January 1,
2016
through
October 2,
2016
   

 

Year Ended December 31,

 
                 2015     2014     2013     2012  
     (in millions, except per share amounts)  
                    

Operating revenues

   $ 4,487         $ 3,973     $ 1,191         $ 3,973     $ 5,370     $ 5,978     $ 5,899     $ 5,636  

Impairment of goodwill

   $ —           $ —       $ —           $ —       $ (2,200   $ (1,600   $ (1,000   $ (1,200
   

Impairment of long-lived assets

   $ —           $ —       $ —           $ —       $ (2,541   $ (4,670   $ (140   $ —    

Operating income (loss)

   $ 658         $ 568     $ (161       $ 568     $ (4,091   $ (6,015   $ (1,113   $ (961

Net income (loss)(a)

   $ 325         $ (656   $ (163       $ 22,851     $ (4,677   $ (6,229   $ (2,197   $ (2,948

Cash provided by (used in) operating activities

   $ 845         $ (196   $ 81         $ (238   $ 237     $ 444     $ (270   $ (237
   

Weighted average shares of common stock outstanding—basic and diluted

     428           —         428           —         —         —         —         —    

Net income (loss) per weighted average share of common stock outstanding—basic and diluted

   $ 0.76         $ —       $ (0.38       $ —       $ —       $ —       $ —       $ —    

Dividends declared per share of common stock

   $ —           $ —       $ 2.32         $ —       $ —       $ —       $ —       $ —    

 

(a) Predecessor period from January 1, 2016 through October 2, 2016 includes net gains totaling $22.121 billion related to bankruptcy-related reorganization items including significant gains on extinguishing claims pursuant to the Plan of Reorganization.


 

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     Successor             Predecessor  
     As of
September 30,
2017
(Unaudited)
     As of
December 31,
2016
            As of December 31,  
              2015     2014     2013     2012  
     (in millions)  

Balance Sheet Information:

                   

Total assets(a)(b)

   $ 15,000      $ 15,167           $ 15,658     $ 21,343     $ 28,822     $ 32,969  

Property, plant & equipment—
net(a)(b)

   $ 4,746      $ 4,443           $ 9,349     $ 12,288     $ 17,649     $ 18,556  

Goodwill and intangible assets(a)

   $ 4,756      $ 5,112           $ 1,331     $ 3,688     $ 5,669     $ 6,733  

Borrowings, debt and pre-Petition notes, loans and other debt

                   

Borrowings under debtor-in-possession credit
facilities(c)

   $ —        $ —             $ 1,425     $ 1,425     $ —       $ —    

Debt(d)

   $ 4,540      $ 4,557           $ 3     $ 51     $ 26,146     $ 29,795  

Pre-petition notes, loans and other debt reported as liabilities subject to compromise(e)

   $ —        $ —             $ 31,668     $ 31,856     $ —       $ —    

Borrowings under Predecessors credit facilities(f)

   $      $           $     $     $ 2,054     $ 2,136  

Total equity/membership interests

   $ 6,935      $ 6,597           $ (22,884   $ (18,209   $ (11,982   $ (9,683

 

(a) As of September 30, 2017 and December 31, 2016, amounts reflect the application of fresh-start reporting.
(b) Reflects impact of impairment charges for long-lived assets of $2.541 billion and $4.670 billion in the years ended December 31, 2015 and 2014, respectively.
(c) Borrowings under debtor-in-possession credit facilities are classified as noncurrent as of December 31, 2014 and due currently as of December 31, 2015.
(d) For all periods presented, excludes amounts with contractual maturity dates in the following twelve months.
(e) As of December 31, 2015 and 2014, includes both unsecured and under secured obligations incurred prior to the Petition Date, but excludes pre-petition obligations that were fully secured and other obligations that were allowed to be paid as ordered by the Bankruptcy Court. As of December 31, 2014, also excludes $702 million of deferred debt issuance and extension costs.
(f) Exclude borrowing under debtor-in-possession credit facilities.

Summary Selected Historical Consolidated Financial Information of Dynegy

The following tables set forth the summary selected historical consolidated financial information for Dynegy. The selected financial information presented below as of and for the nine months ended September 30, 2017 and 2016 and as of and for the years ended December 31, 2016, 2015, 2014, 2013 and 2012, was derived from, and is qualified by, reference to Dynegy’s consolidated financial statements, including the notes thereto.

As a result of the application of fresh-start accounting as of October 1, 2012, following Dynegy’s reorganization, the financial statements on or prior to October 1, 2012 are not comparable with the financial statements after October 1, 2012. References to “Successor” refer to Dynegy after October 1, 2012, after giving effect to the application of fresh-start accounting. References to “Predecessor” refer to Dynegy on or prior to October 1, 2012. The financial statements of the Successor are not comparable to the financial statements of the Predecessor as those periods prior to Dynegy’s emergence from bankruptcy do not give effect to any adjustments to the carrying values of assets or amounts of liabilities that resulted from the reorganization, and the related



 

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application of fresh-start reporting, which includes accounting policies implemented by the Successor that may differ from the Predecessor.

The summary selected historical consolidated financial data should be read in conjunction with Dynegy’s audited consolidated financial statements and related notes and with Dynegy’s unaudited consolidated financial statements and related notes.

 

    Successor           Predecessor  
    Nine Months
Ended
September 30,
2017(a)

(Unaudited)
    Nine Months
Ended
September 30,
2016

(Unaudited)
    Year Ended December 31,     Period from
October 2
through
December 31,
2012
          Period
from
January 1
through
October 1,
2012
 
        2016     2015(b)     2014     2013(c)        
    (in millions, except per share amounts)  

Statements of Operations Data:

                   

Revenue

  $ 3,848     $ 3,211     $ 4,318     $ 3,870     $ 2,497     $ 1,466     $ 312         $ 981  

Impairments

  $ (148   $ (857   $ (858   $ (99   $ —       $ —       $ —           $ —    

Operating income (loss)

  $ (173   $ (674   $ (640   $ 64     $ (19   $ (318   $ (104       $ 5  

Bankruptcy reorganization items, net

  $ 494     $ —       $ (96   $ —       $ 3     $ (1   $ (3       $ 1,037  

Interest expense

  $ (478   $ (449   $ (625   $ (546   $ (223   $ (97   $ (16       $ (120

Net income (loss) attributable to Dynegy Inc.

  $ 169     $ (1,060   $ (1,240   $ 50     $ (273   $ (356   $ (107       $ (32

Basic earnings (loss) per share attributable to Dynegy Inc. common stockholders

  $ 1.01     $ (8.54   $ (9.78   $ 0.22     $ (2.65   $ (3.56   $ (1.07         N/A  

Basic weighted-average shares outstanding (millions)

    152       126       129       125       105       100       100           N/A  
 

Cash Flow Data:

                 

Net cash provided by (used in) operating activities

  $ 501     $ 728     $ 645     $ 94     $ 221     $ 173     $ (49       $ (37

Net cash provided by (used in) investing activities

  $ (2,771   $ (313   $ (93   $ (6,368   $ (107   $ 141     $ (41       $ 278  

Net cash provided by (used in) financing activities

  $ (955   $ 2,584     $ 2,742     $ (265   $ 6,126     $ (154   $ (328       $ (184

Capital expenditures, acquisitions and investments

  $ (3,378   $ (337   $ (293   $ (6,379   $ (125   $ 138     $ (41       $ 193  

 

(a) Dynegy’s September 30, 2017 financial statements only reflect the impacts of the Delta Transaction subsequent to February 7, 2017.
(b) Dynegy’s 2015 financial statements only reflect the impacts of the EquiPower and Duke Midwest Acquisitions subsequent to April 1, 2015 and April 2, 2015, respectively.


 

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(c) Dynegy completed the acquisition of New Ameren Energy Resources, LLC effective December 2, 2013.

 

     As of
September 30,
2017
(Unaudited)
     As of December 31,  
        2016      2015      2014      2013      2012  
     (in millions)  

Balance Sheet Data:

                 

Current assets

   $ 1,704      $ 2,987      $ 1,932      $ 2,664      $ 1,682      $ 1,043  

Current liabilities

   $ 867      $ 916      $ 809      $ 678      $ 718      $ 347  

Property, plant and equipment, net

   $ 8,929      $ 7,121      $ 8,347      $ 3,255      $ 3,315      $ 3,022  

Total assets

   $ 12,007      $ 13,053      $ 11,459      $ 11,154      $ 5,264      $ 4,535  

Long-term debt (including current
portion)(a)(b)

   $ 8,747      $ 8,979      $ 7,209      $ 7,028      $ 1,965      $ 1,415  

Total equity

   $ 1,984      $ 2,039      $ 2,919      $ 3,023      $ 2,207      $ 2,503  

 

(a) The year ended December 31, 2016 includes a $2.0 billion seven-year Tranche C Term Loan related to the Delta Transaction. The year ended December 31, 2014 includes $5.1 billion related to Dynegy’s notes issued on October 27, 2014.
(b) As a result of the Genco Chapter 11 Bankruptcy case, Dynegy reclassified approximately $825 million in long-term debt to liabilities subject to compromise in their consolidated balance sheet.

Summary Selected Unaudited Pro Forma Condensed Combined Consolidated Financial Information (Page 312)

The following tables set forth summary selected unaudited pro forma condensed combined consolidated financial information which combines the condensed consolidated financial information of Vistra Energy and Dynegy as of and for the nine months ended September 30, 2017 and for the year ended December 31, 2016 after giving effect to (a) the Merger as if it had occurred on January 1, 2016, (b) the reorganization transactions contemplated by the Plan of Reorganization of TCEH and the application of fresh-start reporting for the emerged entity, Vistra Energy, and (c) Dynegy’s 2017 acquisition of the GSENA Thermal Assets and related financing transactions. The summary unaudited pro forma condensed combined consolidated financial information is provided for illustrative purposes only and does not purport to represent what the combined company’s actual condensed combined consolidated results of operations or condensed combined consolidated financial position would have been had the adjustments occurred on the dates assumed, nor is it necessarily indicative of future condensed combined consolidated results of operations or condensed combined consolidated financial position. Pursuant to applicable rules for preparing unaudited pro forma condensed combined consolidated financial statements, the below financial information and the pro forma condensed combined consolidated financial statements included later in this document do not include any impacts from cost savings and margin enhancements that Vistra Energy anticipates achieving as part of the Merger.



 

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This information is only a summary and should be read in conjunction with “Risk Factors—Risks Related to the Merger”, “Summary Selected Historical Consolidated Financial Information of Vistra Energy”, “Summary Selected Historical Consolidated Financial Information of Dynegy”, “Comparative Historical and Unaudited Pro Forma Combined Per Share Information” and “Unaudited Pro Forma Condensed Combined Consolidated Financial Information”, which are included elsewhere in this document. Among other things, the pro forma financial statements included in “Unaudited Pro Forma Condensed Combined Consolidated Financial Information” provide more detailed information regarding the basis of presentation for, and the adjustments and assumptions underlying, the information in the following tables.

 

     Nine Months
Ended

September 30,
2017
     Year
Ended
December 31,
2016
 
     (in millions, except per share
amounts)
 

Pro Forma Condensed Combined Consolidated Statement of Income Information:

     

Operating revenues

   $ 8,542      $ 10,501  

Operating income (loss)

   $ 471      $ (215

Net income (loss) attributable to common stockholders

   $ 306      $ (806

Net income (loss) per weighted average share of common stock outstanding—basic

   $ 0.57      $ (1.50

Net income (loss) per weighted average share of common stock outstanding—diluted

   $ 0.56      $ (1.50

 

     As of
September 30,
2017
 
     (in millions)  

Pro Forma Condensed Combined Consolidated Balance Sheet Information:

  

Cash and cash equivalents

   $ 1,667  

Property, plant and equipment

   $ 13,983  

Total assets

   $ 27,829  

Long-term debt, including amounts due currently

   $ 13,831  

Total liabilities

   $ 19,108  

Total equity

   $ 8,721  

Comparative Per Share Market Price and Dividend Information (Page 296)

Since May 10, 2017, Vistra Energy Common Stock has been listed on the NYSE under the symbol “VST”. Upon Emergence and through May 9, 2017, Vistra Energy Common Stock was listed on the OTCQX US under the symbol “VSTE”. Dynegy Common Stock is listed on the NYSE under the symbol “DYN”.



 

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The following table presents closing prices for Vistra Energy Common Stock and Dynegy Common Stock on October 27, 2017, the last trading day before the public announcement of the Merger, and January 19, 2018, the latest practicable trading date before the date of this document. The table also presents the equivalent market value per share of Dynegy Common Stock as determined by multiplying the closing prices of shares of Vistra Energy Common Stock on October 27, 2017 and January 19, 2018 by the Exchange Ratio of 0.652x provided for in the Merger Agreement.

 

     Vistra Energy
Common Stock
     Dynegy
Common Stock
     Equivalent Per
Share of Dynegy
Common Stock
 

October 27, 2017

   $ 20.30      $ 11.22      $ 13.24  

January 19, 2018

   $ 19.49      $ 12.59      $ 12.71  

The market prices of Vistra Energy Common Stock and Dynegy Common Stock will fluctuate between the date of this document and the completion of the Merger.

The following table sets forth the per share high and low sales prices and per share cash dividends declared for Vistra Energy Common Stock and Dynegy Common Stock for the periods presented.

 

     Vistra Energy Common Stock      Dynegy Common Stock  
     High      Low      Cash
Dividends
Declared
     High      Low      Cash
Dividends
Declared
 

2018

                 

First quarter (through January 19, 2018)

   $ 19.56      $ 17.95      $ —        $ 12.62      $ 11.53      $ —    

2017

                 

Fourth quarter

   $ 20.49      $ 17.24      $ —        $ 12.49      $ 9.09      $ —    

Third quarter

   $ 18.70      $ 15.88      $ —        $ 9.93      $ 7.38      $ —    

Second quarter

   $ 16.86      $ 14.59      $ —        $ 9.12      $ 5.93      $ —    

First quarter

   $ 17.95      $ 15.36      $ —        $ 10.42      $ 6.96      $ —    

2016

                 

Fourth quarter

   $ 16.40      $ 13.60      $ 2.32      $ 13.38      $ 7.34      $ —    

Third quarter

            $ 18.09      $ 12.04      $ —    

Second quarter

            $ 21.51      $ 14.16      $ —    

First quarter

            $ 14.37      $ 7.43      $ —    

2015

                 

Fourth quarter

            $ 23.70      $ 10.02      $ —    

Third quarter

            $ 30.07      $ 19.68      $ —    

Second quarter

            $ 34.16      $ 29.25      $ —    

Because the Exchange Ratio will not be adjusted for changes in the market price of either Vistra Energy Common Stock or Dynegy Common Stock, the market value of the Vistra Energy Common Stock that holders of Dynegy Common Stock will have the right to receive on the date the Merger is completed may vary significantly from the market value of the Vistra Energy Common Stock that holders of Dynegy Common Stock would receive if the Merger were completed on the date of this joint proxy statement and prospectus. As a result, you should obtain recent market prices of Vistra Energy Common Stock and Dynegy Common Stock prior to voting your shares. See “Risk Factors—Risks Related to the Merger” beginning on page 35.



 

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Comparative Historical and Unaudited Pro Forma Condensed Combined Consolidated Per Share Financial Information (Page 297)

The following table sets forth historical per share information for Vistra Energy and Dynegy, summary unaudited pro forma condensed combined consolidated per share information for Vistra Energy giving effect to the Merger and equivalent pro forma per share information of Dynegy based on the Exchange Ratio of 0.652x provided for in the Merger Agreement. The following information assumes the Merger was completed on January 1, 2016 for pro forma combined earnings per share purposes and September 30, 2017 for book value per share purposes. The following information should be read in conjunction with “Unaudited Pro Forma Condensed Combined Consolidated Financial Information” included elsewhere in this document.

 

     Vistra Energy     Dynegy  
     Historical     Pro Forma
Combined
    Historical     Pro Forma
Equivalent(a)(d)
 

Nine Months Ended September 30, 2017:

        

Basic earnings (loss) per share of common stock

   $ 0.76     $ 0.57     $ 0.50     $ 0.37  

Diluted earnings (loss) per share of common stock

   $ 0.76     $ 0.56     $ 0.48     $ 0.37  

Cash dividends declared per share of common stock

   $ —       $ —       $ —       $ —    

Book value per share of common stock(b)

   $ 16.22     $ 16.25     $ 15.14     $ 10.60  

Year Ended December 31, 2016(c):

        

Basic earnings (loss) per share of common stock

   $ (0.02   $ (1.50   $ (9.79   $ (0.98

Diluted earnings (loss) per share of common stock

   $ (0.02   $ (1.50   $ (9.79   $ (0.98

Cash dividends declared per share of common stock

   $ 2.32     $ 2.32     $ —       $ 1.51  

 

(a) The pro forma equivalent per share amounts were calculated by multiplying the pro forma combined per share amounts by the Exchange Ratio of 0.652x provided for in the Merger Agreement.
(b) Historical book value per share amounts were calculated by dividing total equity by the number of outstanding shares of Vistra Energy Common Stock or Dynegy Common Stock, as applicable. Pro forma book value per share amounts were calculated by dividing pro forma combined total equity by the pro forma combined number of shares of Vistra Energy Common Stock that would have been outstanding as of September 30, 2017.
(c) Vistra Energy’s historical per share amounts are for the Successor period from October 3, 2016 through December 31, 2016.
(d) The cash dividend declared per share of common stock represents an equivalent per share amount as if the share participated in the dividend declared in the year ended December 31, 2016.


 

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RISK FACTORS

In addition to other information included elsewhere in this joint proxy statement and prospectus and in the annexes to this joint proxy statement and prospectus, including the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 61, you should carefully consider the following risk factors in deciding whether to vote for the proposals set forth in this joint proxy statement and prospectus. You should also read and consider the other information in this joint proxy statement and prospectus and the other documents incorporated by reference into this joint proxy statement and prospectus. Please also see “Where You Can Find More Information and Incorporation by Reference” on page 309.

Risks Related to the Merger

The Merger is subject to a number of conditions which, if not satisfied or waived in a timely manner, would delay the Merger or adversely impact the ability of Vistra Energy and Dynegy to complete the Merger on the terms set forth in the Merger Agreement or at all.

The completion of the Merger is subject to the satisfaction or waiver of a number of conditions. For example, before the Merger may be completed, both Vistra Energy stockholders and Dynegy stockholders must approve the Merger Proposal. In addition, various filings must be made with the FERC and certain other regulatory, antitrust and other authorities in the United States, including the PUCT, the NYPSC, the U.S. Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”). These governmental authorities may impose conditions on the completion, or require changes to the terms, of the Merger, including restrictions or conditions on the business, operations or financial performance of the combined company following completion of the Merger. These conditions or changes, including potential litigation brought in connection with the Merger, could have the effect of delaying completion of the Merger or imposing additional costs on or limiting the revenues of the combined company following the Merger, or could cause the combined company not to realize the anticipated benefits of the Merger, any of which could have a material adverse effect on the financial condition, results of operations and cash flows of the combined company and/or cause either Dynegy or Vistra Energy to abandon the Merger. These conditions or changes could also have the effect of causing the Merger to be consummated on terms different than those contemplated by the Merger Agreement or causing the Merger to fail to be consummated.

If Vistra Energy and Dynegy are unable to complete the Merger, they still will incur and will remain liable for significant transaction costs, including legal, accounting, filing, printing and other costs relating to the Merger. Also, depending upon the reasons for not completing the Merger, Vistra Energy may be required to pay Dynegy a termination fee of $100 million or reimburse its expenses up to $22 million, or Dynegy may be required to pay Vistra Energy a termination fee of $87 million or reimburse its expenses up to $22 million. For more information on the termination fees and/or expenses potentially payable by Vistra Energy and Dynegy, see “The Merger Agreement—Termination of the Merger Agreement.” If such a termination fee is payable, the payment of this fee could have a material adverse effect on the financial condition, results of operations and cash flows of Vistra Energy or Dynegy, as applicable.

Failure to consummate the Merger as currently contemplated or at all could adversely affect the price of Vistra Energy Common Stock or Dynegy Common Stock and the future business and financial results of Vistra Energy or Dynegy.

The completion of the Merger is subject to the satisfaction or waiver of a number of conditions. Vistra Energy and Dynegy cannot guarantee when or if these conditions will be satisfied or that the Merger will be successfully completed. If the Merger is not consummated, or is consummated on different terms than as contemplated by the Merger Agreement, Vistra Energy and Dynegy could be adversely affected and subject to a variety of risks associated with the failure to consummate the Merger, or to consummate the Merger as contemplated by the Merger Agreement, including:

 

    Vistra Energy stockholders and Dynegy stockholders may be prevented from realizing the anticipated potential benefits of the Merger;

 

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    the market price of Vistra Energy Common Stock or Dynegy Common Stock could decline significantly;

 

    reputational harm due to the adverse public perception of any failure to successfully complete the Merger;

 

    under certain circumstances, Vistra Energy may be required to pay Dynegy a termination fee of up to $100 million or reimburse its expenses up to $22 million, or Dynegy may be required to pay Vistra Energy a termination fee of up to $87 million or reimburse its expenses up to $22 million; and

 

    the attention of Vistra Energy’s and Dynegy’s management and employees may be diverted from their day-to-day business and operational matters and Vistra Energy’s and Dynegy’s relationships with their customers and suppliers may be disrupted as a result of efforts relating to attempting to consummate the Merger.

Any delay in the consummation of the Merger, any uncertainty about the consummation of the Merger on terms other than those contemplated by the Merger Agreement and any failure to consummate the Merger could adversely affect the business, financial results and stock price of Vistra Energy and/or Dynegy.

Vistra Energy and Dynegy will be subject to business uncertainties and contractual restrictions while the Merger is pending that could adversely affect their financial results.

Uncertainty about the effect of the Merger on employees, customers and suppliers may have an adverse effect on Vistra Energy’s and/or Dynegy’s business. These uncertainties may impair each company’s ability to attract, retain and motivate key personnel until the Merger is completed and for a period of time thereafter, and could cause customers, suppliers and others that deal with Vistra Energy and/or Dynegy to seek to change existing business relationships.

If, despite Vistra Energy’s and Dynegy’s retention and recruiting efforts, key employees depart or prospective employees fail to accept employment with them for any reason, including because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the combined company, the operations and financial results of Vistra Energy and/or Dynegy could be affected.

The pursuit of the Merger and the preparation for the integration of Dynegy into Vistra Energy may place a significant burden on management and internal resources. The diversion of management attention away from ongoing business concerns and any difficulties encountered in the transition and integration process could affect the business, and financial condition, results of operations and cash flows of Vistra Energy and/or Dynegy.

In addition, Vistra Energy and Dynegy are restricted under the Merger Agreement, without obtaining the other party’s consent, from taking certain other specified actions until the Merger occurs or the Merger Agreement terminates. These restrictions may prevent Vistra Energy and Dynegy from pursuing otherwise attractive business opportunities and making other changes to their businesses prior to completion of the Merger or termination of the Merger Agreement.

Because the market prices of shares of Vistra Energy Common Stock and shares of Dynegy Common Stock will fluctuate and the Exchange Ratio is fixed, the market value of the merger consideration at the date of the closing may vary significantly from the date the Merger Agreement was executed, the date of this joint proxy statement and prospectus and the dates of Vistra Energy’s special meeting and Dynegy’s special meeting.

Upon completion of the Merger, subject to certain exceptions, each outstanding share of Dynegy Common Stock will be converted into the right to receive 0.652 of a share of Vistra Energy Common Stock. The number of shares of Vistra Energy Common Stock to be issued pursuant to the Merger Agreement for each share of Dynegy Common Stock is fixed and will not change to reflect changes in the market price of Vistra Energy

 

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Common Stock or Dynegy Common Stock. Because the Exchange Ratio is fixed, the market value of the Vistra Energy Common Stock issued in connection with the Merger and/or the Dynegy Common Stock surrendered in connection with the Merger may be significantly higher or lower than the values of those shares on the date the Merger Agreement was signed, the date of this joint proxy statement and prospectus, the dates of Vistra Energy’s special meeting and Dynegy’s special meeting to consider the Merger Proposal or other earlier dates. Stock price changes may result from market assessment of the likelihood that the Merger will be completed, changes in the business, operations or prospects of Vistra Energy or Dynegy prior to or following the Merger, litigation or regulatory considerations, general business, market, industry or economic conditions and other factors both within and beyond the control of Vistra Energy and Dynegy. Neither Vistra Energy nor Dynegy is permitted to terminate the Merger Agreement because of changes in the market price of either company’s common stock.

The Merger Agreement contains provisions that limit the ability of Vistra Energy and Dynegy to pursue alternatives to the Merger, which could discourage a potential competing acquirer of Vistra Energy or Dynegy from making a favorable alternative transaction proposal and, in certain circumstances, could require Vistra Energy to pay a termination fee to Dynegy or Dynegy to a pay a termination fee to Vistra Energy.

Under the Merger Agreement, Vistra Energy and Dynegy are restricted from entering into alternative transactions to the Merger. Unless and until the Merger Agreement is terminated, subject to specified exceptions, Vistra Energy and Dynegy are restricted from soliciting, initiating, seeking or knowingly encouraging or facilitating, or engaging in any discussions or negotiations with any person regarding, any alternative proposal or any inquiry, proposal or indication of interest that would reasonably be expected to lead to an alternative proposal. While the Vistra Energy Board and the Dynegy Board are permitted to change their respective recommendations to stockholders prior to the applicable special meeting under certain circumstances, namely if one party to the Merger Agreement is in receipt of an unsolicited superior proposal or a certain unforeseeable, material intervening event has occurred, before that party’s board of directors changes its recommendation to stockholders in such circumstances, it must give the other party the opportunity to make a revised proposal. Vistra Energy and Dynegy may terminate the Merger Agreement and enter into an agreement with respect to an unsolicited superior proposal only if specified conditions have been satisfied, including compliance with the provisions of the Merger Agreement restricting solicitation of alternative proposals and requiring payment of a termination fee in certain circumstances. These provisions could discourage a third party that may have an interest in acquiring all or a significant part of Vistra Energy or Dynegy from considering or proposing such an acquisition, even if such third party were prepared to pay consideration with a higher per share cash or market value than the market value proposed to be received or realized in the Merger, or could result in a potential competing acquirer proposing to pay a lower price than it would otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances. As a result of these restrictions, Vistra Energy and Dynegy may not be able to enter into an agreement with respect to a more favorable alternative transaction without incurring potentially significant liabilities in respect of the Merger.

If the Merger Agreement is terminated because the Vistra Energy Board changes its recommendation to stockholders or Vistra Energy enters into a definitive agreement for an unsolicited superior proposal, Vistra Energy will be required to pay Dynegy a termination fee of $100 million. If the Merger Agreement is terminated because the Dynegy Board changes its recommendation to stockholders or Dynegy enters into a definitive agreement for an unsolicited superior proposal, Dynegy will be required to pay Vistra Energy a termination fee of $87 million. For more information on the termination fees and/or expenses potentially payable by Vistra Energy and Dynegy, see “The Merger Agreement—Termination of the Merger Agreement.” If such a termination fee is payable, the payment of this fee could have a material adverse effect on the financial condition, results of operations and cash flows of Vistra Energy or Dynegy, as applicable.

 

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Holders of Vistra Energy Common Stock and Dynegy Common Stock will have a reduced ownership and voting interest in the combined company after the Merger and will exercise less influence over management of the combined company.

Upon completion of the Merger, continuing holders of Vistra Energy Common Stock are expected to own 79% of the combined company’s fully diluted equity and former holders of Dynegy Common Stock are expected to own the remaining 21% of the combined company’s fully diluted equity. Stockholders of Vistra Energy and Dynegy currently have the right to vote for their respective boards of directors and on other matters affecting the applicable company. When the Merger occurs, each Dynegy stockholder will receive 0.652 shares of Vistra Energy Common Stock per share of Dynegy Common Stock, resulting in a percentage ownership of the combined company that is smaller than the Dynegy stockholders’ percentage ownership of Dynegy prior to the Merger. Correspondingly, each Vistra Energy stockholder will remain a stockholder in Vistra Energy with a percentage ownership of the combined company that is smaller than the stockholder’s percentage ownership of Vistra Energy prior to the Merger. As a result of these reduced ownership percentages, current stockholders of Vistra Energy and Dynegy may have less influence on the management and policies of the combined company than they now have with respect to Vistra Energy and Dynegy, respectively, on a standalone basis.

The Merger will result in changes to the board of directors that may affect the strategy and operations of the combined company.

In connection with the consummation of the Merger, the board of directors of the combined company will be expanded to consist of eleven members, which is expected to be comprised of all eight members of the Vistra Energy Board and three members from the Dynegy Board (provided such directors are willing to serve on the board of the combined company). This new composition of the board of directors may affect the combined company’s business strategy and operating decisions following the completion of the Merger.

If the Merger is not consummated by the End Date, Vistra Energy or Dynegy may terminate the Merger Agreement in certain circumstances.

Either Vistra Energy or Dynegy may terminate the Merger Agreement under certain circumstances, including, if the Merger has not been consummated by the End Date (which is April 29, 2019, unless extended pursuant to the terms of the Merger Agreement). However, this termination right will not be available to a party if that party failed to perform or comply in all material respects with its obligations under the Merger Agreement and that failure was the principal cause of the failure to consummate the Merger by such date.

An adverse judgment in any litigation challenging the Merger may prevent the Merger from becoming effective or from becoming effective within the expected timeframe.

It is possible that Vistra Energy stockholders or Dynegy stockholders may file lawsuits challenging the Merger or the other transactions contemplated by the Merger Agreement, which may name Vistra Energy, the Vistra Energy Board, Dynegy and/or the Dynegy Board as defendants. The outcome of such lawsuits cannot be assured, including the amount of costs associated with defending these claims or any other liabilities that may be incurred in connection with the litigation of these claims. If plaintiffs are successful in obtaining an injunction prohibiting the parties from completing the Merger on the agreed-upon terms, such an injunction may delay the consummation of the Merger in the expected timeframe, or may prevent the Merger from being consummated altogether. Whether or not any plaintiff’s claim is successful, this type of litigation may result in significant costs and divert management’s attention and resources, which could adversely affect the operation of Vistra Energy’s and Dynegy’s business.

 

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The unaudited pro forma condensed combined consolidated financial information included elsewhere in this joint proxy statement and prospectus are not intended to be representative of the combined company’s results after the Merger, and accordingly, you have limited financial information on which to evaluate the combined company following the Merger.

The unaudited pro forma condensed combined consolidated financial information included elsewhere in this joint proxy statement and prospectus has been presented for informational purposes only and is not intended to be indicative of the financial position or results of operations that actually would have occurred had the Merger been completed as of the dates indicated, nor is it indicative of the future operating results or financial position of the combined company following the Merger. The unaudited pro forma condensed combined consolidated financial information does not reflect future events that may occur after the Merger. The unaudited pro forma condensed combined consolidated financial information presented elsewhere in this joint proxy statement and prospectus is based in part on certain assumptions regarding the Merger that Vistra Energy and Dynegy believe are reasonable under the circumstances. Neither Vistra Energy nor Dynegy can assure you that the assumptions will prove to be accurate over time.

Following the Merger, the combined company may be unable to integrate Vistra Energy’s business and Dynegy’s business successfully and realize the anticipated synergies and other expected benefits of the Merger on the anticipated timeframe or at all.

The Merger involves the combination of two companies that currently operate as independent public companies. The combined company expects to benefit from certain cost savings and operating efficiencies, some of which will take time to realize. The combined company will be required to devote significant management attention and resources to the integration of Vistra Energy’s and Dynegy’s business practices and operations. The potential difficulties the combined company may encounter in the integration process include the following:

 

    the inability to successfully combine Vistra Energy’s and Dynegy’s businesses in a manner that permits the combined company to achieve the cost savings anticipated to result from the Merger, which would result in the anticipated benefits of the Merger not being realized in the timeframe currently anticipated or at all;

 

    the complexities associated with integrating personnel from the two companies;

 

    the complexities of combining two companies with different histories, geographic footprints and asset mixes;

 

    the complexities in combining two companies with separate technology systems;

 

    potential unknown liabilities and unforeseen increased expenses, delays or conditions associated with the Merger;

 

    failure to perform by third-party service providers who provide key services for the combined company; and

 

    performance shortfalls as a result of the diversion of management’s attention caused by completing the Merger and integrating the companies’ operations.

For all these reasons, you should be aware that it is possible that the integration process could result in the distraction of the combined company’s management, the disruption of the combined company’s ongoing business or inconsistencies in its operations, services, standards, controls, policies and procedures, any of which could adversely affect the combined company’s ability to maintain relationships with operators, vendors and employees, to achieve the anticipated benefits of the Merger, or could otherwise materially and adversely affect its business and financial results.

 

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The Merger will combine two companies that are currently affected by developments in the electric utility industry, including changes in regulation and increased competition. A failure to adapt to the changing regulatory environment after the Merger could adversely affect the stability of the combined company’s earnings and could result in the erosion of its market positions, revenues and profits.

Because Vistra Energy, Dynegy and their respective subsidiaries are regulated in the U.S. at the federal level and in several states, the two companies have been and will continue to be affected by legislative and regulatory developments. After the Merger, the combined company and/or its subsidiaries will be subject in the U.S. to extensive federal regulation as well as to state regulation in the states in which the combined company will operate. The costs and burdens associated with complying with these regulatory jurisdictions may have a material adverse effect on the combined company. Moreover, potential legislative changes, regulatory changes or otherwise may create greater risks to the stability of the combined company’s earnings generally. If the combined company is not responsive to these changes, it could suffer erosion in market position, revenues and profits as competitors gain access to its service territories.

Certain directors and executive officers of Vistra Energy and Dynegy have interests in the Merger that are different from, or in addition to, those of other Vistra Energy and Dynegy stockholders, which could have influenced their decisions to support or approve the Merger.

Vistra Energy and Dynegy stockholders should recognize that certain directors and executive officers of Vistra Energy and Dynegy have interests in the Merger that differ from, or that are in addition to, their interests as stockholders of Vistra Energy and Dynegy. These interests include, among others, continued service as a director or an executive officer of the combined company, the accelerated vesting of certain equity awards and/or severance benefits as a result of termination of employment in connection with the Merger. These interests, among others, may influence the directors and executive officers of Vistra Energy and/or Dynegy to approve and/or recommend Merger-related proposals. The Vistra Energy Board and the Dynegy Board were aware of and considered these interests at the time each approved the Merger Agreement. See “The Merger—Interests of Vistra Energy’s Directors and Executive Officers in the Merger” beginning on page 125 and “The Merger—Interests of Dynegy’s Directors and Executive Officers in the Merger” beginning on page 126.

The shares of Vistra Energy Common Stock to be received by Dynegy stockholders as a result of the Merger will have different rights from the shares of Dynegy Common Stock.

Upon completion of the Merger, Dynegy stockholders will become Vistra Energy stockholders and their rights as stockholders will be governed by Vistra Energy’s certificate of incorporation and bylaws. Certain of the rights associated with Vistra Energy Common Stock are different from the rights associated with Dynegy Common Stock. Please see “Comparison of Rights of Vistra Energy Stockholders and Dynegy Stockholders” beginning on page 288 for a discussion of the different rights associated with Vistra Energy Common Stock.

The combined company will have a significant amount of indebtedness. As a result, it may be more difficult for the combined company to pay or refinance its debts or take other actions, and the combined company may need to divert its cash flow from operations to debt service payments.

The combined company will have substantial indebtedness following completion of the Merger. In addition, subject to the limits contained in the documents governing such indebtedness, the combined company may be able to incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If the combined company does so, the risks related to its high level of debt could intensify. The amount of such indebtedness could have material adverse consequences for the combined company, including:

 

    hindering its ability to adjust to changing market, industry or economic conditions;

 

    limiting its ability to access the capital markets to raise additional equity or refinance maturing debt on favorable terms or to fund future working capital, capital expenditures, acquisitions or emerging businesses or other general corporate purposes;

 

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    limiting the amount of free cash flow available for future operations, acquisitions, dividends, stock repurchases or other uses;

 

    making it more vulnerable to economic or industry downturns, including interest rate increases; and

 

    placing it at a competitive disadvantage compared to less leveraged competitors.

Moreover, to respond to competitive challenges, the combined company may be required to raise substantial additional capital to execute its business strategy. The combined company’s ability to arrange additional financing will depend on, among other factors, its financial position and performance, as well as prevailing market conditions and other factors beyond its control. Even if the combined company is able to obtain additional financing, its credit ratings could be adversely affected, which could raise its borrowing costs and limit its future access to capital and its ability to satisfy its obligations under its indebtedness.

The terms of the credit agreements governing the combined company’s two separate credit facilities will restrict its current and future operations, particularly the combined company’s ability to respond to changes or to take certain actions.

The combined company is expected to operate under two separate credit facilities, each with its own set of restrictive covenants. These restrictive covenants may limit the combined company’s ability to engage in acts that may be in the combined company’s long-term best interest, including restrictions on its ability to enter into intercompany business and financial transactions and arrangements, and therefore may prevent the combined company from fully realizing the potential benefits of the Merger. Additionally, the combined company’s ability to comply with the financial and other covenants contained in its debt instruments may be affected by changes in economic or business conditions or other events beyond its control.

A breach of the covenants and restrictions under the credit agreements governing the combined company’s credit facilities could result in an event of default under the applicable indebtedness. If the combined company experiences such a default, it may be required to take actions such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing all or part of its existing debt, or seeking additional equity capital. The combined company may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow the combined company to meet its scheduled debt service obligations. As a result of these restrictions, the combined company may be:

 

    limited in how it conducts its business;

 

    unable to raise additional debt or equity financing to operate during general economic or business downturns; or

 

    unable to compete effectively or take advantage of new business opportunities.

These restrictions may affect the combined company’s ability to grow in accordance with its strategy. In addition, the combined company’s financial results, its substantial indebtedness and credit ratings could adversely affect the availability and terms of its financing.

The combined company is expected to incur substantial expenses related to the Merger and the integration of Vistra Energy and Dynegy.

The combined company is expected to incur substantial expenses in connection with the Merger and the integration of Vistra Energy and Dynegy. There are a large number of processes, policies, procedures, operations, technologies and systems at each company that must be integrated, including purchasing, accounting and finance, sales, payroll, pricing, revenue management, commercial operations, risk management, marketing and employee benefits. While Vistra Energy and Dynegy have assumed that a certain level of expenses would be incurred, there are many factors beyond their control that could affect the total amount or the timing of the integration expenses.

 

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Moreover, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately. These expenses could, particularly in the near term, exceed the savings that the combined company expects to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings. These integration expenses likely will result in the combined company taking significant charges against earnings following the completion of the Merger, and the amount and timing of such charges are uncertain at present.

Risks Related to Vistra Energy

Vistra Energy’s revenues, results of operations and operating cash flows generally are negatively impacted by decreases in market prices for electricity.

Vistra Energy is not guaranteed any rate of return on capital investments in its businesses. Vistra Energy conducts integrated power generation and retail electricity activities, focusing on power generation, wholesale electricity sales and purchases, retail sales of electricity and services to end users and commodity risk management. Its wholesale and retail businesses are to some extent countercyclical in nature, particularly for the wholesale power and ancillary services supplied to the retail business. However, Vistra Energy does have a wholesale power position that exceeds the overall load requirements of its retail business and is subject to wholesale power price moves. As a result, Vistra Energy’s revenues, results of operations and operating cash flows depend in large part upon wholesale market prices for electricity, natural gas, uranium, lignite, coal, fuel and transportation in its regional market and other competitive markets and upon prevailing retail electricity rates, which may be impacted by, among other things, actions of regulatory authorities. Market prices may fluctuate substantially over relatively short periods of time. Demand for electricity can fluctuate dramatically, creating periods of substantial under- or over-supply. Over-supply can also occur as a result of the construction of new power plants, as Vistra Energy has observed in recent years. During periods of over-supply, electricity prices might be depressed. Also, at times there may be political pressure, or pressure from regulatory authorities with jurisdiction over wholesale and retail energy commodity and transportation rates, to impose price limitations, bidding rules and other mechanisms to address volatility and other issues in these markets.

Some of the fuel for Vistra Energy’s generation facilities is purchased under short-term contracts. Fuel costs (including diesel, natural gas, lignite, coal and nuclear fuel) may be volatile, and the wholesale price for electricity may not change at the same rate as changes in fuel costs. In addition, it purchases and sells natural gas and other energy related commodities, and volatility in these markets may affect costs incurred in meeting obligations.

Volatility in market prices for fuel and electricity may result from, among other factors:

 

    volatility in natural gas prices;

 

    volatility in ERCOT market heat rates;

 

    volatility in coal and rail transportation prices;

 

    volatility in nuclear fuel and related enrichment and conversion services;

 

    severe or unexpected weather conditions, including drought and limitations on access to water;

 

    seasonality;

 

    changes in electricity and fuel usage resulting from conservation efforts, changes in technology or other factors;

 

    illiquidity in the wholesale electricity or other commodity markets;

 

    transmission or transportation disruptions, constraints, inoperability or inefficiencies;

 

    availability of competitively priced alternative energy sources or storage;

 

    changes in market structure and liquidity;

 

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    changes in the manner in which Vistra Energy operates its facilities, including curtailed operation due to market pricing, environmental, safety or other factors;

 

    changes in generation efficiency;

 

    outages or otherwise reduced output from its generation facilities or those of its competitors;

 

    the addition of new electric capacity, including the construction of new power plants;

 

    its creditworthiness and liquidity and the willingness of fuel suppliers and transporters to do business with it;

 

    changes in the credit risk or payment practices of market participants;

 

    changes in production and storage levels of natural gas, lignite, coal, uranium, diesel and other refined products;

 

    natural disasters, wars, sabotage, terrorist acts, embargoes and other catastrophic events; and

 

    federal, state and local energy, environmental and other regulation and legislation.

All of Vistra Energy’s generation facilities are currently located in the ERCOT market, a market with limited interconnections to other markets. The price of electricity in the ERCOT market is typically set by natural gas-fueled generation facilities, with wholesale electricity prices generally tracking increases or decreases in the price of natural gas. A substantial portion of its supply volumes in 2016 and the nine months ended September 30, 2017 were produced by its nuclear-, lignite- and coal-fueled generation assets. Natural gas prices have generally trended downward since mid- 2008 (from $11.12 per MMBtu in mid-2008 to $3.11 per MMBtu for the average settled price for the year ended December 31, 2017). Furthermore, in recent years, natural gas supply has outpaced demand primarily as a result of development and expansion of hydraulic fracturing in natural gas extraction, and the supply/demand imbalance has resulted in historically low natural gas prices. Because Vistra Energy’s baseload generating units and a substantial portion of its load following generating units are nuclear-, lignite- and coal-fueled, Vistra Energy’s results of operations and operating cash flows have been negatively impacted by the effect of low natural gas prices on wholesale electricity prices without a significant decrease in its operating cost inputs. Various industry experts expect this supply/demand imbalance to persist for a number of years, thereby depressing natural gas prices for a long-term period. As a result, the financial results from, and the value of, Vistra Energy’s generation assets could remain depressed or could materially decrease in the future unless natural gas prices rebound materially.

Wholesale electricity prices also track ERCOT market heat rates, which can be affected by a number of factors, including generation availability and the efficiency of the marginal supplier (generally natural gas-fueled generation facilities) in generating electricity. Vistra Energy’s market heat rate exposure is impacted by changes in the availability of generating resources, such as additions and retirements of generation facilities, and the mix of generation assets in ERCOT. For example, increasing renewable (wind and solar) generation capacity generally depresses market heat rates. Additionally, construction of more efficient generation capacity also depresses market heat rates. Decreases in market heat rates decrease the value of all of Vistra Energy’s generation assets because lower market heat rates generally result in lower wholesale electricity prices. Even though market heat rates have generally increased over the past several years, wholesale electricity prices have declined due to the greater effect of falling natural gas prices. As a result, the financial results from, and the value of, Vistra Energy’s nuclear-, lignite- and coal-fueled generation assets could significantly decrease in profitability and value and its financial condition and results of operations may be negatively impacted if ERCOT market heat rates decline.

Vistra Energy recently announced the retirement of its Big Brown, Sandow and Monticello units. A sustained decrease in the financial results from, or the value of, Vistra Energy’s generation units ultimately could result in the retirement or idling of certain other generation units. In recent years, Vistra Energy has operated certain of its lignite- and coal-fueled generation assets only during parts of the year that have higher electricity demand and, therefore, higher related wholesale electricity prices.

 

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Vistra Energy’s assets or positions cannot be fully hedged against changes in commodity prices and market heat rates, and hedging transactions may not work as planned or hedge counterparties may default on their obligations.

Vistra Energy’s hedging activities do not fully protect it against the risks associated with changes in commodity prices, most notably electricity and natural gas prices, because of the expected useful life of its generation assets and the size of its position relative to the duration of available markets for various hedging activities. Generally, commodity markets that Vistra Energy participate in to hedge its exposure to ERCOT electricity prices and heat rates have limited liquidity after two to three years. Further, Vistra Energy’s ability to hedge its revenues by utilizing cross-commodity hedging strategies with natural gas hedging instruments is generally limited to a duration of four to five years. To the extent Vistra Energy has unhedged positions, fluctuating commodity prices and/or market heat rates can materially impact its results of operations, cash flows, liquidity and financial condition, either favorably or unfavorably.

To manage its financial exposure related to commodity price fluctuations, Vistra Energy routinely enters into contracts to hedge portions of purchase and sale commitments, fuel requirements and inventories of natural gas, lignite, coal, diesel fuel, uranium and refined products, and other commodities, within established risk management guidelines. As part of this strategy, Vistra Energy routinely utilizes fixed-price forward physical purchase and sale contracts, futures, financial swaps and option contracts traded in over-the-counter markets or on exchanges. Although Vistra Energy devotes a considerable amount of time and effort to the establishment of risk management procedures, as well as the ongoing review of the implementation of these procedures, the procedures in place may not always function as planned and cannot eliminate all the risks associated with these activities. For example, Vistra Energy hedges the expected needs of its wholesale and retail customers, but unexpected changes due to weather, natural disasters, consumer behavior, market constraints or other factors could cause it to purchase electricity to meet unexpected demand in periods of high wholesale market prices or resell excess electricity into the wholesale market in periods of low prices. As a result of these and other factors, risk management decisions may have a material adverse effect on Vistra Energy.

Based on economic and other considerations, Vistra Energy may not be able to, or it may decide not to, hedge the entire exposure of its operations from commodity price risk. To the extent Vistra Energy does not hedge against commodity price risk and applicable commodity prices change in ways adverse to it, Vistra Energy could be materially and adversely affected. To the extent Vistra Energy does hedge against commodity price risk, those hedges may ultimately prove to be ineffective.

With the tightening of credit markets that began in 2008 and the expansion of regulatory oversight through various financial reforms, there has been a decline in the number of market participants in the wholesale energy commodities markets, resulting in less liquidity, particularly in the ERCOT electricity market. Notably, participation by financial institutions and other intermediaries (including investment banks) in such markets has declined. Extended declines in market liquidity could adversely affect Vistra Energy’s ability to hedge its financial exposure to desired levels.

To the extent Vistra Energy engages in hedging and risk management activities, it is exposed to the credit risk that counterparties that owe it money, energy or other commodities as a result of these activities will not perform their obligations to Vistra Energy. Should the counterparties to these arrangements fail to perform, Vistra Energy could be forced to enter into alternative hedging arrangements or honor the underlying commitment at then-current market prices. In such event, Vistra Energy could incur losses or forgo expected gains in addition to amounts, if any, already paid to the counterparties. ERCOT market participants are also exposed to risks that another ERCOT market participant may default on its obligations to pay ERCOT for electricity or services taken, in which case such costs, to the extent not offset by posted security and other protections available to ERCOT, may be allocated to various non-defaulting ERCOT market participants, including Vistra Energy.

 

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Vistra Energy’s results of operations and financial condition could be materially and adversely affected if energy market participants continue to construct additional generation facilities (i.e., new-build) in ERCOT despite relatively low power prices in ERCOT and such additional generation capacity results in a reduction in wholesale power prices.

Given the overall attractiveness of ERCOT and certain tax benefits associated with renewable energy, among other matters, energy market participants have continued to construct new generation facilities (i.e., new-build) in ERCOT despite relatively low wholesale power prices. If this market dynamic continues, Vistra Energy’s results of operations and financial condition could be materially and adversely affected if such additional generation capacity results in an over-supply of electricity in ERCOT that causes a reduction in wholesale power prices in ERCOT.

Vistra Energy’s liquidity needs could be difficult to satisfy, particularly during times of uncertainty in the financial markets or during times of significant fluctuation in commodity prices, and Vistra Energy may be unable to access capital on favorable terms or at all in the future, which could have a material adverse effect on Vistra Energy. Vistra Energy currently maintains non-investment grade credit ratings that could negatively affect its ability to access capital on favorable terms or result in higher collateral requirements, particularly if its credit ratings were to be downgraded in the future.

Vistra Energy’s businesses are capital intensive. In general, Vistra Energy relies on access to financial markets and credit facilities as a significant source of liquidity for its capital requirements and other obligations not satisfied by cash-on-hand or operating cash flows. The inability to raise capital or to access credit facilities, particularly on favorable terms, could adversely impact Vistra Energy’s liquidity and its ability to meet its obligations or sustain and grow its businesses and could increase capital costs and collateral requirements, any of which could have a material adverse effect on Vistra Energy.

Vistra Energy’s access to capital and the cost and other terms of acquiring capital are dependent upon, and could be adversely impacted by, various factors, including:

 

    general economic and capital markets conditions, including changes in financial markets that reduce available liquidity or the ability to obtain or renew credit facilities on favorable terms or at all;

 

    conditions and economic weakness in the ERCOT or general United States power markets;

 

    regulatory developments;

 

    changes in interest rates;

 

    a deterioration, or perceived deterioration, of its creditworthiness, enterprise value or financial or operating results;

 

    a reduction in Vistra Energy’s or its applicable subsidiaries’ credit ratings;

 

    its level of indebtedness and compliance with covenants in its debt agreements;

 

    a deterioration of the creditworthiness or bankruptcy of one or more lenders or counterparties under its credit facilities that affects the ability of such lender(s) to make loans to Vistra Energy;

 

    security or collateral requirements;

 

    general credit availability from banks or other lenders for Vistra Energy and its industry peers;

 

    investor confidence in the industry and in Vistra Energy and the ERCOT wholesale electricity market;

 

    volatility in commodity prices that increases credit requirements;

 

    a material breakdown in its risk management procedures;

 

    the occurrence of changes in its businesses;

 

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    disruptions, constraints, or inefficiencies in the continued reliable operation of its generation facilities; and

 

    changes in or the operation of provisions of tax and regulatory laws.

In addition, Vistra Energy currently maintains non-investment grade credit ratings. As a result, Vistra Energy may not be able to access capital on terms (financial or otherwise) as favorable as companies that maintain investment grade credit ratings or Vistra Energy may be unable to access capital at all at times when the credit markets tighten. In addition, its non-investment grade credit ratings may result in counterparties requesting collateral support (including cash or letters of credit) in order to enter into transactions with Vistra Energy.

A downgrade in long-term debt ratings generally causes borrowing costs to increase and the potential pool of investors to shrink, and could trigger liquidity demands pursuant to contractual arrangements. Future transactions by Vistra Energy or any of its subsidiaries, including the issuance of additional debt, could result in a temporary or permanent downgrade in its credit ratings.

The Vistra Operations Credit Facilities impose restrictions on it and any failure to comply with these restrictions could have a material adverse effect on Vistra Energy.

The Vistra Operations Credit Facilities contain restrictions that could adversely affect Vistra Energy by limiting its ability to plan for, or react to, market conditions or to meet its capital needs and could result in an event of default under the Vistra Operations Credit Facilities. The Vistra Operations Credit Facilities contain events of default customary for financings of this type. If Vistra Energy fails to comply with the covenants in the Vistra Operations Credit Facilities and is unable to obtain a waiver or amendment, or a default exists and is continuing, the lenders under such agreements could give notice and declare outstanding borrowings thereunder immediately due and payable. Any such acceleration of outstanding borrowings could have a material adverse effect on Vistra Energy.

Certain of Vistra Energy’s obligations are required to be secured by letters of credit or cash, which increase its costs. If Vistra Energy is unable to provide such security, it may restrict its ability to conduct its business, which could have a material adverse effect on Vistra Energy.

Vistra Energy undertakes certain hedging and commodity activities and enters into certain financing arrangements with various counterparties that require cash collateral or the posting of letters of credit which are at risk of being drawn down in the event Vistra Energy defaults on its obligations. Vistra Energy currently uses margin deposits, prepayments and letters of credit as credit support for commodity procurement and risk management activities. Future cash collateral requirements may increase based on the extent of its involvement in standard contracts and movements in commodity prices, and also based on its credit ratings and the general perception of creditworthiness in the markets in which Vistra Energy operate. In the case of commodity arrangements, the amount of such credit support that must be provided typically is based on the difference between the price of the commodity in a given contract and the market price of the commodity. Significant movements in market prices can result in its being required to provide cash collateral and letters of credit in very large amounts. The effectiveness of Vistra Energy’s strategy may be dependent on the amount of collateral available to enter into or maintain these contracts, and liquidity requirements may be greater than it anticipates or will be able to meet. Without a sufficient amount of working capital to post as collateral, Vistra Energy may not be able to manage price volatility effectively or to implement its strategy. An increase in the amount of letters of credit or cash collateral required to be provided to its counterparties may have a material adverse effect on Vistra Energy.

Vistra Energy may not be able to complete future acquisitions or successfully integrate future acquisitions into its business, which could result in unanticipated expenses and losses.

As part of Vistra Energy’s growth strategy, it has pursued acquisitions and may continue to do so. Vistra Energy’s ability to continue to implement this component of its growth strategy will be limited by its ability to

 

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identify appropriate acquisition or joint venture candidates and its financial resources, including available cash and access to capital. Any expense incurred in completing acquisitions or entering into joint ventures, the time it takes to integrate an acquisition or Vistra Energy’s failure to integrate acquired businesses successfully could result in unanticipated expenses and losses. Furthermore, Vistra Energy may not be able to fully realize the anticipated benefits from any future acquisitions or joint ventures it may pursue. In addition, the process of integrating acquired operations into its existing operations may result in unforeseen operating difficulties and expenses and may require significant financial resources that would otherwise be available for the execution of its business strategy.

Vistra Energy may be responsible for U.S. federal and state income tax liabilities that relate to the PrefCo Preferred Stock Sale and Spin-Off.

Pursuant to the Tax Matters Agreement, the parties thereto have agreed to take certain actions and refrain from taking certain actions in order to preserve the intended tax treatment of the Spin-Off and to indemnify the other parties to the extent a breach of such covenant results in additional taxes to the other parties. If Vistra Energy breaches such a covenant (or, in certain circumstances, if its stockholders or creditors of its Predecessor take or took certain actions that result in the intended tax treatment of the Spin-Off not to be preserved), Vistra Energy may be required to make substantial indemnification payments to the other parties to the Tax Matters Agreement.

The Tax Matters Agreement also allocates the responsibility for taxes for periods prior to the Spin-Off between EFH Corp. and Vistra Energy. For periods prior to the Spin-Off, (i) Vistra Energy is generally required to reimburse EFH Corp. with respect to any taxes paid by EFH Corp. that are attributable to Vistra Energy and (ii) EFH Corp. is generally required to reimburse Vistra Energy with respect to any taxes paid by Vistra Energy that are attributable to EFH Corp.

Vistra Energy is also required to indemnify EFH Corp. against certain taxes in the event the IRS or another taxing authority successfully challenges the amount of gain relating to the PrefCo Preferred Stock Sale or the amount or allowance of EFH Corp.’s net operating loss deductions.

Vistra Energy’s indemnification obligations to EFH Corp. are not limited by any maximum amount. If Vistra Energy is required to indemnify EFH Corp. or such other persons under the circumstances set forth in the Tax Matters Agreement, Vistra Energy may be subject to substantial liabilities.

Vistra Energy is required to pay the holders of TRA Rights for certain tax benefits, which amounts are expected to be substantial.

On the Plan Effective Date, Vistra Energy entered into the Tax Receivable Agreement with American Stock Transfer & Trust Company, LLC, as the transfer agent. Pursuant to the Tax Receivable Agreement, Vistra Energy issued beneficial interests in the rights to receive payments under the Tax Receivable Agreement (the “TRA Rights”) to the first lien creditors of its Predecessor to be held in escrow for the benefit of the first lien creditors of its Predecessor entitled to receive such TRA Rights under the Plan of Reorganization. Vistra Energy’s pro forma financial statements included elsewhere in this joint proxy statement and prospectus reflect a liability of $708 million related to these future payment obligations. This amount is based on certain assumptions as described more fully in the notes to the pro forma financial statements, including assumptions on the current corporate tax rates remaining unchanged, and the actual payments made under the Tax Receivable Agreement could materially exceed this estimate.

The Tax Receivable Agreement provides for the payment by Vistra Energy to the holders of TRA Rights of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that Vistra Energy and its subsidiaries actually realize as a result of its use of (a) the tax basis step-up attributable to the PrefCo Preferred Stock Sale, (b) the entire tax basis of the assets acquired as a result of the purchase and sale agreement, dated as

 

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of November 25, 2015 by and between La Frontera Ventures, LLC and Luminant, and (c) tax benefits related to imputed interest deemed to be paid by it as a result of payments under the Tax Receivable Agreement. The amount and timing of any payments under the Tax Receivable Agreement will vary depending upon a number of factors, including the amount and timing of the taxable income Vistra Energy generates in the future and the tax rate then applicable, its use of loss carryovers and the portion of its payments under the Tax Receivable Agreement constituting imputed interest.

Although Vistra Energy is not aware of any issue that would cause the IRS to challenge the tax benefits that are the subject of the Tax Receivable Agreement, recipients of the payments under the Tax Receivable Agreement will not be required to reimburse Vistra Energy for any payments previously made if such tax benefits are subsequently disallowed. As a result, in such circumstances, Vistra Energy could make payments under the Tax Receivable Agreement that are greater than its actual cash tax savings and may not be able to recoup those payments, which could adversely affect its liquidity.

Because Vistra Energy is a holding company with no operations of its own, its ability to make payments under the Tax Receivable Agreement is dependent on the ability of its subsidiaries to make distributions to it. To the extent that Vistra Energy is unable to make payments under the Tax Receivable Agreement because of the inability of its subsidiaries to make distributions to it for any reason, such payments will be deferred and will accrue interest until paid, which could adversely affect Vistra Energy’s results of operations and could also affect its liquidity in periods in which such payments are made.

The payments Vistra Energy will be required to make under the Tax Receivable Agreement could be substantial.

Vistra Energy may be required to make an early termination payment to the holders of TRA Rights under the Tax Receivable Agreement.

The Tax Receivable Agreement provides that, in the event that Vistra Energy breaches any of its material obligations under the Tax Receivable Agreement, or upon certain mergers, asset sales, or other forms of business combination or certain other changes of control, the transfer agent under the Tax Receivable Agreement may treat such event as an early termination of the Tax Receivable Agreement, in which case Vistra Energy would be required to make an immediate payment to the holders of the TRA Rights equal to the present value (at a discount rate equal to LIBOR plus 100 basis points) of the anticipated future tax benefits based on certain valuation assumptions.

As a result, upon any such breach or change of control, Vistra Energy could be required to make a lump sum payment under the Tax Receivable Agreement before it can realize any actual cash tax savings and such lump sum payment could be greater than its future actual cash tax savings.

The aggregate amount of these accelerated payments could be materially more than Vistra Energy’s estimated liability for payments made under the Tax Receivable Agreement set forth in its pro forma financial statements. Based on this estimation, Vistra Energy’s obligations under the Tax Receivable Agreement could have a substantial negative impact on its liquidity.

Vistra Energy is potentially liable for U.S. income taxes of the entire EFH Corp. consolidated group for all taxable years in which Vistra Energy was a member of such group.

Prior to the Spin-Off, EFH Corporate Services Company, EFH Properties Company and certain other subsidiary corporations were included in the consolidated U.S. federal income tax group of which EFH Corp. was the common parent (the “EFH Corp. Consolidated Group”). In addition, pursuant to the private letter ruling from the IRS that Vistra Energy received in connection with the Spin-Off, Vistra Energy will be considered a member of the EFH Corp. Consolidated Group immediately prior to the Spin-Off. Under U.S. federal income tax

 

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laws, any corporation that is a member of a consolidated group at any time during a taxable year is severally liable for the group’s entire U.S. federal income tax liability for the entire taxable year. In addition, entities that are disregarded for U.S. federal income tax purposes may be liable as successors under common law theories or under certain regulations to the extent corporations transferred assets to such entities or merged or otherwise consolidated into such entities, whether under state law or purely as a matter of U.S. federal income tax law. Thus, notwithstanding any contractual rights to be reimbursed or indemnified by EFH Corp. pursuant to the Tax Matters Agreement, to the extent EFH Corp. or other members of the EFH Corp. Consolidated Group fail to make any U.S. federal income tax payments required of them by law in respect of taxable years for which Vistra Energy or any subsidiary noted above was a member of the EFH Corp. Consolidated Group, Vistra Energy or such subsidiary may be liable for the shortfall. At such time, Vistra Energy may not have sufficient cash on hand to satisfy such payment obligation.

Vistra Energy’s ability to claim a portion of depreciation deductions may be limited for a period of time.

Under the Code, a corporation’s ability to utilize certain tax attributes, including depreciation, may be limited following an ownership change if the corporation’s overall asset tax basis exceeds the overall fair market value of its assets (after making certain adjustments). The Spin-Off resulted in an ownership change for Vistra Energy and it is expected that the overall tax basis of Vistra Energy’s assets may have exceeded the overall fair market value of its assets at such time. As a result, there may be a limitation on Vistra Energy’s ability to claim a portion of its depreciation deductions for a five-year period. This limitation could have a material impact on its tax liabilities and on its obligations under the Tax Receivable Agreement. In addition, any future ownership change of Vistra Energy following Emergence could likewise result in additional limitations on its ability to use certain tax attributes existing at the time of any such ownership change and have an impact on its tax liabilities and on its obligations under the Tax Receivable Agreement.

Vistra Energy’s businesses are subject to ongoing complex governmental regulations and legislation that have impacted, and may in the future impact, its businesses, results of operations, liquidity and financial condition.

Vistra Energy’s businesses operate in changing market environments influenced by various state and federal legislative and regulatory initiatives regarding the restructuring of the energy industry, including competition in power generation and sale of electricity. Although Vistra Energy attempts to comply with changing legislative and regulatory requirements, there is a risk that Vistra Energy will fail to adapt to any such changes successfully or on a timely basis.

Vistra Energy’s businesses are subject to numerous state and federal laws (including PURA, the Federal Power Act, the Atomic Energy Act, the Public Utility Regulatory Policies Act of 1978, the Clean Air Act (“CAA”), the Energy Policy Act of 2005 and the Dodd-Frank Wall Street Reform and Consumer Protection Act), changing governmental policy and regulatory actions (including those of the PUCT, the NERC, the TRE, the RCT, the TCEQ, the FERC, the MSHA, the EPA, the NRC and CFTC and the rules, guidelines and protocols of ERCOT with respect to various matters, including, but not limited to, market structure and design, operation of nuclear generation facilities, construction and operation of other generation facilities, development, operation and reclamation of lignite mines, recovery of costs and investments, decommissioning costs, market behavior rules, present or prospective wholesale and retail competition and environmental matters. Vistra Energy, along with other market participants, are subject to electricity pricing constraints and market behavior and other competition-related rules and regulations under PURA that are administered by the PUCT and ERCOT. Changes in, revisions to, or reinterpretations of, existing laws and regulations may have a material adverse effect on Vistra Energy. Further, in the future, Vistra Energy could expand its business, through acquisitions or otherwise, to geographic areas outside of Texas and the ERCOT market (e.g. such as through the Merger). Such expansion would subject it to additional state regulatory requirements that could have material adverse effect on Vistra Energy.

The Texas Legislature meets every two years. The next regular legislative session is scheduled to begin in January 2019. However, at any time the governor of Texas may convene a special session of the legislature.

 

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During any regular or special session, bills may be introduced that, if adopted, could materially and adversely affect its businesses, results of operations, liquidity and financial condition.

Vistra Energy is required to obtain, and to comply with, government permits and approvals.

Vistra Energy is required to obtain, and to comply with, numerous permits and licenses from federal, state and local governmental agencies. The process of obtaining and renewing necessary permits and licenses can be lengthy and complex and can sometimes result in the establishment of conditions that make the project or activity for which the permit or license was sought unprofitable or otherwise unattractive. In addition, such permits or licenses may be subject to denial, revocation or modification under various circumstances. Failure to obtain or comply with the conditions of permits or licenses, or failure to comply with applicable laws or regulations, may result in the delay or temporary suspension of Vistra Energy’s operations and electricity sales or the curtailment of its delivery of electricity to its customers and may subject it to penalties and other sanctions. Although various regulators routinely renew existing permits and licenses, renewal of Vistra Energy’s existing permits or licenses could be denied or jeopardized by various factors, including (a) failure to provide adequate financial assurance for closure, (b) failure to comply with environmental, health and safety laws and regulations or permit conditions, (c) local community, political or other opposition and (d) executive, legislative or regulatory action.

Vistra Energy’s inability to procure and comply with the permits and licenses required for its operations, or the cost to Vistra Energy of such procurement or compliance, could have a material adverse effect on Vistra Energy. In addition, new environmental legislation or regulations, if enacted, or changed interpretations of existing laws, may cause routine maintenance activities at Vistra Energy’s facilities to need to be changed in order to avoid violating applicable laws and regulations or elicit claims that historical routine maintenance activities at its facilities violated applicable laws and regulations. In addition to the possible imposition of fines in the case of any such violations, Vistra Energy may be required to undertake significant capital investments in emissions control technology and obtain additional operating permits or licenses, which could have a material adverse effect on Vistra Energy.

Vistra Energy’s cost of compliance with existing and new environmental laws could have a material adverse effect on Vistra Energy.

Vistra Energy is subject to extensive environmental regulation by governmental authorities, including the EPA and the TCEQ. Vistra Energy may incur significant additional costs beyond those currently contemplated to comply with these regulatory requirements. If Vistra Energy fails to comply with these regulatory requirements, it could be subject to civil or criminal liabilities and fines. Existing environmental regulations could be revised or reinterpreted, new laws and regulations could be adopted or become applicable to Vistra Energy or its facilities, and future changes in environmental laws and regulations could occur, including potential regulatory and enforcement developments related to air emissions, all of which could result in significant additional costs beyond those currently contemplated to comply with existing requirements. Any of the foregoing could have a material adverse effect on Vistra Energy.

The EPA has recently finalized or proposed several regulatory actions establishing new requirements for control of certain emissions from sources, including electricity generation facilities. In the future, the EPA may also propose and finalize additional regulatory actions that may adversely affect Vistra Energy’s existing generation facilities or its ability to cost-effectively develop new generation facilities. There is no assurance that the currently installed emissions control equipment at Vistra Energy’s lignite, coal and/or natural gas-fueled generation facilities will satisfy the requirements under any future EPA or TCEQ regulations. Some of the recent regulatory actions and proposed actions, such as the EPA’s Regional Haze Federal Implementation Plans (FIP) for reasonable progress and best available retrofit technology (BART), could require Vistra Energy to install significant additional control equipment, resulting in potentially material costs of compliance for its generation units, including capital expenditures, higher operating and fuel costs and potential production curtailments if the rules take effect as proposed or finalized. These costs could have a material adverse effect on Vistra Energy.

 

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Vistra Energy may not be able to obtain or maintain all required environmental regulatory approvals. If there is a delay in obtaining any required environmental regulatory approvals, if Vistra Energy fails to obtain, maintain or comply with any such approval or if an approval is retroactively disallowed or adversely modified, the operation of its generation facilities could be stopped, disrupted, curtailed or modified or become subject to additional costs. Any such stoppage, disruption, curtailment, modification or additional costs could have a material adverse effect on Vistra Energy.

In addition, Vistra Energy may be responsible for any on-site liabilities associated with the environmental condition of facilities that it has acquired, leased or developed, regardless of when the liabilities arose and whether they are now known or unknown. In connection with certain acquisitions and sales of assets, Vistra Energy may obtain, or be required to provide, indemnification against certain environmental liabilities. Another party could, depending on the circumstances, assert an environmental claim against Vistra Energy or fail to meet its indemnification obligations to Vistra Energy.

Vistra Energy could be materially and adversely affected if current regulations are implemented or if new federal or state legislation or regulations are adopted to address global climate change, or if Vistra Energy is subject to lawsuits for alleged damage to persons or property resulting from GHG emissions.

There is a concern nationally and internationally about global climate change and how GHG emissions, such as CO2, contribute to global climate change. Over the last several years, the United States Congress has considered and debated, and President Obama’s administration previously discussed, several proposals intended to address climate change using different approaches, including a cap on carbon emissions with emitters allowed to trade unused emission allowances (cap-and-trade), a tax on carbon or GHG emissions, incentives for the development of low-carbon technology and federal renewable portfolio standards. The EPA has also finalized regulations under the CAA Act to limit CO2 emissions from existing generating units, referred to as the Clean Power Plan. While currently the subject of a legal challenge, if implemented as finalized, the Clean Power Plan would require the closure of a significant number of coal-fueled electric generating units nationwide and in Texas. In addition, a number of federal court cases have been filed in recent years asserting damage claims related to GHG emissions, and the results in those proceedings could establish adverse precedent that might apply to companies (including it) that produce GHG emissions. Vistra Energy could be materially and adversely affected if new federal and/or state legislation or regulations are adopted to address global climate change, if the Clean Power Plan is implemented as finalized or if Vistra Energy is subject to lawsuits for alleged damage to persons or property resulting from GHG emissions.

The availability and cost of emission allowances could adversely impact Vistra Energy’s costs of operations.

Vistra Energy is required to maintain, through either allocations or purchases, sufficient emission allowances for SO2 and NOx to support its operations in the ordinary course of operating its power generation facilities. These allowances are used to meet the obligations imposed on Vistra Energy by various applicable environmental laws. If Vistra Energy’s operational needs require more than its allocated allowances, Vistra Energy may be forced to purchase such allowances on the open market, which could be costly. If Vistra Energy is unable to maintain sufficient emission allowances to match its operational needs, Vistra Energy may have to curtail its operations so as not to exceed its available emission allowances, or install costly new emission controls. As Vistra Energy uses the emission allowances that it has purchased on the open market, costs associated with such purchases will be recognized as operating expense. If such allowances are available for purchase, but only at significantly higher prices, the purchase of such allowances could materially increase Vistra Energy’s costs of operations in the affected markets.

Luminant’s mining operations are subject to RCT oversight.

Vistra Energy currently owns and operates through Luminant 11 surface lignite coal mines in Texas to provide fuel for its electricity generation facilities. The RCT, which exercises broad authority to regulate

 

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reclamation activity, reviews on an ongoing basis whether Luminant is compliant with RCT rules and regulations and whether it has met all of the requirements of its mining permits. Any new rules and regulations adopted by the RCT or the Department of Interior Office of Surface Mining, which also regulates mining activity nationwide, or any changes in the interpretation of existing rules and regulations, could result in higher compliance costs or otherwise adversely affect Vistra Energy’s financial condition or cause a revocation of a mining permit. Any revocation of a mining permit would mean that Luminant would no longer be allowed to mine lignite at the applicable mine to serve its generation facilities. In addition, Luminant’s mining reclamation obligations are secured by a first lien on its assets which is pari passu with the Vistra Operations Credit Facilities (but which would be paid first, up to $975 million, upon any liquidation of Vistra Operations Company LLC’s (“Vistra Operations”) assets). The RCT could, at any time, require that Luminant’s mining reclamation obligations be secured by cash or letters of credit in lieu of such first lien. Any failure to provide any such cash or letter of credit collateral could result in Luminant no longer being able to mine lignite. Any such event could have a material adverse effect on Vistra Energy.

Luminant’s lignite mining reclamation activity will require significant resources as existing and retired mining operations are reclaimed over the next several years.

In conjunction with Luminant’s recent announcements to retire several power generation assets and related mining operations, along with the continuous reclamation activity at its continuing mining operations for its mines related to the Oak Grove and Martin Lake generation assets, Luminant is expected to spend a significant amount of money, internal resources and time to complete the required reclamation activities. For the next five years, Vistra Energy is projected to spend up to $400 million (on a nominal basis) to achieve its reclamation objectives across all of its mining operations.

Litigation, legal proceedings, regulatory investigations or other administrative proceedings could expose Vistra Energy to significant liabilities and reputation damage that could have a material adverse effect on Vistra Energy.

Vistra Energy is involved in the ordinary course of business in a number of lawsuits involving, among other matters, employment, commercial, and environmental issues, and other claims for injuries and damages. Vistra Energy evaluates litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses. Based on these evaluations and estimates, when required by applicable accounting rules, Vistra Energy establishes reserves and discloses the relevant litigation claims or legal proceedings, as appropriate. These evaluations and estimates are based on the information available to management at the time and involve a significant amount of judgment. Actual outcomes or losses may differ materially from current evaluations and estimates. The settlement or resolution of such claims or proceedings may have a material adverse effect on Vistra Energy. Vistra Energy uses appropriate means to contest litigation threatened or filed against it, but the litigation environment poses a significant business risk.

Vistra Energy is also involved in the ordinary course of business in regulatory investigations and other administrative proceedings, and Vistra Energy is exposed to the risk that it may become the subject of additional regulatory investigations or administrative proceedings. While Vistra Energy cannot predict the outcome of any regulatory investigation or administrative proceeding, any such regulatory investigation or administrative proceeding could result in it incurring material penalties and/or other costs and have a materially adverse effect on Vistra Energy.

The REP certification of Vistra Energy’s retail operation is subject to PUCT review.

The PUCT may at any time initiate an investigation into whether Vistra Energy’s retail operation complies with certain PUCT rules and whether it has met all of the requirements for REP certification, including financial requirements. Any removal or revocation of a REP certification would mean that Vistra Energy would no longer be allowed to provide electricity service to retail customers. Such decertification could have a material adverse

 

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effect on Vistra Energy. Moreover, any capital or other expenditures that Vistra Energy is required by the PUCT to undertake in order to achieve or maintain any such compliance could also have a material adverse effect on Vistra Energy.

Vistra Energy’s retail operations are subject to significant competition from other REPs, which could result in a loss of existing customers and the inability to attract new customers.

Vistra Energy operates in a very competitive retail market and, as a result, its retail operation faces significant competition for customers. Vistra Energy believes its TXU EnergyTM brand is viewed favorably in the retail electricity markets in which it operates, but despite Vistra Energy’s commitment to providing superior customer service and innovative products, customer sentiment toward its brand, including by comparison to its competitors’ brands, depends on certain factors beyond its control. For example, competitor REPs may offer lower electricity prices and other incentives, which, despite Vistra Energy’s long-standing relationship with many customers, may attract customers away from it. If Vistra Energy is unable to successfully compete with competitors in the retail market it is possible its retail customer counts could continue to decline, which could have a material adverse effect on Vistra Energy.

As Vistra Energy tries to grow its retail business and operate its business strategy, Vistra Energy competes with various other REPs that may have certain advantages over it. For example, in new markets, Vistra Energy’s principal competitor for new customers may be the incumbent REP, which has the advantage of long-standing relationships with its customers, including well-known brand recognition. In addition to competition from the incumbent REP, Vistra Energy may face competition from a number of other energy service providers, other energy industry participants, or nationally branded providers of consumer products and services who may develop businesses that will compete with Vistra Energy. Some of these competitors or potential competitors may be larger than Vistra Energy is or have greater resources or access to capital than Vistra Energy has. If there is inadequate potential margin in retail electricity markets with substantial competition to overcome the adverse effect of relatively high customer acquisition costs in such markets, it may not be profitable for Vistra Energy to compete in these markets.

Vistra Energy’s retail operations rely on the infrastructure of local utilities or independent transmission system operators to provide electricity to, and to obtain information about, its customers. Any infrastructure failure could negatively impact customer satisfaction and could have a material adverse effect on Vistra Energy.

Vistra Energy’s retail operations depend on transmission and distribution facilities owned and operated by unaffiliated utilities to deliver the electricity that Vistra Energy sells to its customers. If transmission capacity is inadequate, its ability to sell and deliver electricity may be hindered and Vistra Energy may have to forgo sales or buy more expensive wholesale electricity than is available in the capacity-constrained area. For example, during some periods, transmission access is constrained in some areas of the Dallas-Fort Worth metroplex, where Vistra Energy has a significant number of customers. The cost to provide service to these customers may exceed the cost to provide service to other customers, resulting in lower operating margins. In addition, any infrastructure failure that interrupts or impairs delivery of electricity to Vistra Energy’s customers could negatively impact customer satisfaction with its service. Any of the foregoing could have a material adverse effect on Vistra Energy.

Vistra Energy may suffer material losses, costs and liabilities due to ownership and operation of the Comanche Peak nuclear generation facility.

Vistra Energy owns and operates a nuclear generation facility in Glen Rose, Texas (the “Comanche Peak Facility”). The ownership and operation of a nuclear generation facility involves certain risks. These risks include:

 

    unscheduled outages or unexpected costs due to equipment, mechanical, structural, cyber/data security or other problems;

 

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    inadequacy or lapses in maintenance protocols;

 

    the impairment of reactor operation and safety systems due to human error or force majeure;

 

    the costs of, and liabilities relating to, storage, handling, treatment, transport, release, use and disposal of radioactive materials;

 

    the costs of procuring nuclear fuel;

 

    the costs of storing and maintaining spent nuclear fuel at Vistra Energy’s on-site dry cask storage facility;

 

    terrorist or cyber/data security attacks and the cost to protect against any such attack;

 

    the impact of a natural disaster;

 

    limitations on the amounts and types of insurance coverage commercially available; and

 

    uncertainties with respect to the technological and financial aspects of modifying or decommissioning nuclear facilities at the end of their useful lives.

The prolonged unavailability of the Comanche Peak Facility could have a material adverse effect on Vistra Energy’s results of operation, cash flows, financial position and reputation. The following are among the more significant related risks:

 

    Operational Risk—Operations at any generation facility could degrade to the point where the facility would have to be shut down. If such degradations were to occur at the Comanche Peak Facility, the process of identifying and correcting the causes of the operational downgrade to return the facility to operation could require significant time and expense, resulting in both lost revenue and increased fuel and purchased power expense to meet supply commitments. Furthermore, a shut-down or failure at any other nuclear generation facility could cause regulators to require a shut-down or reduced availability at the Comanche Peak Facility.

 

    Regulatory Risk—The NRC may modify, suspend or revoke licenses and impose civil penalties for failure to comply with the Atomic Energy Act, the regulations under it or the terms of the licenses of nuclear generation facilities. Unless extended, as to which no assurance can be given, the NRC operating licenses for the two licensed operating units at the Comanche Peak Facility will expire in 2030 and 2033, respectively. Changes in regulations by the NRC, including potential regulation as a result of the NRC’s ongoing analysis and response to the effects of the natural disaster on nuclear generation facilities in Japan in 2010, as well as any extension of Vistra Energy’s operating licenses, could require a substantial increase in capital expenditures or result in increased operating or decommissioning costs.

 

    Nuclear Accident Risk—Although the safety record of the Comanche Peak Facility and other nuclear generation facilities generally has been very good, accidents and other unforeseen problems have occurred both in the United States and elsewhere. The consequences of an accident can be severe and include loss of life, injury, lasting negative health impacts and property damage. Any accident, or perceived accident, could result in significant liabilities and damage Vistra Energy’s reputation. Any such resulting liability from a nuclear accident could exceed Vistra Energy’s resources, including insurance coverage, and could ultimately result in the suspension or termination of power generation from the Comanche Peak Facility.

The operation and maintenance of power generation facilities and related mining operations involve significant risks that could adversely affect Vistra Energy’s results of operations, liquidity and financial condition.

The operation and maintenance of power generation facilities and related mining operations involve many risks, including, as applicable, start-up risks, breakdown or failure of facilities, operator error, lack of sufficient

 

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capital to maintain the facilities, the dependence on a specific fuel source or the impact of unusual or adverse weather conditions or other natural events, or terrorist attacks, as well as the risk of performance below expected levels of output, efficiency or reliability, the occurrence of any of which could result in substantial lost revenues and/or increased expenses. A significant number of Vistra Energy’s facilities were constructed many years ago. In particular, older generating equipment, even if maintained in accordance with good engineering practices, may require significant capital expenditures to operate at peak efficiency or reliability. The risk of increased maintenance and capital expenditures arises from (a) increased starting and stopping of generation equipment due to the volatility of the competitive generation market and the prospect of continuing low wholesale electricity prices that may not justify sustained or year-round operation of all its generation facilities, (b) any unexpected failure to generate power, including failure caused by equipment breakdown or unplanned outage (whether by order of applicable governmental regulatory authorities, the impact of weather events or natural disasters or otherwise), (c) damage to facilities due to storms, natural disasters, wars, terrorist or cyber/data security acts and other catastrophic events and (d) the passage of time and normal wear and tear. Further, Vistra Energy’s ability to successfully and timely complete routine maintenance or other capital projects at its existing facilities is contingent upon many variables and subject to substantial risks. Should any such efforts be unsuccessful, Vistra Energy could be subject to additional costs or losses and write downs of its investment in the project.

Vistra Energy cannot be certain of the level of capital expenditures that will be required due to changing environmental and safety laws and regulations (including changes in the interpretation or enforcement thereof), needed facility repairs and unexpected events (such as natural disasters or terrorist or cyber/data security attacks). The unexpected requirement of large capital expenditures could have a material adverse effect on Vistra Energy.

In addition, if any of Vistra Energy’s generation facilities experiences unplanned outages, whether because of equipment breakdown or otherwise, Vistra Energy may be required to procure replacement power at spot market prices in order to fulfill contractual commitments. If Vistra Energy does not have adequate liquidity to meet margin and collateral requirements, Vistra Energy may be exposed to significant losses, may miss significant opportunities and may have increased exposure to the volatility of spot markets, which could have a material adverse effect on Vistra Energy.

Vistra Energy’s employees, contractors, customers and the general public may be exposed to a risk of injury due to the nature of its operations.

Vistra Energy’s employees and contractors work in, and customers and the general public may be exposed to, potentially dangerous environments at or near its operations. As a result, employees, contractors, customers and the general public are at risk for serious injury, including loss of life. Significant examples of such risks include nuclear accidents, dam failure, gas explosions, mine area collapses and other dangerous incidents.

The occurrence of any one of these events may result in Vistra Energy being named as a defendant in lawsuits asserting claims for substantial damages, including for environmental cleanup costs, personal injury and property damage and fines and/or penalties. Vistra Energy maintains an amount of insurance protection that Vistra Energy considers adequate, but Vistra Energy cannot provide any assurance that its insurance will be sufficient or effective under all circumstances and against all hazards or liabilities to which Vistra Energy may be subject and, even if Vistra Energy does have insurance coverage for a particular circumstance, Vistra Energy may be subject to a large deductible and maximum cap. Further, due to rising insurance costs and changes in the insurance markets, Vistra Energy cannot provide any assurance that its insurance coverage will continue to be available at all or at rates or on terms similar to those presently available. Any losses not covered by insurance could have a material adverse effect on Vistra Energy.

Vistra Energy may be materially and adversely affected by the effects of extreme weather conditions and seasonality.

Vistra Energy may be materially affected by weather conditions and its businesses may fluctuate substantially on a seasonal basis as the weather changes. In addition, Vistra Energy could be subject to the effects

 

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of extreme weather conditions, including sustained cold or hot temperatures, hurricanes, storms or other natural disasters, which could stress its generation facilities and result in outages, destroy its assets and result in casualty losses that are not ultimately offset by insurance proceeds, and could require increased capital expenditures or maintenance costs, including supply chain costs.

Moreover, an extreme weather event could cause disruption in service to customers due to downed wires and poles or damage to other operating equipment, which could result in Vistra Energy foregoing sales of electricity and lost revenue. Similarly, an extreme weather event might affect the availability of generation and transmission capacity, limiting Vistra Energy’s ability to source or deliver power where it is needed or limit its ability to source fuel for its plants (including due to damage to rail or natural gas pipeline infrastructure). Additionally, extreme weather may result in unexpected increases in customer load, requiring Vistra Energy’s retail operation to procure additional electricity supplies at wholesale prices in excess of customer sales prices for electricity. These conditions, which cannot be reliably predicted, could have adverse consequences by requiring Vistra Energy to seek additional sources of electricity when wholesale market prices are high or to sell excess electricity when market prices are low, which could have a material adverse effect on Vistra Energy.

Changes in technology or increased electricity conservation efforts may reduce the value of Vistra Energy’s generation facilities and may otherwise have a material adverse effect on Vistra Energy.

Technological advances have improved, and are likely to continue to improve, for existing and alternative methods to produce and store power, including gas turbines, wind turbines, fuel cells, micro turbines, photovoltaic (solar) cells, batteries and concentrated solar thermal devices, along with improvements in traditional technologies. Such technological advances have reduced, and are expected to continue to reduce, the costs of power production or storage to a level that will enable these technologies to compete effectively with traditional generation facilities. Consequently, the value of Vistra Energy’s more traditional generation assets could be significantly reduced as a result of these competitive advances, which could have a material adverse effect on Vistra Energy. In addition, changes in technology have altered, and are expected to continue to alter, the channels through which retail customers buy electricity (i.e., self-generation or distributed-generation facilities). To the extent self-generation facilities become a more cost-effective option for ERCOT customers, Vistra Energy’s financial condition, operating cash flows and results of operations could be materially and adversely affected.

Technological advances in demand-side management and increased conservation efforts have resulted, and are expected to continue to result, in a decrease in electricity demand. A significant decrease in electricity demand in ERCOT as a result of such efforts would significantly reduce the value of Vistra Energy’s generation assets. Certain regulatory and legislative bodies have introduced or are considering requirements and/or incentives to reduce power consumption. Effective power conservation by its customers could result in reduced electricity demand or significantly slow the growth in such demand. Any such reduction in demand could have a material adverse effect on Vistra Energy. Furthermore, Vistra Energy may incur increased capital expenditures if Vistra Energy is required to increase investment in conservation measures.

Attacks on Vistra Energy’s infrastructure that breach cyber/data security measures could expose it to significant liabilities and reputation damage and disrupt business operations, which could have a material adverse effect on Vistra Energy.

Much of Vistra Energy’s information technology infrastructure is connected (directly or indirectly) to the internet. There have been numerous attacks on government and industry information technology systems through the internet that have resulted in material operational, reputation and/or financial costs. While Vistra Energy has controls in place designed to protect its infrastructure and Vistra Energy is not aware of any significant breaches in the past, a breach of cyber/data security measures that impairs its information technology infrastructure could disrupt normal business operations and affect its ability to control its generation assets, access retail customer information and limit communication with third parties. Any loss of confidential or proprietary data through a

 

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breach could adversely affect Vistra Energy’s reputation, expose it to material legal or regulatory claims and impair its ability to execute its business strategy, which could have a material adverse effect on Vistra Energy.

As part of the continuing development of new and modified reliability standards, the FERC has approved changes to its Critical Infrastructure Protection reliability standards and has established standards for assets identified as “critical cyber assets.” Under the Energy Policy Act of 2005, the FERC can impose penalties (up to $1 million per day, per violation) for failure to comply with mandatory electric reliability standards, including standards to protect the power system against potential disruptions from cyber/data and physical security breaches.

Further, Vistra Energy’s retail business requires access to sensitive customer data in the ordinary course of business. Examples of sensitive customer data are names, addresses, account information, historical electricity usage, expected patterns of use, payment history, credit bureau data, credit and debit card account numbers, drivers’ license numbers, social security numbers and bank account information. Vistra Energy’s retail business may need to provide sensitive customer data to vendors and service providers who require access to this information in order to provide services, such as call center operations, to the retail business. If a significant breach were to occur, the reputation of its retail business may be adversely affected, customer confidence may be diminished, and Vistra Energy’s retail business may be subject to substantial legal or regulatory claims, any of which may contribute to the loss of customers and have a material adverse effect on Vistra Energy.

The loss of the services of Vistra Energy’s key management and personnel could adversely affect its ability to successfully operate its businesses.

Vistra Energy’s future success will depend on its ability to continue to attract and retain highly qualified personnel. Vistra Energy competes for such personnel with many other companies, in and outside of its industry, government entities and other organizations. Vistra Energy may not be successful in retaining current personnel or in hiring or retaining qualified personnel in the future. Its failure to attract highly qualified new personnel or retain highly qualified existing personnel could have an adverse effect on Vistra Energy’s ability to successfully operate its businesses.

Vistra Energy could be materially and adversely impacted by strikes or work stoppages by its unionized employees.

As of December 31, 2017, Vistra Energy had 1,628 employees covered by collective bargaining agreements. Such collective bargaining agreements expired on March 31, 2017, but remain effective pursuant to evergreen provisions unless and until terminated on prior notice by either party. Vistra Energy is currently negotiating new collective bargaining agreements with all three of its local unions. In the event that its union employees strike, participate in a work stoppage or slowdown or engage in other forms of labor strife or disruption, Vistra Energy would be responsible for procuring replacement labor or it could experience reduced power generation or outages. Vistra Energy’s ability to procure such labor is uncertain. Strikes, work stoppages or the inability to negotiate future collective bargaining agreements on favorable terms or at all could have a material adverse effect on Vistra Energy.

Vistra Energy is a holding company and its ability to obtain funds from its subsidiaries is structurally subordinated to existing and future liabilities and preferred equity of its subsidiaries.

Vistra Energy is a holding company that does not conduct any business operations of its own. As a result, Vistra Energy’s cash flows and ability to meet its obligations are largely dependent upon the operating cash flows of Vistra Energy’s subsidiaries and the payment of such operating cash flows to Vistra Energy in the form of dividends, distributions, loans or otherwise. These subsidiaries are separate and distinct legal entities from Vistra Energy and have no obligation (other than any existing contractual obligations) to provide Vistra Energy with funds to satisfy its obligations. Any decision by a subsidiary to provide Vistra Energy with funds to satisfy

 

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its obligations, including those under the Tax Receivable Agreement, whether by dividends, distributions, loans or otherwise, will depend on, among other things, such subsidiary’s results of operations, financial condition, cash flows, cash requirements, contractual prohibitions and other restrictions, applicable law and other factors. The deterioration of income from, or other available assets of, any such subsidiary for any reason could limit or impair its ability to pay dividends or make other distributions to Vistra Energy.

Vistra Energy may not pay any dividends on its common stock in the future.

Vistra Energy has no present intention to pay cash dividends on its common stock. Any determination to pay dividends to holders of its common stock in the future will be at the sole discretion of the Vistra Energy Board and will depend upon many factors, including Vistra Energy’s historical and anticipated financial condition, cash flows, liquidity and results of operations, capital requirements, market conditions, its growth strategy and the availability of growth opportunities, contractual prohibitions and other restrictions with respect to the payment of dividends, applicable law and other factors that the Vistra Energy Board deems relevant.

A small number of stockholders could be able to significantly influence Vistra Energy’s business and affairs.

The three largest groups of stockholders of Vistra Energy, affiliates of Apollo Management Holdings L.P. (collectively, the “Apollo Entities”), affiliates of Brookfield Asset Management Private Institutional Capital Adviser (Canada), L.P. (collectively, the “Brookfield Entities”), and affiliates of Oaktree Capital Management, L.P. (collectively, the “Oaktree Entities,” and together with the Apollo Entities and the Brookfield Entities, the “Vistra Energy Principal Stockholders”), all of which were first lien creditors of its Predecessor prior to Emergence, collectively currently own approximately 39% of Vistra Energy Common Stock outstanding. Large holders such as the Vistra Energy Principal Stockholders may be able to affect matters requiring approval by holders of Vistra Energy Common Stock, including the election of directors and the approval of any strategic transactions. The Vistra Energy Principal Stockholders entered into the Vistra Energy Stockholder Support Agreement in connection with the Merger pursuant to which they have agreed, subject to certain circumstances, to vote their shares of Vistra Energy Common Stock in favor of the Merger Proposal and the Stock Issuance Proposal. See “Agreements Related to the Merger—The Merger Support Agreements” beginning on page 158 for more information. Furthermore, pursuant to the terms of Stockholders Agreements entered into with each of the Vistra Energy Principal Stockholders, each Vistra Energy Principal Stockholder is entitled to designate one director to serve on the Vistra Energy Board as a Class III director for so long as it beneficially owns, in the aggregate, at least 22,500,000 shares of Vistra Energy Common Stock. It is expected that each Vistra Energy Principal Stockholder will own enough equity in the combined company that each will still have a representative on the combined company’s board of directors. See “Information About Vistra Energy—Certain Relationships and Related Party Transactions—Stockholder’s Agreements” beginning on page 273 for more information.

Conflicts of interest may arise because some members of the Vistra Energy Board are representatives of the Vistra Energy Principal Stockholders.

The Vistra Energy Principal Stockholders could invest in entities that directly or indirectly compete with Vistra Energy. As a result of these relationships, when conflicts arise between the interests of the Vistra Energy Principal Stockholders or their affiliates and the interests of other stockholders, members of the Vistra Energy Board that are representatives of the Vistra Energy Principal Stockholders may not be disinterested. Neither the Vistra Energy Principal Stockholders nor the representatives of the Vistra Energy Principal Stockholders on the Vistra Energy Board, by the terms of the Vistra Energy certificate of incorporation, are required to offer Vistra Energy any transaction opportunity of which they become aware and could take any such opportunity for themselves or offer it to their other affiliates, unless such opportunity is expressly offered to them solely in their capacity as members of the Vistra Energy Board.

Additionally, pursuant to the Oaktree Letter Agreement described in “Agreements Related to the Merger—The Oaktree Letter Agreement” beginning on page 158, affiliates of Oaktree commit to use commercially reasonable efforts to divest a portion of their shares of Vistra Energy Common Stock or Dynegy Common Stock,

 

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but are not obligated to consummate such divestment other than at prices per share of Dynegy Common Stock or Vistra Energy Common Stock determined from time to time in Oaktree’s sole and absolute discretion to be adequate. The Vistra Energy Stockholder Support Agreement provides that if affiliates of Oaktree have not sold the number of shares of Vistra Energy Common Stock or Dynegy Common Stock contemplated in the Oaktree Letter Agreement, then Dynegy will purchase shares of Dynegy Common Stock from such affiliates of Oaktree so that the target ownership level is met. Such purchase will be consummated immediately prior to the closing of the Merger and will be for a cash purchase price of $13.24 per share.

Vistra Energy is unable to take certain actions because such actions could jeopardize the intended tax treatment of the Spin-Off, and such restrictions could be significant.

The Tax Matters Agreement prohibits Vistra Energy from taking certain actions that could reasonably be expected to undermine the intended tax treatment the Spin-Off or to jeopardize the conclusions of the IRS private letter ruling Vistra Energy received in connection with the Spin-Off or opinions of counsel received by Vistra Energy or EFH Corp. In particular, for two years after the Spin-Off, Vistra Energy may not:

 

    cease the active conduct of its business;

 

    cease to hold certain assets;

 

    voluntarily dissolve or liquidate;

 

    merge or consolidate with any other person in a transaction that does not qualify as a reorganization under Section 368(a) of the Code;

 

    redeem or otherwise repurchase (directly or indirectly) any of its equity interests other than pursuant to an open market stock repurchase program that satisfies the requirements in the Tax Matters Agreement; or

 

    directly or indirectly acquire any of the PrefCo Preferred Stock.

Nevertheless, Vistra Energy is permitted to take any of the actions described above if (a) it obtains written consent from EFH Corp., (b) such action or transaction is described in or otherwise consistent with the facts in the private letter ruling Vistra Energy obtained from the IRS in connection with the Spin- Off, (c) Vistra Energy obtains a supplemental private letter ruling from the IRS or (d) Vistra Energy obtains an unqualified opinion of a nationally recognized law or accounting firm that is reasonably acceptable to EFH Corp. that the action will not affect the intended tax treatment of the Spin-Off.

The covenants and other limitations with respect to the Tax Matters Agreement may limit Vistra Energy’s ability to undertake certain transactions that would otherwise be value-maximizing.

Provisions in the certificate of incorporation and bylaws and the Tax Receivable Agreement might discourage, delay or prevent a change in control of Vistra Energy or changes in its management and therefore depress the market price of Vistra Energy Common Stock.

The certificate of incorporation and bylaws of Vistra Energy, and the Tax Receivable Agreement contain provisions that could depress the market price of Vistra Energy Common Stock by acting to discourage, delay or prevent a change in control of Vistra Energy or changes in its management that stockholders may deem advantageous. These provisions are in its bylaws:

 

    authorize the issuance of “blank check” preferred stock that the Vistra Energy Board could issue to increase the number of outstanding shares to discourage a takeover attempt;

 

    create a classified board of directors;

 

    prohibit stockholder action by written consent, and require that all stockholder actions be taken at a meeting of stockholders;

 

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    provide that the Vistra Energy Board is expressly authorized to make, amend or repeal its bylaws; and

 

    establish advance notice requirements for nominations for elections to the Vistra Energy Board or for proposing matters that can be acted upon by stockholders at stockholder meetings.

In addition, the Tax Receivable Agreement provides that upon certain mergers, asset sales or other forms of business combination or certain other changes of control, the transfer agent under the Tax Receivable Agreement may treat such event as an early termination of the Tax Receivable Agreement, in which case Vistra Energy would be required to make a lump-sum payment under the Tax Receivable Agreement, which could be significant. This payment obligation may discourage potential buyers from acquiring Vistra Energy.

Risks Related to Dynegy

Dynegy is, and will continue to be, subject to the risks described in Part I, Item 1A in Dynegy’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and the risks described in Part II, Item IA in Dynegy’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, as filed with the SEC and incorporated by reference into this joint proxy statement and prospectus. See “Where You Can Find More Information and Incorporation by Reference” on page 309.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This joint proxy statement and prospectus and the annexes to this joint proxy statement and prospectus contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Exchange Act.

These forward-looking statements are predictions and generally can be identified by use of statements that include phrases such as “may,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “target,” “goal,” “plan,” “should,” “will,” “predict,” “potential,” “likely,” or other words, phrases or expressions of similar import, or the negative or other words or expressions of similar meaning, and statements regarding the anticipated consequences and benefits of the Merger or the other transactions contemplated by the Merger Agreement or the future financial condition, results of operations and business of Vistra Energy, Dynegy or the combined company.

Without limiting the generality of the preceding sentence, certain information contained in the sections “The Merger—Background of the Merger,” “The Merger—The Recommendation of the Vistra Energy Board and Its Reasons for the Merger,” “The Merger—Dynegy’s Reasons for the Merger; Recommendation of the Dynegy Board,” “The Merger—Certain Vistra Energy Unaudited Prospective Financial Information,” and “The Merger—Certain Dynegy Unaudited Prospective Financial Information” constitute forward-looking statements.

The management teams of each of Vistra Energy and Dynegy base these forward-looking statements on particular assumptions that they have made in light of their industry experience, as well as their perception of historical trends, current conditions, expected future developments and other factors that they believe are appropriate under the circumstances. The forward-looking statements are necessarily estimates reflecting the judgment of Vistra Energy’s and Dynegy’s respective management teams and involve a number of known and unknown risks, uncertainties and other factors, many of which are difficult to predict or beyond Vistra Energy’s and Dynegy’s control, which may cause actual results, performance, or achievements of Vistra Energy, Dynegy or the combined company to be materially different from those expressed or implied by the forward-looking statements. In addition to other factors and matters contained in this joint proxy statement and prospectus, including those disclosed under “Risk Factors” beginning on page 35, these forward-looking statements are subject to risks, uncertainties and other factors, including, among others:

 

    the ability to obtain the required stockholder approvals to consummate the Merger and the issuance of the issuance of the Vistra Energy Common Stock;

 

    the timing of, and the conditions imposed by, regulatory approvals required for the Merger, as described under “The Merger—Regulatory Approvals Required to Complete the Merger” beginning on page 132;

 

    the satisfaction or waiver of other conditions in the Merger Agreement;

 

    the risk that the Merger or the other transactions contemplated by the Merger Agreement may not be completed in the time frame expected by the parties or at all;

 

    changes in the trading prices of Vistra Energy’s and Dynegy’s Common Stock;

 

    the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement and that a termination under certain circumstances could require Vistra Energy to pay Dynegy or Dynegy to pay Vistra Energy a termination fee and/or expense amount, as described under “The Merger Agreement—Effect of Termination; Termination Fees and Expense Reimbursement” beginning on page 155;

 

    the risk that the pendency of the Merger could adversely affect Vistra Energy’s and Dynegy’s respective businesses and operations, including on Vistra Energy’s and Dynegy’s relationships with their respective customers and their operating results and businesses generally (including the diversion of management time on transaction-related issues);

 

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    the ability of the combined company to successfully integrate Vistra Energy’s business and Dynegy’s business and realize the anticipated cost savings, operational efficiencies and other expected benefits of the Merger on the anticipated timeframe or at all;

 

    the outcome of current and future litigation, including any legal proceedings that may be instituted against Vistra Energy, Dynegy or others related to the Merger;

 

    events or circumstances that undermine confidence in the financial markets or otherwise have a broad impact on financial markets, such as the sudden instability or collapse of large financial institutions or other significant corporations, terrorist attacks, natural or man-made disasters, or threatened or actual armed conflicts;

 

    risks related to indebtedness, including unanticipated increases in financing and other costs and concentration of credit risks;

 

    the availability, terms and ability to effectively deploy short-term and long-term capital;

 

    changes in business and growth strategies;

 

    the dependence on third parties for key services and the ability to hire and retain highly skilled managerial, investment, financial and operational personnel;

 

    performance of information technology systems;

 

    the adequacy of cash reserves and working capital;

 

    financial and operating covenants contained in credit facilities, indentures and other financing arrangements that could restrict the business and investment activities;

 

    effects of derivative and hedging transactions;

 

    actions and initiatives of the U.S., state and municipal governments and changes to governments’ policies that impact the economy generally and, more specifically, the energy market;

 

    changes in governmental regulations, tax laws and rates, and similar matters and increases in insurance costs;

 

    actions of ratings agencies, including with respect to the Merger;

 

    regulatory proceedings or inquiries; and

 

    other risks detailed in this joint proxy statement and prospectus (including with respect to Vistra Energy and the combined company) and in filings made by Dynegy with the SEC, including Dynegy’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and Dynegy’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017, which are incorporated by reference into this joint proxy statement and prospectus. See also “Where You Can Find More Information and Incorporation by Reference” on page 309.

Although each of Vistra Energy and Dynegy believe that the assumptions underlying the forward-looking statements made by it contained herein are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements included in this joint proxy statement and prospectus will prove to be accurate. As you read and consider the information in this joint proxy statement and prospectus, you are cautioned to not place undue reliance on these forward-looking statements. These statements are not guarantees of performance or results and speak only as of the date of this joint proxy statement and prospectus, in the case of forward looking statements contained in this joint proxy statement and prospectus, or the dates of the documents incorporated by reference or attached as annexes to this joint proxy statement and prospectus, in the case of forward-looking statements made in those documents. Neither Vistra Energy nor Dynegy undertakes any obligation to update or revise any forward-looking statements, whether as a result of new information or developments, future events, or otherwise, except as required by law.

 

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In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by Vistra Energy, Dynegy or any other person that the results or conditions described in such statements or the objectives and plans of Vistra Energy, Dynegy or the combined company will be achieved.

All forward-looking statements, expressed or implied, included in this joint proxy statement and prospectus are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that Vistra Energy, Dynegy or persons acting on their behalf may issue.

 

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THE MERGER

The following is a summary of the material facts about the Merger. This summary does not purport to be complete and may not contain all of the information about the Merger that is important to you. The summary of the material terms of the Merger below and elsewhere in this joint proxy statement and prospectus is qualified in its entirety by the Merger Agreement, which is attached to this joint proxy statement and prospectus as Annex A and which constitutes part of this joint proxy statement and prospectus. You are urged to read this joint proxy statement and prospectus, including the Merger Agreement, carefully and in its entirety for a more complete understanding of the Merger.

General

Subject to the terms and conditions of the Merger Agreement, Dynegy will merge with and into Vistra Energy with Vistra Energy continuing as the surviving corporation. Dynegy stockholders will receive the merger consideration described below under “The Merger Agreement—Effect of the Merger on Capital Stock” beginning on page 136.

Background of the Merger

The Dynegy Board has met from time to time during the two-year period preceding the execution and delivery of the Merger Agreement to discuss and review Dynegy’s strategic goals and alternatives as part of an ongoing evaluation of Dynegy’s businesses and strategic planning with a view towards enhancing Dynegy stockholder value. As part of these reviews, the Dynegy Board has considered remaining as a stand-alone entity and potential strategic alternatives. Similarly, since Vistra Energy’s emergence from bankruptcy on October 3, 2016, the Vistra Energy Board has met on an ongoing basis to review and consider Vistra Energy’s goals, its positioning in the market, the competitive landscape and potential strategic alternatives in light of these factors.

In early December 2015, Robert Flexon, Dynegy’s chief executive officer, met with a director of a publicly traded strategic company, which is referred to as Company A. During the meeting, Mr. Flexon and the Company A director discussed a potential combination of Dynegy and Company A, and the Company A director told Mr. Flexon that he should contact Company A’s chief executive officer to discuss a potential combination transaction.

The Dynegy Board met on December 9, 2015 with members of Dynegy senior management in attendance, to discuss a potential stock-for-stock combination of Dynegy and Company A. The Dynegy Board directed Mr. Flexon to contact Company A’s chief executive officer and tell him that the Dynegy Board thought that, under the right terms, there could be benefits to a potential combination with Company A.

Later on December 9, 2015, Mr. Flexon held a telephone call with Company A’s chief executive officer and told him that the Dynegy Board thought that, under the right terms, there could be benefits to a potential stock-for-stock combination with Company A.

Mr. Flexon and Company A’s chief executive officer met on December 22, 2015 to discuss each company’s preliminary views of a potential combination transaction. In addition, Mr. Flexon and Company A’s chief executive officer agreed that the parties should enter into a mutual confidentiality agreement.

On January 18, 2016, Dynegy and Company A entered into a mutual confidentiality agreement. The confidentiality agreement subjected each of Dynegy and Company A to a standstill obligation regarding the other party but permitted each party to submit a confidential, non-public proposal for a negotiated transaction to the other party.

Following execution of the mutual confidentiality agreement, Dynegy and Company A conducted preliminary due diligence regarding a potential combination transaction. Discussions between the two companies

 

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did not progress beyond preliminary stages, and Dynegy turned its focus to the acquisition of Engie S.A.’s U.S. fossil generation portfolio, which eventually was publicly announced on February 25, 2016.

On November 11, 2016, the chief executive officer of Company A called Mr. Flexon and told him that Company A wanted to restart discussions with Dynegy about a potential stock-for-stock combination of the two companies. Company A’s chief executive officer told Mr. Flexon that Company A’s board of directors supported a combination transaction and was interested in paying an unspecified control premium for Dynegy.

The Dynegy Board met on November 22, 2016 with members of Dynegy senior management present. Mr. Flexon described his recent discussion with Company A’s chief executive officer, and the Dynegy Board discussed a potential combination with Company A, including a discussion of achievable synergies of the combined company following the potential combination transaction. Following discussion, the Dynegy Board directed Mr. Flexon to inform Company A’s chief executive officer that Dynegy would be willing to explore a combination transaction with Company A but that the Dynegy Board would be focused on achievable synergies necessary to make a combination transaction attractive to Dynegy.

Following the Dynegy Board meeting, Mr. Flexon called Company A’s chief executive officer and informed him that Dynegy would be willing to explore a combination transaction with Company A but that Dynegy would focus on the combined company’s ability to achieve synergies.

Thereafter, into January 2017, Dynegy senior management held preliminary discussions with senior management of Company A regarding a potential transaction, and each of Dynegy and Company A conducted financial and operational due diligence, including an analysis of the amount of synergies expected from a combination of Dynegy and Company A. However, the discussions did not progress beyond preliminary stages because the Dynegy Board determined that Dynegy and Company A had different views about the total amount of achievable synergies of the combined company. The parties did not exchange valuations or make purchase price or exchange ratio proposals for a potential business combination.

The Vistra Energy Board met on January 24, 2017, and Curt Morgan, Vistra Energy’s chief executive officer, and Sara Graziano, Vistra Energy’s senior vice president of corporate development and strategy, presented materials regarding possible strategic combinations with Dynegy or another publicly traded company, referred to as Company B.

The Vistra Energy Board met again on March 7, 2017, and Vistra Energy senior management led a discussion of various potential strategic alternatives both inside and outside ERCOT and presented to the Vistra Energy Board information regarding the different power markets involved in such potential strategic alternatives. Mr. Morgan and Stephanie Moore, Vistra Energy’s executive vice president and general counsel, discussed with the Vistra Energy Board certain processes to be observed in its consideration of a combination transaction to ensure that all corporate formalities and fiduciary duties would be satisfied. After discussion, the Vistra Energy Board authorized Mr. Morgan to call Mr. Flexon and the chief executive officer of Company B to hold preliminary and exploratory discussions about a potential combination transaction with Dynegy and Company B, respectively.

In early March 2017, Mr. Morgan had a call with Mr. Flexon and informed him that the Vistra Energy Board was interested in evaluating a potential combination transaction with Dynegy. Mr. Morgan and Mr. Flexon agreed to meet in person to discuss such a potential transaction. On March 20, 2017, Mr. Morgan and Mr. Flexon met in person where they discussed their preliminary views about a potential combination transaction. At the meeting, Mr. Morgan and Mr. Flexon had a general discussion about such a potential transaction, including potential achievable synergies of the combined company and the overall economic value for each company. Each chief executive officer expressed interest in exploring a potential combination transaction.

The Vistra Energy Board met on March 22, 2017, and Mr. Morgan discussed possible strategic combinations and provided the Vistra Energy Board with details regarding the outcome and status of his

 

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preliminary and exploratory discussions with Mr. Flexon and the chief executive officer of Company B. Based on this status report, the Vistra Energy Board determined that Vistra Energy should enter into a confidentiality agreement with Dynegy. Discussions with Company B never progressed further than very preliminary discussions and the parties did not enter into a confidentiality agreement regarding a potential combination or other transaction.

The Dynegy Board met on March 24, 2017 with members of Dynegy senior management and Skadden, Arps, Slate, Meagher & Flom LLP, outside counsel to Dynegy (which is referred to as Skadden) in attendance. Mr. Flexon described for the Dynegy Board his call and meeting with Mr. Morgan, and the Dynegy Board discussed a potential combination with Vistra Energy, including that a key component of value to Dynegy stockholders would be the achievable synergies of the combined company following a combination transaction. Skadden summarized the Dynegy Board’s fiduciary duties regarding, and a potential framework for conducting, a transaction process with Vistra Energy. The Dynegy Board determined that Dynegy should enter into a confidentiality agreement with Vistra Energy.

On March 27, 2017, Dynegy and Vistra Energy executed a mutual confidentiality agreement. The confidentiality agreement subjected each of Dynegy and Vistra Energy to a customary standstill obligation regarding the other party but permitted each party to submit a confidential, non-public proposal for a negotiated transaction to the other party.

On March 29, 2017, Mr. Flexon and Carolyn Burke, Dynegy’s executive vice president of strategy & administration, held a conference call with Mr. Morgan and Ms. Graziano. They discussed the initial due diligence process, including that it should focus on transaction structure, achievable synergies of the combined company following a combination transaction and review of regulatory approvals that may be required in connection with a potential combination.

Throughout the rest of March, April and May 2017, Dynegy and Vistra Energy conducted preliminary structuring (including with respect to regulatory approvals), financial and operational due diligence regarding a potential combination, including analyzing the achievable synergies of the combined company following a combination transaction.

On April 6, 2017, representatives of Vistra Energy (including Ms. Moore and Ms. Graziano), Dynegy (including Catherine James, Dynegy’s executive vice president and general counsel), Kirkland & Ellis LLP (which is referred to as Kirkland & Ellis) (then outside counsel to Vistra Energy) and Skadden held a conference call to discuss potential transaction structures for a combination between Vistra Energy and Dynegy.

The Dynegy Board met on April 12, 2017 with members of Dynegy senior management and representatives of Morgan Stanley and PJT Partners (which are referred to collectively as the Dynegy financial advisors), Skadden and Lazard Freres & Co. LLC (which is referred to as Lazard) in attendance. At the direction of the Dynegy Board, representatives of each of the Dynegy financial advisors and Lazard presented a preliminary valuation analysis of Dynegy (without giving effect to any potential strategic combinations), and Mr. Flexon updated the Dynegy Board regarding Dynegy’s ongoing due diligence of a potential combination with Vistra Energy. Lazard did not represent Dynegy in connection with the Merger due to conflict issues.

The Vistra Energy Board met on April 18, 2017, and Vistra Energy senior management provided the Vistra Energy Board with an update regarding Vistra Energy’s due diligence regarding, and further analysis to be performed with respect to, a potential combination with Dynegy. After further discussing the potential benefits and risks to Vistra Energy stockholders of a combination with Dynegy, the Vistra Energy Board authorized Vistra Energy senior management to continue due diligence and discussions with Dynegy regarding a possible combination.

On April 20, 2017, representatives of Vistra Energy (including Ms. Moore), Dynegy (including Ms. James), Kirkland & Ellis and Skadden held a conference call to discuss the required regulatory approvals for a combination of Vistra Energy and Dynegy.

 

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On April 24, 2017, representatives of Dynegy (including Mr. Flexon, Ms. Burke and Clint Freeland, Dynegy’s chief financial officer) met with representatives of Vistra Energy (including Mr. Morgan, Ms. Graziano and William Holden, Vistra Energy’s chief financial officer) in New York City. During the meeting, Dynegy and Vistra Energy discussed the results of each party’s preliminary due diligence regarding achievable synergies in a combination transaction.

On May 12, 2017, representatives of Dynegy (including Mr. Flexon, Ms. Burke and Mr. Freeland) held a conference call with representatives of Vistra Energy (including Mr. Morgan, Ms. Graziano and Mr. Holden). During the meeting, Dynegy and Vistra Energy reviewed additional due diligence that the parties had conducted regarding achievable synergies of the combined company in a combination transaction, and Dynegy and Vistra Energy agreed to conduct further due diligence regarding a potential combination transaction.

The Vistra Energy Board met on May 16, 2017, and Vistra Energy senior management led a discussion regarding the potential strategic combination transaction with Dynegy as well as potential standalone strategic opportunities in ERCOT. The Vistra Energy Board then discussed the timing of these potential transactions and the required regulatory approvals for such transactions. The Vistra Energy Board encouraged senior management to continue their due diligence efforts regarding a potential combination transaction with Dynegy.

The Dynegy Board met on May 17, 2017 with members of Dynegy senior management in attendance. The Dynegy Board discussed a potential combination with Vistra Energy, and Dynegy senior management updated the Dynegy Board on financial and operational due diligence conducted on Vistra Energy to date, including expected synergies from a combination. The Dynegy Board directed Dynegy senior management to prepare relative valuations between Dynegy and Vistra Energy. In addition, the Dynegy Board directed Dynegy senior management to continue analyzing the synergies achievable following a combination transaction; however, the Dynegy Board determined that Vistra Energy would need to submit a written transaction proposal before Dynegy would engage in any negotiations about a potential combination. The Dynegy Board also discussed other strategic alternatives, with a focus on capital allocation and deleveraging.

After the closing of trading on the NYSE on May 18, 2017, The Wall Street Journal published an article reporting that Vistra Energy had approached Dynegy about a potential combination transaction, which article is referred to as the Market Rumor. Later on May 18, 2017, after consulting with internal and external legal counsel, Mr. Morgan had several communications with members of the Vistra Energy Board to discuss the Market Rumor and the significant impact it had on the sale price of Dynegy Common Stock. On the morning of May 19, 2017, the Vistra Energy Board had a call with Mr. Morgan and Ms. Graziano to discuss the same, and the Vistra Energy Board determined that Mr. Morgan should call Mr. Flexon to communicate that Vistra Energy would cease pursuing a potential combination transaction with Dynegy at that time given the significant impact of the Market Rumor. Later on May 19, 2017, Mr. Morgan called Mr. Flexon and told him that, in light of the significant impact of the Market Rumor, the Vistra Energy Board had decided to cease pursuing a potential combination transaction with Dynegy at that time.

The Vistra Energy Board met on July 10, 2017. Vistra Energy senior management led a discussion regarding potential strategic opportunities, including both large-scale acquisitions and smaller asset transaction, both inside and outside of ERCOT and timing issues related to such opportunities. Mr. Morgan and Ms. Graziano also discussed reengaging on a potential strategic combination with Dynegy. The Vistra Energy Board expressed support for reengaging in discussions with Dynegy to further evaluate the synergies achievable following a combination transaction with Dynegy and authorized Mr. Morgan to communicate to Mr. Flexon the Vistra Energy Board’s desire to restart negotiations.

On July 14, 2017, Mr. Morgan called Mr. Flexon and told him that the Vistra Energy Board was interested in restarting discussions with Dynegy about a potential combination transaction. Mr. Morgan requested that he and Mr. Flexon meet in person to discuss a potential combination transaction on July 18, 2017.

 

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Mr. Morgan and Ms. Graziano met with Mr. Flexon and Mr. Freeland in person on July 18, 2017 in Austin, Texas. During the meeting, Mr. Flexon informed Mr. Morgan that Dynegy would not restart discussions for a potential combination transaction unless Vistra Energy submitted a written transaction proposal.

The Vistra Energy Board met on July 27, 2017 with members of Vistra Energy senior management and a representative of Citi present, and Mr. Morgan and the Vistra Energy Board discussed the merits of a potential combination transaction with Dynegy, including potential achievable synergies of the combined company, diversification into capacity markets, obtaining a platform for non-ERCOT retail growth, geographic and weather diversification and other considerations. Mr. Holden and Ms. Graziano discussed with the Vistra Energy Board financial aspects of a potential combination with Dynegy. Following those discussions, the Vistra Energy Board authorized Mr. Morgan to send a letter to Mr. Flexon proposing a potential combination transaction based upon an 81%–19% fully diluted ownership split between current Vistra Energy stockholders and current Dynegy stockholders, respectively.

On July 28, 2017, Mr. Morgan sent Mr. Flexon a non-binding letter proposing a combination of Vistra Energy and Dynegy, with the current stockholders of Vistra Energy and Dynegy owning 81% and 19% of the combined company, respectively, on a fully diluted basis.

The Dynegy Board met on July 29, 2017 with members of Dynegy senior management and representatives of the Dynegy financial advisors and Skadden in attendance. Skadden reviewed with the Dynegy Board its fiduciary duties in connection with a potential combination with Vistra Energy. At the direction of the Dynegy Board, representatives of Morgan Stanley presented its view of public market perspectives regarding the independent power producer sector, including that investors were generally concerned with highly leveraged independent power producer capital structures and preferred an integrated business model combining generation and retail. Representatives of Morgan Stanley also presented its view that there likely would be a significant delay before the trading price of Dynegy Common Stock reflected Dynegy’s current deleveraging plan. In addition, representatives of Morgan Stanley presented that a combination of Dynegy and Vistra Energy could reduce leverage, increase the combined company’s market capitalization and replicate an integrated business model. At the direction of the Dynegy Board, each of the Dynegy financial advisors then presented a preliminary valuation analysis of Dynegy. The Dynegy Board discussed the July 28, 2017 letter from Mr. Morgan, including the potential benefits from a combination with Vistra Energy (such as the realization of significant synergies). The Dynegy Board determined that it needed to review stand-alone valuations of Dynegy and Vistra Energy before considering further a potential combination with Vistra Energy. The Dynegy Board also discussed that Dynegy was preparing to launch and close a notes offering and a tender offer to repurchase certain of its outstanding notes in August 2017, and the Dynegy Board concluded that Dynegy would not be in a position to consider Vistra Energy’s letter at that time given the pendency of Dynegy’s proposed notes offering and related tender offer at then-favorable rates.

On August 2, 2017, Mr. Morgan called Mr. Flexon and inquired about the status of the Dynegy Board’s consideration of Vistra Energy’s July 28, 2017 proposal. Mr. Flexon responded that he had reviewed the letter with the Dynegy Board and that he and the Dynegy Board had determined that first focusing on launching and completing the notes offering and related tender offer was the appropriate course of action for Dynegy stockholders at that time given the then-available favorable rates that Dynegy could obtain for its proposed notes offering.

The Dynegy Board met on August 9, 2017 with members of Dynegy senior management and representatives of Skadden and a global management consulting firm (referred to as Consulting Firm A) in attendance. Skadden reviewed with the Dynegy Board its fiduciary duties in connection with considering a potential combination with Vistra Energy. Mr. Flexon reviewed with the Dynegy Board Dynegy senior management’s perspective of the independent power producer sector, noting that investors were concerned with highly leveraged independent power producer capital structures and favored integrated business models combining generation and retail. Mr. Flexon added his view that strategic combinations in the independent power producer sector had resulted in

 

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significant cost savings and would continue to be important drivers of a company’s performance. In addition, Mr. Flexon discussed with the Dynegy Board Dynegy senior management’s outlook of the regulatory environment for each of the independent system operators in which Dynegy operated, including that Dynegy senior management saw a number of regulatory challenges. At the direction of the Dynegy Board, representatives of Consulting Firm A then presented the preliminary results of its cost management study (referred to as the Cost Management Study), focusing on substantial overall improvement opportunities, primarily in Dynegy’s generation, procurement and capital activities. The representatives of Consulting Firm A noted that, although the improvement opportunities were compelling, they were, in many cases, linked to commodity prices and required multi-year implementations. The Dynegy Board then reviewed and discussed Dynegy senior management’s preliminary stand-alone valuation analyses of Dynegy (both with and without the impact of the Cost Management Study) and Vistra Energy.

The Vistra Energy Board met on August 10, 2017 with members of Vistra Energy senior management present. Ms. Moore reviewed with the Vistra Energy Board its fiduciary duties in connection with considering a potential combination transaction with Dynegy. Mr. Morgan and Ms. Graziano updated the Vistra Energy Board on the status of discussions with Dynegy regarding a potential combination transaction, including providing an update of management forecasts, an analysis of achievable synergies, a review of specific material generation units owned by Dynegy, impacts to Vistra Energy’s credit metrics, an evaluation of potential benefits and risks to Vistra Energy stockholders of a transaction with Dynegy and comparisons to alternative strategic opportunities. The Vistra Energy Board discussed the status of the potential combination transaction and encouraged Mr. Morgan to contact Mr. Flexon seeking a response to Vistra Energy’s July 28, 2017 letter.

On August 12, 2017, Mr. Morgan called Mr. Flexon to inform him of the Vistra Energy Board’s request that Dynegy formally respond to Vistra Energy’s July 28, 2017 letter. Mr. Flexon communicated to Mr. Morgan that the Dynegy Board was planning to meet at the end of August to more fully consider the letter and that the Dynegy Board would expect to formally respond to Vistra Energy’s July 28, 2017 letter after such meeting. On August 22, 2017, Mr. Flexon called Mr. Morgan and informed him that such Dynegy Board meeting had been scheduled for August 28, 2017 and confirmed that the Dynegy Board would formally respond to Vistra Energy’s July 28, 2017 letter promptly after such meeting.

The Dynegy Board met on August 28, 2017 with members of Dynegy senior management and representatives of the Dynegy financial advisors and Skadden in attendance. Dynegy senior management presented its preliminary analysis of the stand-alone valuations of Dynegy and Vistra Energy and the pro forma valuation of the combined company. In addition, Mr. Flexon reviewed with the Dynegy Board that Consulting Firm A had identified significant EBITDA improvement opportunities, annual cost savings and one-time savings across operations and management and capital expenditures. The Dynegy Board discussed with Mr. Flexon Dynegy’s stand-alone five-year strategy, including deleveraging, increasing operational efficiencies, diversifying its generation portfolio and creating an integrated business model. Mr. Flexon noted that growth in Dynegy’s retail business would be the primary driver of creating an integrated business model. The Dynegy Board discussed with Mr. Flexon Dynegy senior management’s preliminary valuation analyses of Dynegy on a stand-alone basis and of the combined company. Dynegy senior management’s preliminary valuation analysis of the combined company included a sensitivity analysis based on the Dynegy stockholders owning between 19% and 21% of the combined company. After discussion, the Dynegy Board concluded that the 81%–19% ownership split offered by Vistra Energy in its July 28, 2017 letter was not acceptable. The Dynegy Board then discussed with Dynegy senior management and Skadden how to respond to such letter.

On August 31, 2017, senior management of Dynegy provided a copy of the Cost Management Study to the senior management of Vistra Energy for its review.

The Dynegy Board met on September 1, 2017 with members of Dynegy senior management and representatives of the Dynegy financial advisors and Skadden in attendance. At the direction of the Dynegy Board, each of the Dynegy financial advisors presented a (1) preliminary stand-alone valuation analysis of

 

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Dynegy, including a sensitivity analysis based on the Cost Management Study, (2) preliminary stand-alone valuation analysis of Vistra Energy and (3) preliminary valuation analysis of the combined company, including a sensitivity analysis based on Dynegy stockholders owning between 19% and 23% of the combined company. Representatives of Morgan Stanley also discussed with the Dynegy Board that synergies were critical to the value of a combination transaction to Dynegy stockholders and that the combined company would have an improved operational and risk profile relative to Dynegy. Representatives of PJT Partners also discussed with the Dynegy Board benefits of a combination with Vistra Energy that would not be reasonably available to Dynegy on a stand-alone basis, including scale, synergies, improved leverage, an integrated business model and a potential uplift in valuation multiples. The Dynegy Board, Dynegy senior management and representatives of each of the Dynegy financial advisors discussed further the potential benefits of a combination with Vistra Energy, the likely Dynegy stockholder response to a combination transaction and a response to Mr. Morgan’s July 28, 2017 letter. The Dynegy Board then directed Mr. Flexon to respond to Vistra Energy, proposing a combination transaction with a 77%–23% ownership split.

Following the Dynegy Board meeting, on September 1, 2017, Mr. Flexon and Mr. Morgan had a telephone call to discuss the Dynegy Board’s proposal. Later that day, Mr. Flexon sent Mr. Morgan a non-binding letter proposing a combination of Vistra Energy and Dynegy with a 77%–23% ownership split.

The Vistra Energy Board met on September 8, 2017 with members of Vistra Energy senior management present, and discussed Dynegy’s September 1, 2017 letter to Vistra Energy proposing a 77%–23% ownership split. Mr. Morgan discussed the status of the potential combination of Vistra Energy and Dynegy, as well as its potential risks and merits. Members of Vistra Energy senior management then discussed with the Vistra Energy Board the timing of diligence, negotiation and consummation of the potential combination transaction. Following that discussion, Mr. Holden led a discussion regarding financial aspects of the potential combination, including resulting indicative pro forma metrics, credit profile and liquidity. Ms. Moore next discussed the potential structure, terms and conditions and approvals related to the potential combination transaction. Mr. Morgan then discussed various strategic alternatives to the potential combination transaction. After discussion, the Vistra Energy Board authorized Mr. Morgan to send a letter to Dynegy proposing an 80%–20% ownership split.

On September 10, 2017, Mr. Flexon and Mr. Morgan had a telephone call to discuss the Vistra Energy Board’s response to Dynegy’s letter dated September 1, 2017. Later that day, Mr. Morgan sent Mr. Flexon a letter proposing a combination of Vistra Energy and Dynegy with an 80%–20% ownership split.

Ms. Graziano contacted Ms. Burke on September 11, 2017 to coordinate further due diligence efforts between Vistra Energy and Dynegy.

The Dynegy Board met on September 13, 2017 with members of Dynegy senior management and representatives of the Dynegy financial advisors and Skadden in attendance. The Dynegy Board discussed with Dynegy senior management and the representatives of the Dynegy financial advisors the proposed ownership split in Mr. Morgan’s September 10, 2017 letter, as well as the potential benefits from a combination of Vistra Energy and Dynegy. After discussion, the Dynegy Board concluded that it would support pursuing a combination transaction with Vista Energy in which Dynegy stockholders owned at least 21% of the combined company on a fully diluted basis but directed Mr. Flexon to respond to Vistra Energy with a proposed 78%–22% ownership split.

Later on September 13, 2017, Mr. Flexon sent Mr. Morgan a non-binding letter proposing a combination of Vistra Energy and Dynegy with a 78%–22% ownership split.

The Vistra Energy Board met on September 14, 2017 with members of Vistra Energy senior management present, and Mr. Morgan updated the Vistra Energy Board regarding Dynegy’s September 13th letter. The Vistra Energy Board discussed the proposed 78%–22% ownership split and authorized Mr. Morgan to propose a 79.5%–20.5% ownership split.

 

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On September 14, 2017, Mr. Morgan and Mr. Flexon had a call in which they discussed the Vistra Energy Board’s reaction to the letter from Dynegy dated September 13, 2017 and exchanged views regarding a possible path forward. Mr. Morgan conveyed the Vistra Energy Board’s offer of a 79.5%–20.5% ownership split, and Mr. Flexon countered with a proposal for a 79%–21% ownership split.

The Dynegy Board then met on September 14, 2017 with members of Dynegy senior management and representatives of Skadden in attendance. The Dynegy Board discussed Mr. Flexon’s call with Mr. Morgan and re-affirmed that it would support pursuing a combination transaction with a 79%–21% ownership split.

The Vistra Energy Board met on September 15, 2017 with members of Vistra Energy senior management present, and Mr. Morgan updated the Vistra Energy Board regarding his September 14, 2017 call with Mr. Flexon. After discussion, the Vistra Energy Board expressed support for accepting Dynegy’s proposal of a 79%–21% ownership split and authorized Mr. Morgan to confirm with Mr. Flexon its agreement to proceed with negotiations for a combination of Vistra Energy and Dynegy based on a 79%–21% ownership split. The Vistra Energy Board also asked Mr. Morgan to request that Dynegy execute an exclusivity agreement.

On September 17, 2017, Mr. Morgan sent Mr. Flexon a letter stating that the Vistra Energy Board agreed to a 79%–21% ownership split. In the letter, Mr. Morgan requested that Dynegy execute an exclusivity agreement.

Later on September 17, 2017, representatives of Vistra Energy (including Ms. Moore), Dynegy (including Ms. James), Simpson Thacher & Bartlett LLP, outside counsel to Vistra Energy (which is referred to as Simpson Thacher), and Skadden, Citi and Morgan Stanley held a conference call to discuss potential transaction structures for the combination. During the call, the parties agreed that the best transaction structure for a combination transaction would be the direct merger of Dynegy into Vistra Energy, with Vistra Energy surviving the merger.

On September 18, 2017, Ms. Moore sent Ms. James a draft exclusivity agreement, proposing that Dynegy and Vistra Energy enter into exclusive negotiations with one another through November 30, 2017. On September 21, 2017, following discussions among Ms. Moore, Ms. James, Simpson Thacher and Skadden, Vistra Energy and Dynegy agreed not to execute an exclusivity arrangement at that time and to focus on diligence and negotiation of a definitive merger agreement.

Later on September 21, 2017, at the Vistra Energy Board’s request, Mr. Flexon sent Mr. Morgan an email confirming that Dynegy was willing to consider and negotiate a combination with Vistra Energy based on a 79%–21% ownership split.

On September 22, 2017, Simpson Thacher sent Dynegy and Skadden an initial draft of the Merger Agreement. For the remainder of September through October 29, 2017, Vistra Energy and Simpson Thacher, on the one hand, and Dynegy and Skadden, on the other hand, exchanged drafts, and negotiated the terms, of the Merger Agreement. During this period, each company conducted further due diligence on the other company, including with respect to financial, operational, tax, environmental, legal and regulatory compliance, litigation, capital structure, human resources and labor matters.

The Dynegy Board met on September 26, 2017 with representatives of the Dynegy financial advisors and Skadden in attendance. Skadden reviewed again with the Dynegy Board its fiduciary duties in connection with a potential combination transaction with Vistra Energy. In addition, Skadden reviewed with the Dynegy Board certain relationship disclosures provided by the Dynegy financial advisors. At the direction of the Dynegy Board, representatives of each of the Dynegy financial advisors presented an analysis of other strategic companies and financial sponsors that may be interested in a transaction with Dynegy. Each of the representatives of the Dynegy financial advisors advised the Dynegy Board that, at such time, given the facts and circumstances then available to each of them, it was unlikely that any strategic company or financial sponsor would be interested in pursuing a transaction with Dynegy that would be as favorable to Dynegy stockholders as a combination with Vistra Energy with a 79%–21% ownership split. The Dynegy Board discussed the presentations with the representatives of the

 

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Dynegy financial advisors and Dynegy senior management and concluded that it was unlikely that any strategic company or financial sponsor would be interested in pursuing a transaction with Dynegy that would be as favorable to Dynegy stockholders as the proposed combination with Vistra Energy. However, the Dynegy Board directed Mr. Flexon to contact Company A to gauge Company A’s interest in a strategic transaction with Dynegy. In addition, during the meeting, Skadden summarized for the Dynegy Board the key issues raised by the September 22, 2017 draft of the Merger Agreement, including that (1) the draft Merger Agreement did not address the composition of the combined company’s board of directors, (2) the draft Merger Agreement did not include a “go shop” right for Dynegy, (3) the draft Merger Agreement did not propose an amount for each party’s respective termination fee if its board of directors changed its recommendation or terminated the Merger Agreement in response to a superior proposal, which termination fee is referred to as a fiduciary out termination fee, and (4) the draft Merger Agreement included a narrow scope of the governmentally imposed conditions that Vistra Energy would be required to accept in order to obtain required regulatory approvals, which requirements are referred to as the burdensome effect requirements.

On September 28, 2017, Mr. Flexon met with a director of Company A, and they discussed renewed discussions about a potential combination between Dynegy and Company A. The Company A director told Mr. Flexon that he would discuss a potential combination transaction with Company A’s full board of directors.

The Vistra Energy Board met on September 29, 2017 with members of Vistra Energy senior management and representatives from Simpson Thacher in attendance. Simpson Thacher led a discussion with the Vistra Energy Board regarding the fiduciary duties of directors in merger and acquisition transactions. Representatives from Simpson Thacher and Ms. Moore also discussed with the Vistra Energy Board the significant terms and conditions of the draft Merger Agreement sent to Dynegy and Skadden, including the scope of burdensome effect requirements, the anticipated amount of the fiduciary out termination fee, and their expectation that in further negotiations Dynegy would likely propose a “go shop” right and that Vistra Energy have the obligation to pay Dynegy a termination fee if the Merger Agreement is terminated under certain circumstances related to the failure to obtain required regulatory approvals, which termination is referred to as a regulatory failure termination fee.

On October 3, 2017, Skadden sent Vistra Energy and Simpson Thacher a revised draft of the Merger Agreement, which, among other changes, (1) added a “go shop” right for Dynegy, (2) contemplated that the Vistra Energy Principal Stockholders would enter into support agreements with respect to the proposed transaction, (3) broadened the burdensome effect requirements and (4) included a regulatory failure termination fee.

On October 4, 2017, Mr. Flexon discussed with Company A’s chief executive officer Mr. Flexon’s September 28, 2017 conversation with the Company A director. Following this conversation, Company A did not respond to Dynegy about a potential combination transaction.

On October 5, 2017, Mr. Flexon, Pat Wood III, the chairman of the Dynegy Board, and two other members of the Dynegy Board—Hillary Ackermann and Paul Barbas—met with Vistra Energy Board members Geoffrey Strong and Cyrus Madon in New York City to discuss governance issues of the combined company.

On October 10, 2017, Simpson Thacher sent Dynegy and Skadden a revised draft of the Merger Agreement, which, among other changes, (1) deleted Dynegy’s “go shop” right, (2) narrowed the burdensome effect requirements and (3) deleted the regulatory failure termination fee.

The Dynegy Board met on October 11, 2017 with members of Dynegy senior management and representatives of Skadden in attendance. Dynegy senior management updated the Dynegy Board on the status of due diligence regarding a potential combination transaction with Vistra Energy. Skadden then discussed with the Dynegy Board the issues raised by Simpson Thacher’s October 10, 2017 draft of the Merger Agreement, including (1) the deletions of Dynegy’s “go shop” right and the regulatory failure termination fee, (2) the

 

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narrowing of the burdensome effect requirements and (3) the scope of Vistra Energy’s and Dynegy’s respective “no shop” covenants.

The Vistra Energy Board met on October 12, 2017 with members of Vistra Energy senior management, representatives of Simpson Thacher and Enoch Kever (outside PUCT regulatory counsel for Vistra Energy) in attendance, and discussed the required regulatory approvals from the PUCT and other regulators in connection with the proposed combination.

On October 13, 2017, representatives of Vistra Energy (including Ms. Moore and Ms. Graziano), Dynegy (including Ms. James), Simpson Thacher and Skadden held a conference call to discuss the open issues in the Merger Agreement, including (1) the scope of the burdensome effect requirements and the inclusion of a regulatory failure termination fee and (2) the scope of Vistra Energy’s and Dynegy’s respective “no shop” covenants. Simpson Thacher explained that Vistra Energy did not intend to enter into a merger agreement with a “go shop” provision.

In addition, on October 13, 2017, Skadden sent Simpson Thacher an initial draft of the merger support agreement that Dynegy expected to enter into with the Vistra Energy Principal Stockholders, which merger support agreement is referred to as the Vistra Energy Stockholder Support Agreement, and asked Simpson Thacher to forward the draft to the Vistra Energy Principal Stockholders’ respective counsel. Over the next two weeks and through October 29, 2017, Dynegy and Skadden, on the one hand, and the Vistra Energy Principal Stockholders and their respective counsel, on the other hand, exchanged drafts and negotiated the terms of the Vistra Energy Stockholder Support Agreement.

Also, on October 13, 2017, Mr. Flexon and Mr. Wood communicated regarding Dynegy and Mr. Flexon entering into an amendment to Mr. Flexon’s current employment agreement to extend the term of Mr. Flexon’s employment with Dynegy for an additional year to April 30, 2019, which amendment is referred to as the Flexon Employment Agreement Amendment.

On October 15, 2017, Skadden sent Vistra Energy and Simpson Thacher a revised draft of the Merger Agreement, which, among other changes, (1) broadened the burdensome effect requirements, (2) reinstated the regulatory failure termination fee, (3) omitted the “go-shop” provision and (4) proposed a Dynegy fiduciary out termination fee equal to 2% of the implied aggregate equity value of the Merger to Dynegy stockholders.

On October 18 and 19, 2017, representatives of Vistra Energy (including Mr. Morgan, Ms. Graziano and Ms. Moore), Dynegy (including Mr. Flexon, Ms. Burke, and Ms. James), Simpson Thacher and Skadden met at Simpson Thacher’s offices in New York City. At the meeting, the parties discussed open issues in the Merger Agreement, including (1) the scope of the burdensome effect requirements and the inclusion of a regulatory failure termination fee, (2) the size of each party’s fiduciary out termination fee and (3) the scope of Vistra Energy’s and Dynegy’s respective “no shop” covenants.

The Vistra Energy Board met on October 20, 2017 with members of Vistra Energy senior management and representatives of Simpson Thacher in attendance. Vistra Energy senior management led the Vistra Energy Board in a discussion of the financial and operational due diligence findings with respect to the proposed combination with Dynegy. Ms. Moore and representatives of Simpson Thacher led a discussion with the Vistra Energy Board regarding the current status of negotiation of the Merger Agreement, including the scope of the burdensome effect requirements, the inclusion of a regulatory failure termination fee and the size of each party’s fiduciary out termination fee. The Vistra Energy Board authorized senior management and Vistra Energy’s advisors to continue negotiating the proposed combination transaction with Dynegy.

On October 20, 2017, Simpson Thacher sent Dynegy and Skadden a revised draft of the Merger Agreement. The revised draft included a regulatory failure termination fee and proposed $87 million as the amount of such termination fee, as well as the amount of each party’s fiduciary out termination fee. In addition, among other changes, the revised draft narrowed the burdensome effect requirements.

 

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On October 22, 2017 and October 24, 2017, Simpson Thacher sent Skadden initial drafts of the merger support agreements that Vistra Energy expected to enter into with the Dynegy Principal Stockholders, which merger support agreements are referred to collectively as the Dynegy Stockholder Support Agreements, and asked Skadden to forward the draft to the Dynegy Principal Stockholders’ respective counsel. Over the next week and through October 29, 2017, Vistra Energy and Simpson Thacher, on the one hand, and the Dynegy Principal Stockholders and their respective counsel, on the other hand, exchanged drafts, and negotiated the terms of the Dynegy Stockholder Support Agreements.

The Dynegy Board met on October 24, 2017 with members of Dynegy senior management and representatives of the Dynegy financial advisors and Skadden in attendance. Dynegy senior management updated the Dynegy Board regarding the status of due diligence, and the Dynegy Board reviewed and discussed with Dynegy senior management the Dynegy Management Projections. The Dynegy Board then discussed with Dynegy senior management and Skadden the required regulatory approvals for the Merger and the parties’ strategy for obtaining those approvals. Skadden then summarized the terms of the current drafts of the Merger Agreement and the Vistra Energy Stockholder Support Agreement. During that summary, Skadden explained that key issues remained open, including (1) the scope of the burdensome effect requirements and (2) the size of the regulatory failure termination fee and the parties’ respective fiduciary out termination fees. Following discussion, the Dynegy Board directed Dynegy senior management and Skadden to send a revised draft of the Merger Agreement to Vistra Energy and Simpson Thacher reflecting the Dynegy Board’s positions on the open issues. At the direction of the Dynegy Board, representatives of each of the Dynegy financial advisors then presented their preliminary respective financial analyses with respect to an assumed exchange ratio of 0.6525 shares of Vistra Energy Common Stock per each share of Dynegy Common Stock. The Dynegy Board then met in an executive session of independent directors without the presence of Dynegy senior management. During the executive session, the Dynegy Board discussed the proposed Flexon Employment Agreement Amendment.

Also on October 24, 2017, Vistra Energy and Dynegy sent their respective disclosure schedules to the Merger Agreement to the other party, and through October 29, 2017, Vistra Energy and Dynegy exchanged drafts of the disclosure schedules to the Merger Agreement.

Later on October 24, 2017, Skadden sent Vistra Energy and Simpson Thacher a revised draft of the Merger Agreement, which, among other changes, (1) increased each of the regulatory failure termination fee and Vistra Energy’s fiduciary out termination fee to $100 million and (2) broadened the burdensome effect requirements.

On October 25, 2017, senior management of Vistra Energy and Dynegy agreed that the exchange ratio necessary to result in the agreed 79%–21% fully diluted ownership split was 0.653 shares of Vistra Energy Common Stock per each share of Dynegy Common Stock.

During trading hours on the NYSE on October 25, 2017, The Wall Street Journal published an article reporting that Vistra Energy and Dynegy were in advanced talks to combine and could announce a deal as early as the following week.

In addition, on October 25, 2017, Simpson Thacher sent Dynegy and Skadden a response to Skadden’s revised draft of the Merger Agreement. That response accepted the increase in the regulatory failure termination fee and Vistra Energy fiduciary out termination fee to $100 million. In addition, the response narrowed the burdensome effect requirements.

Later on October 25, 2017, representatives of Vistra Energy (including Ms. Moore and Ms. Graziano), Dynegy (including Ms. James), Simpson Thacher and Skadden held multiple conference calls to discuss the open issues in the Merger Agreement.

The Vistra Energy Board met on October 26, 2017 with members of Vistra Energy senior management and representatives of Simpson Thacher and Citi in attendance. Representatives of Simpson Thacher reviewed with

 

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the Vistra Energy Board its fiduciary duties in connection with proposed combination transaction with Dynegy. Vistra Energy senior management and representatives of Simpson Thacher led a discussion with the Vistra Energy Board regarding the current status of negotiation of the Merger Agreement, including the scope of the burdensome effect requirements, the inclusion of a regulatory failure termination fee and the size of each party’s fiduciary out termination fee. Ms. Graziano and Mr. Morgan presented to the Vistra Energy Board an update of Vistra Energy’s financial projections and synergy analyses. Representatives of Citi, in their capacity as financial advisors to Vistra Energy, presented to the Vistra Energy Board its preliminary discussion materials that provided a summary of Citi’s financial analysis of the proposed combination. The Vistra Energy Board authorized senior management and Vistra Energy’s advisors to continue negotiating the proposed combination transaction.

On October 26, 2017, Simpson Thacher sent Dynegy and Skadden a summary of the Vistra Energy Board’s position on the open issues in the Merger Agreement, including on the burdensome effect requirements. In addition, the summary stated that the Vistra Energy Board proposed that the combined company’s board of directors consist of ten members, with two of those members being current members of the Dynegy Board.

The Dynegy Board met on October 27, 2017 with members of Dynegy senior management and representatives of the Dynegy financial advisors and Skadden in attendance. The Dynegy Board discussed with Dynegy senior management, representatives of the Dynegy financial advisors and Skadden the Vistra Energy Board’s positions on the open issues in the Merger Agreement and directed Dynegy senior management and Skadden to send the Dynegy Board’s response to Vistra Energy and Simpson Thacher.

Following the Dynegy Board meeting, on October 27, 2017, Mr. Flexon called Mr. Morgan and informed him of the Dynegy Board’s position on the open issues in the Merger Agreement, and Skadden sent the Dynegy Board’s response to Simpson Thacher and Vistra Energy. The response included the following Dynegy Board positions:

 

  (1) the burdensome effect requirements should be broader than those proposed by Vistra Energy;

 

  (2) in connection with Vistra Energy and Dynegy obtaining the required regulatory approvals for the Merger, Oaktree should agree at signing to sell a sufficient number of shares of Vistra Energy Common Stock or Dynegy Common Stock prior to the effective time of the Merger so that, as of the effective time of the Merger, it would own less than 10% of the combined company, which obligation is referred to as the Oaktree Sell-Down; and

 

  (3) the combined company’s board of directors should consist of eleven members, with three of those members being current members of the Dynegy Board.

The Vistra Energy Board met on October 28, 2017 with members of Vistra Energy senior management and representatives of Simpson Thacher and Enoch Kever in attendance. Vistra Energy senior management discussed the open issues in the Merger Agreement, including the following:

 

  (1) the scope of the burdensome effect requirements;

 

  (2) the terms of the Oaktree Letter Agreement and the Vistra Energy Stockholder Support Agreement (including the Oaktree Sell-Down and a requirement that, if Oaktree was unable to sell a sufficient number of shares of Vistra Energy Common Stock or Dynegy Common Stock prior to the effective time of the Merger to complete the Oaktree Sell-Down, Dynegy would repurchase from Oaktree a sufficient number of shares of Dynegy Common Stock so that Oaktree would own less than 10% of the combined company as of the effective time of the Merger, which repurchase obligation is referred to as the Dynegy Backstop); and

 

  (3) the size and composition of the combined company’s board of directors.

After the Vistra Energy Board meeting on October 28, 2017, Mr. Morgan called Mr. Flexon and informed him of the Vistra Energy Board’s and Oaktree’s positions on the open issues, including the following positions:

 

  (1) Vistra Energy would not agree to broaden the scope of the burdensome effect requirements;

 

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  (2) Oaktree would agree to use commercially reasonable efforts to consummate the Oaktree Sell-Down, subject to the Dynegy Backstop; and

 

  (3) the combined company’s board of directors would consist of eleven members, with three of those members being current members of the Dynegy Board.

Later on October 28, 2017, the Dynegy Board met with members of Dynegy senior management and Skadden in attendance. Mr. Flexon updated the Dynegy Board regarding his earlier call with Mr. Morgan on the Vistra Energy Board’s current positions. The Dynegy Board discussed those positions, including the Oaktree Sell-Down and Dynegy Backstop with Dynegy senior management and Skadden in the context of the risks associated with the Merger and the rationale for entering into the Merger Agreement, and the Dynegy Board determined that the Vistra Energy Board’s current positions were acceptable.

Following the Dynegy Board meeting, on October 28, 2017, representatives of Vistra Energy (including Ms. Moore), Dynegy (including Ms. James), Oaktree, Simpson Thacher, Skadden and Paul, Weiss, Rifkind, Wharton & Garrison LLP, Oaktree’s outside counsel, held a conference call to discuss the parameters and documentation of the Oaktree Sell-Down and the Dynegy Backstop.

Also on October 28, 2017, senior management of Vistra Energy and Dynegy agreed that the exchange ratio necessary to result in the agreed 79%–21% fully diluted ownership split should be changed to 0.652 shares of Vistra Energy Common Stock per each share of Dynegy Common Stock due to a recent decrease in the number of fully diluted shares of Vistra Energy Common Stock.

The parties worked through the rest of October 28, 2017 and October 29, 2017, to finalize (1) the Merger Agreement, (2) the disclosure schedules to the Merger Agreement, (3) the Vistra Energy Stockholder Support Agreement, which includes the Dynegy Backstop, (4) the Oaktree Letter Agreement, which includes the Oaktree Sell-Down, (5) the Terawatt Support Agreement and (6) the Oaktree Support Agreement.

The Vistra Energy Board met during the afternoon on October 29, 2017 with members of Vistra Energy senior management and representatives of Simpson Thacher and Citi in attendance. Oaktree’s representative on the Vistra Energy Board recused herself from considering and approving the proposed combination to avoid any appearance of a conflict due to Oaktree’s ownership of both Vistra Energy Common Stock and Dynegy Common Stock and the terms and conditions of the Oaktree Sell-Down and the Dynegy Backstop. Thereafter, Mr. Morgan provided the Vistra Energy Board with an update of the status of negotiation of the Merger Agreement, including that Dynegy had accepted the terms of the Vistra Energy Board’s October 28th counterproposal and that an agreement in principal existed between the parties. At the request of the Vistra Energy Board, Citi presented its financial analysis of the potential transaction summarized below under “The Merger—Opinion of Vistra Energy’s Financial Advisor” and delivered its oral opinion, which was subsequently confirmed by delivery of a written opinion dated October 29, 2017, to the effect that, as of that date and based on and subject to the matters, considerations and limitations set forth in Citi’s opinion, Citi’s work and other factors Citi deemed relevant, the exchange ratio of 0.652x provided for by the Merger Agreement was fair, from a financial point of view, to Vistra Energy. The full text of Citi’s written opinion to the Vistra Energy Board, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by Citi in rendering its opinion, is attached to this joint proxy statement and prospectus as Annex B and is incorporated into this joint proxy statement and prospectus by reference in its entirety. After further discussion, the Vistra Energy Board voted with all directors in favor, other than the Oaktree representative on the Vistra Energy Board, who abstained, to adopt resolutions (1) determining that it is in the best interest of Vistra Energy and the holders of Vistra Energy Common Stock to enter into the Merger Agreement, (2) declaring entry into the Merger Agreement to be advisable, (3) authorizing and approving Vistra Energy’s execution, delivery and performance of the Merger Agreement in accordance with its terms and Vistra Energy’s consummation of the transactions contemplated thereby, including the Merger and the Stock Issuance, (4) directing that the adoption of the Merger Agreement and the approval of the Stock Issuance be submitted to a

 

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vote at a meeting of the holders of Vistra Energy Common Stock and (5) recommending that the holders of Vistra Energy Common Stock adopt the Merger Agreement and approve the Stock Issuance. In addition, the Vistra Energy Board approved the terms of, and Vistra Energy’s entry into, the Dynegy Stockholder Support Agreements.

The Dynegy Board met during the evening on October 29, 2017 with members of Dynegy senior management and representatives of the Dynegy financial advisors and Skadden in attendance. The Dynegy Board discussed with Dynegy senior management the rationale for the parties agreeing to an exchange ratio of 0.652 shares of Vistra Energy Common Stock per each share of Dynegy Common Stock instead of the 0.653x exchange ratio that had been agreed on October 25, 2017. Skadden reviewed with the Dynegy Board certain relationship disclosures previously provided by the Dynegy financial advisors. At the direction of the Dynegy Board, representatives of each of the Dynegy financial advisors presented their financial analyses with respect to the proposed exchange ratio of 0.652 shares of Vistra Energy Common Stock per each share of Dynegy Common Stock (which presentations had been shared with the Dynegy Board prior to the meeting). At the request of the Dynegy Board, representatives of Morgan Stanley delivered its oral opinion, which was subsequently confirmed by delivery of a written opinion dated October 29, 2017, that, as of that date and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by representatives of Morgan Stanley as set forth in the Morgan Stanley Fairness Opinion (as defined in “The Merger—Opinions of Dynegy’s Financial Advisors—Opinion of Morgan Stanley”), the Exchange Ratio pursuant to the Merger Agreement was fair from a financial point of view to the Dynegy stockholders (other than the holders of the cancelled shares). The Morgan Stanley Fairness Opinion is more fully described in the full text of the Morgan Stanley Fairness Opinion attached hereto as Annex C and is incorporated by reference into this joint proxy statement and prospectus in its entirety. The Morgan Stanley Fairness Opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley in rendering the Morgan Stanley Fairness Opinion. At the request of the Dynegy Board, representatives of PJT Partners rendered its oral opinion (which was subsequently confirmed in writing) to the Dynegy Board that, as of the date thereof and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the Exchange Ratio pursuant to the Merger Agreement was fair to the holders of Dynegy Common Stock (other than the holders of the cancelled shares and the Dynegy Principal Stockholders) from a financial point of view. The PJT Partners written opinion is more fully described in the full text of such opinion attached hereto as Annex C and is incorporated by reference into this joint proxy statement and prospectus in its entirety. The PJT Partners written opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by PJT Partners in rendering such opinion. After further discussion, the Dynegy Board unanimously voted to adopt resolutions (1) determining that it was in the best interest of Dynegy and holders of Dynegy Common Stock to enter into the Merger Agreement, (2) declaring entry into the Merger Agreement to be advisable, (3) authorizing and approving Dynegy’s execution, delivery and performance of the Merger Agreement in accordance with its terms and Dynegy’s consummation of the transactions contemplated thereby, including the Merger, (4) directing that the adoption of the Merger Agreement be submitted to a vote at a meeting of the holders of Dynegy Common Stock and (5) recommending that the holders of Dynegy Common Stock adopt the Merger Agreement. In addition, the Dynegy Board approved the terms of, and Dynegy’s entry into, the Vistra Energy Stockholder Support Agreement. The Dynegy Board then met in an executive session of only independent directors, without the presence of Dynegy senior management, and approved the Flexon Employment Agreement Amendment.

Following the Dynegy Board meeting, (1) Dynegy and Mr. Flexon executed and delivered the Flexon Employment Agreement Amendment, (2) Vistra Energy and Dynegy executed and delivered the Merger Agreement, (3) Dynegy and the Vistra Energy Principal Stockholders executed and delivered the Vistra Energy Stockholder Support Agreement, (4) Vistra Energy and Oaktree executed the Oaktree Letter Agreement, (5) Vistra Energy and the Dynegy Principal Stockholders executed the Dynegy Stockholder Support Agreements.

Prior to the open of trading on the New York Stock Exchange on October 30, 2017, Vistra Energy and Dynegy issued a joint press release announcing their entry into the Merger Agreement.

 

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Recommendation of the Vistra Energy Board and Its Reasons for the Merger

The Vistra Energy Board reviewed and considered the terms of the Merger and the Merger Agreement and, at a meeting on October 29, 2017, (i) determined that it is in the best interest of Vistra Energy and the holders of Vistra Energy Common Stock to enter into the Merger Agreement, (ii) declared entry into the Merger Agreement to be advisable, (iii) authorized and approved Vistra Energy’s execution, delivery and performance of the Merger Agreement in accordance with its terms and Vistra Energy’s consummation of the transactions contemplated thereby, including the Merger and the Stock Issuance, (iv) directed that the adoption of the Merger Agreement and the approval of the Stock Issuance be submitted to a vote at a meeting of the holders of Vistra Energy Common Stock and (v) recommended that the holders of Vistra Energy Common Stock adopt the Merger Agreement and approve the Stock Issuance.

In evaluating the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance Proposal, the Vistra Energy Board consulted with Vistra Energy’s management, as well as Vistra Energy’s legal and financial advisors and other consultants and, in reaching its determinations, considered a variety of factors with respect to the Merger and the other transactions contemplated by the Merger Agreement, including the factors listed below.

Strategic Considerations

The Vistra Energy Board considered a number of factors pertaining to the strategic rationale for the Merger, including the following.

 

    Value Creation. The Vistra Energy Board considered that the Merger is projected to achieve approximately $350 million in annual run-rate EBITDA value enhancement by streamlining general and administrative costs, implementing fleet-wide efficient operating practices, driving procurement efficiencies, and eliminating other duplicative costs. Vistra Energy estimates the full run-rate of EBITDA value enhancement will be achieved in approximately 12 months following the completion of the Merger. In addition, the combined company is expected to benefit from approximately $65 million (after tax) of incremental annual run-rate free cash flow benefits from balance sheet and capital expenditure efficiencies. Finally, the combined company is expected to benefit from the utilization of approximately $2.0–2.5 billion of legacy Dynegy federal tax net operating losses with an estimated net present value of approximately $500–600 million. The Vistra Energy Board considered both the aggregate potential value that is expected to result from the Merger, as well as the fact that the numerous opportunities to create value mitigate the risk that any particular opportunity to create value will not be realized.

 

    Increased Scale and Market Diversification. The Vistra Energy Board considered the fact that Vistra Energy currently only operates in ERCOT and that the Merger would result in a combined company that is expected to have significant scale in a number of key markets in the United States, including markets outside of ERCOT. As a result, the Vistra Energy Board considered that the Merger is expected to result in a combined company with greater wholesale and retail electricity market diversification. The combined company is projected to have approximately 40 GW of installed generation capacity. On a standalone basis, all of Vistra Energy’s current generation capacity is located in ERCOT. Following the Merger, approximately 46% of the combined company’s capacity would be located in ERCOT and approximately 54% would be located outside of ERCOT, including key markets in PJM and ISO-NE. Achieving this greater scale and balance among the geographic areas and markets in which Vistra Energy operates is expected to promote increased efficiency and financial flexibility, as well as decrease the combined company’s potential exposure to regional market swings or any particular adverse event, including weather-related events.

 

   

Rebalanced Asset Portfolio. The Vistra Energy Board considered that the Merger is expected to increase the combined company’s fuel diversification in the combined generation fleet compared to Vistra Energy on a stand-alone basis. Dynegy’s asset portfolio mix is predominantly gas-based, which

 

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currently constitutes approximately 65% of Dynegy’s overall generation capacity compared to Vistra Energy’s 54%, and the Merger is expected to result in approximately 61% of the combined company’s total generation capacity coming from gas, approximately 32% from coal and approximately 6% from nuclear. Reweighting the combined company’s portfolio toward fuel-advantaged combined-cycle generation in key markets should improve operational efficiency and flexibility and reduce the impact of volatility in power and commodity prices.

 

    Knowledge of Vistra Energy and Dynegy. The Vistra Energy Board took into account its knowledge of Vistra Energy’s business, operations, financial condition, earnings and prospects, and of Dynegy’s business, operations, financial condition, earnings and prospects, taking into account the results of Vistra Energy’s due diligence review of Dynegy. In particular, the Vistra Energy Board focused on the quality and mix of Dynegy’s assets, the compatibility of the two companies’ operations and opportunities for synergies and future growth.

Financial Considerations

The Vistra Energy Board considered a number of factors pertaining to the financial rationale for the Merger, including the following.

 

    Earnings and Cash Flow. The Vistra Energy Board considered that the Merger is expected to be accretive to earnings and cash flow after factoring in the accretive EBITDA and cash flow opportunities described above under “—Value Creation.”

 

    Credit Profile (Balance Sheet and Liquidity). The Vistra Energy Board considered that, similar to Vistra Energy on a standalone basis, the combined company is expected to have a favorable credit profile, including a strong balance sheet and liquidity profile. This is due to the combined company’s anticipated significant cash flow generation capability, greater operating scale and anticipated lower overall risk profile resulting from increased geographic and fuel diversification following the Merger. As a result, similar to Vistra Energy on a standalone basis, the Vistra Energy Board considered that the combined company should be able to access the lending and capital markets, if and when needed, to meet its capital and other requirements.

 

    Financial Terms of the Merger. The Vistra Energy Board reviewed the financial terms of the Merger, including the tax-free nature of the all-stock transaction; the value of the merger consideration based on the Exchange Ratio relative to the then-current market prices and historical trading prices of Vistra Energy Common Stock and Dynegy Common Stock; the fact that the Merger does not necessitate the need for any refinancing of indebtedness; and the fact that legacy stockholders of Vistra Energy will own 79% of the common stock of the combined company on a fully diluted basis following the closing of the Merger.

 

    Enhancement of Equity Market Profile. The Vistra Energy Board considered that the combined company will have a larger market capitalization, which is expected to improve and diversify the investor base and should increase the liquidity of its publicly traded common stock.

Other Considerations

The Vistra Energy Board considered a number of other factors pertaining to the rationale for the Merger, including the following.

 

    Due Diligence. The Vistra Energy Board considered the scope of the due diligence investigation of Dynegy conducted by Vistra Energy’s management and outside advisors, and the results of that investigation. The Vistra Energy Board also considered the historical financial performance of Dynegy.

 

    Recommendation by Management. The Vistra Energy Board considered Vistra Energy management’s recommendation in favor of the Merger Proposal and the Stock Issuance Proposal.

 

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    Opinion of Vistra Energy’s Financial Advisor. The Vistra Energy Board considered the opinion of Citi, dated October 29, 2017, to the Vistra Energy Board as to the fairness, from a financial point of view and as of the date of the opinion, to Vistra Energy of the Exchange Ratio provided for in the Merger, which opinion was based on and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken as more fully described below under the heading “—Opinion of Vistra Energy’s Financial Advisor” beginning on page 88.

 

    Terms of the Merger Agreement. The Vistra Energy Board considered the terms of the Merger Agreement, including the representations, warranties, obligations and rights of the parties under the Merger Agreement, the conditions to each party’s obligations to complete the Merger, and the circumstances in which each party is permitted to terminate the Merger Agreement. See “The Merger Agreement” beginning on page 136. In particular, the Vistra Energy Board noted the following terms of the Merger Agreement:

 

    Stockholder Approval. The fact that the Vistra Energy stockholders would have an opportunity to vote on the adoption of the Merger Agreement.

 

    Ability to Fulfill Fiduciary Duties. The fact that, although the Merger Agreement prohibits Vistra Energy from soliciting or engaging in discussions regarding any transaction to acquire Vistra Energy during the pendency of the Merger, the Merger Agreement allows the Vistra Energy Board to engage in discussions with respect to, and provide information in connection with, a bona fide proposal to acquire Vistra Energy that the Vistra Energy Board determines constitutes or is reasonably expected to result in a superior offer. In addition, the Merger Agreement allows the Vistra Energy Board to change or withdraw its recommendation with respect to the Merger Proposal in the event a superior offer is received or certain material developments or changes in circumstances occur after the execution of the Merger Agreement, and even to terminate the Merger Agreement in order to accept a superior offer to acquire Vistra Energy if, in any of these cases, the Vistra Energy Board determines that a failure to change its recommendation or terminate the Merger Agreement, as applicable, would be inconsistent with the exercise of its fiduciary duties under applicable law, subject to compliance with the terms and conditions of the Merger Agreement, including the payment by Vistra Energy of a termination fee of $100 million to Dynegy if the Merger Agreement is terminated under certain circumstances. See “The Merger Agreement—Effect of Termination; Termination Fees and Expense Reimbursement” beginning on page 155. While these provisions could have the effect of discouraging transaction proposals, these provisions would not preclude such proposals, and the Vistra Energy Board determined that the size of the termination fee payable by Vistra Energy is reasonable in light of the size and benefits of the Merger and not preclusive of a superior offer, if one were to emerge.

 

    Burdensome Effect. The fact that Vistra Energy has a right not to complete the Merger in the event of a “burdensome effect” imposed in connection with obtaining regulatory approvals, subject to payment of a $100 million termination fee.

 

    Stockholder Support Agreements. The Vistra Energy Board considered the commitments made by the Vistra Energy Principal Stockholders to vote for and otherwise support the Merger and the other transactions contemplated by the Merger Agreement.

 

    Impact of the Merger on Communities and Combined Headquarters. The Vistra Energy Board considered the expected impact of the Merger on the communities served by Vistra Energy and the location of the combined company’s headquarters in Irving, Texas.

 

    Complementary Cultures and Goals. The Vistra Energy Board considered its view that the corporate cultures and goals of Vistra Energy and Dynegy are compatible, in that both companies are committed to reliability, customer satisfaction, safety and diligent stewardship of economic, human and environmental resources.

 

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Potential Risks of the Merger

The Vistra Energy Board also considered potential risks and other negative factors concerning the Merger in connection with its deliberations of the proposed transaction, including the following:

 

    Fixed Exchange Ratio. The Vistra Energy Board considered that the Merger Agreement provides for a fixed exchange ratio and thus the Exchange Ratio will not change based on changes in the trading prices of Vistra Energy Common Stock or Dynegy Common Stock or changes in the business performance or financial results of Vistra Energy or Dynegy. Accordingly, if the value of Dynegy’s businesses declines relative to the value of Vistra Energy’s businesses prior to completion of the Merger, Dynegy stockholders’ percentage ownership in the combined company may exceed Dynegy’s relative contribution to the combined company. However, the Vistra Energy Board determined that the method for determining the Exchange Ratio was appropriate and the risks acceptable in view of the relative intrinsic values and financial performance of Vistra Energy and Dynegy and the historic trading prices of Vistra Energy Common Stock and Dynegy Common Stock. The Vistra Energy Board also noted the inclusion in the Merger Agreement of certain structural protections, such as Vistra Energy’s right to not complete the Merger in the event of a material adverse effect with respect to Dynegy.

 

    Regulatory Approvals. The Vistra Energy Board considered that there are regulatory approvals required to complete the Merger and a risk that the applicable governmental authorities may seek to impose unfavorable terms or conditions on the required approvals or not provide a required regulatory approval. The Vistra Energy Board also considered the potential length of the regulatory approval process. The Vistra Energy Board also considered the fact that Vistra Energy must pay Dynegy a termination fee of $100 million in connection with the termination of the Merger Agreement due to failure to obtain the required regulatory approvals or if Vistra Energy elects not to consummate the Merger because a regulatory approval would include any condition or undertaking that would impose a “burdensome effect” on the combined company. See the section entitled, “The Merger Agreement—Conditions to Completion of the Merger” beginning on page 139 for a description of these matters.

 

    Failure to Close. The Vistra Energy Board considered the risks and contingencies relating to the announcement and pendency of the Merger and risks and costs to Vistra Energy if the closing of the Merger is not timely consummated, or if the Merger does not close at all, including the potential impact on the relationships between Vistra Energy and its employees, customers, suppliers and other third parties, as well as the potential impact on the trading price of Vistra Energy Common Stock. Additionally, there is the possibility that the Merger may not be completed, or that completion may be unduly delayed, for reasons beyond the control of Vistra Energy and/or Dynegy.

 

    Restrictions on Interim Operations. The Vistra Energy Board considered the provisions of the Merger Agreement that impose certain restrictions on the operations of Vistra Energy until completion of the Merger. For further information, see “The Merger Agreement—Conduct of Business Prior to Closing” beginning on page 143.

 

    Transaction Costs and Integration. The Vistra Energy Board considered the substantial costs that will be incurred by both Vistra Energy and Dynegy in connection with the Merger, including legal fees, financial advisory fees, and the significant costs and expenses associated with integrating two businesses of this size. There are also risks and challenges inherent in the combination of two businesses, operations and workforces, including the attendant risks that the anticipated cost savings and synergies and other benefits sought to be obtained from the Merger might not be achieved in the time frame contemplated or to the degree anticipated or at all.

 

    Diversion of Focus. The Vistra Energy Board considered the risk that management focus, employee attention and resources for other strategic opportunities, as well as employee attention to operational matters, could be diverted for an extended period of time while the parties work to complete the Merger and integration process.

 

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    Employment Matters. The Vistra Energy Board considered the risk of losing key Dynegy employees during the pendency of the Merger and thereafter and appropriate steps to retain such employees.

 

    Corporate Governance. The Vistra Energy Board considered the composition of the board of directors and management of the combined company and the potential for disagreement among directors and executive officers selected from two different organizations.

 

    Dynegy Business Risks. The Vistra Energy Board considered certain risks inherent in Dynegy’s business and operations.

 

    Other Risks Considered. The Vistra Energy Board also considered the types and nature of the risks described under the section entitled “Risk Factors” beginning on page 35, and the matters described under “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 61.

The foregoing discussion of factors considered by the Vistra Energy Board is not intended to be exhaustive but instead includes material factors considered by the Vistra Energy Board. In view of the wide variety of factors considered in connection with its evaluation of the Merger and the complexity of these matters, the Vistra Energy Board did not consider it practical, nor did it attempt, to quantify, rank or otherwise assign relative weights to the different factors it considered in reaching its decision. In addition, individual members of the Vistra Energy Board may have given different weight to different factors.

The Vistra Energy Board did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to its ultimate determination, but rather the Vistra Energy Board conducted an overall review of the factors described above, including discussions with the senior management team and outside legal and financial advisors and other consultants.

Dynegy’s Reasons for the Merger; Recommendation of the Dynegy Board

In evaluating the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, the Dynegy Board consulted with Dynegy senior management and Dynegy’s financial and legal advisors, and in recommending that Dynegy stockholders approve the Merger Proposal, the Dynegy Board considered a number of factors, risks and uncertainties, and a substantial amount of information, including the factors, risks and uncertainties set forth below.

Factors, Risks and Uncertainties

Dynegy Prospects

 

    The current public market for shares of Dynegy Common Stock, including the following factors, all of which have negatively affected the price of shares of Dynegy Common Stock and other publicly traded independent power producers:

 

    that uncertainty about regulatory, commodity prices and electricity market dynamics affecting the independent power producer industry has caused traditional investors in the sector to lose confidence in the potential for growth, which has resulted in lower valuation multiples for independent power producers, including Dynegy; and

 

    that the limited number of publicly traded companies in the independent power producer industry and the decline in the total investible market capitalization of companies in the sector are impediments to traditional long term investors continuing to invest in the industry.

 

    Dynegy’s current and historical business, financial condition, results of operations, competitive position, strategic options, capital requirements and prospects, and the nature of the industry and regulatory environment in which Dynegy competes, including:

 

    that the energy commodities sector generally and U.S. energy (power) market, and in particular the independent power producer industry, continue to face a challenging environment; and

 

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    Dynegy’s current strategic plan (including its plan to strengthen its balance sheet and credit metrics by improving earnings via its earnings and cost improvement project, intrinsic growth of its retail business and identification and pursuit of extrinsic growth opportunities, and long-term allocation of capital to renewable opportunities that provide the appropriate risk adjusted returns), and prospects (including Dynegy’s current and projected debt leverage profile) if Dynegy were to remain a stand-alone publicly traded company, and the potential impact of those factors on the trading price of shares of Dynegy Common Stock (which cannot be quantified numerically).

 

    The prospective risks associated with Dynegy continuing as a stand-alone publicly traded company, including the risks and uncertainties with respect to (1) achieving its growth, operating cash flow and profitability targets in light of the current and foreseeable market conditions, including the risks and uncertainties in the U.S. and the global economy generally and the power industry specifically, (2) general market conditions and volatility, including the performance of broad-based stock market indices and exchanges, and (3) risks and uncertainties described in the “risk factors” set forth in Dynegy’s Form 10-K for the fiscal year ended December 31, 2016.

Prospects of the Combined Company

 

    Based on information available as of the date of the Merger Agreement, the Merger will result in a combined company with an implied pro forma equity value greater than $10 billion and an enterprise value greater than $20 billion.

 

    The combined company is expected to achieve approximately $350 million in annual run-rate EBITDA enhancements and approximately $65 million (after tax) in annual run-rate free cash flow benefits from balance sheet and capital expenditure efficiencies.

 

    With approximately $14 billion of adjusted EBITDA expected to be generated between 2018 and 2022, the combined company is expected to achieve approximately $5.5 billion in excess capital, to be available for capital allocation through 2022, with an emphasis on achieving 3 times gross debt to EBITDA by year-end 2019.

 

    The combined company is expected to benefit from $2.0–2.5 billion of legacy Dynegy Net Operating Loss Carryforwards with an estimated net present value of approximately $500–600 million.

 

    The combined company would have a stronger financial profile that is expected to facilitate faster long-term earnings growth due to a stronger balance sheet (including a better debt leverage profile), a more flexible capital structure, and projected robust cash flows that should position the combined company for expanded growth reinvestments, increased return of capital to stockholders and an enhanced platform to pursue potential M&A opportunities.

 

    The combined company is projected to have pro forma liquidity of approximately $3.9 billion as of April 30, 2018 and gross debt to EBITDA declining to the combined company’s targeted 3 times by year-end 2019 (with net debt to EBITDA of 2.6 times by year-end 2019).

 

    The combined company is projected to create the lowest-cost integrated power company in the industry and to position the combined company as the leading integrated retail and generation platform throughout key competitive power markets in the United States, serving approximately 240,000 commercial and industrial customers and 2.7 million residential customers in five top retail states, with estimated retail sales of 75 TWh in 2018.

 

    The Merger enables Dynegy to accelerate its strategic plan to transition to an integrated business model, combining generation and retail, which would be difficult to achieve in a short period of time, on a stand-alone basis.

Financial Terms; Certainty of Value

 

   

The Exchange Ratio (0.652 shares of Vistra Energy Common Stock per each share of Dynegy Common Stock) represents an implied price of $13.24 per share of Dynegy Common Stock, based on

 

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the closing sale price of Vistra Energy Common Stock on the NYSE on October 27, 2017, the last full trading day prior to the date of the Merger Agreement, which is a premium of approximately 82% over the closing sale price per share of Dynegy Common Stock on the NYSE of $7.26 on May 18, 2017, the last full trading day prior to the publication of an article in The Wall Street Journal reporting that Vistra Energy had approached Dynegy about a potential combination transaction.

 

    The Dynegy Board’s belief that the Exchange Ratio is more favorable to Dynegy stockholders than the risk-adjusted potential value that might result from the strategic alternatives reasonably available to Dynegy (including the alternative of remaining a stand-alone publicly traded company and other strategic alternatives that might be pursued by Dynegy, such as strategic business combinations, acquisitions of other businesses by Dynegy and dispositions of certain business segments of Dynegy).

 

    The Exchange Ratio resulted from extensive negotiations between the parties.

 

    It is expected that, immediately following the effective time of the Merger, former holders of Dynegy Common Stock will own approximately 21% of the combined company’s fully diluted equity.

 

    The opinion of Morgan Stanley to the Dynegy Board to the effect that, as of the date thereof and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in Morgan Stanley’s written opinion, the Exchange Ratio pursuant to the Merger Agreement was fair, from a financial point of view, to the holders of shares of Dynegy Common Stock (other than the holders of the cancelled shares).

 

    The financial presentation of PJT Partners and its opinion that, as of the date thereof and based upon and subject to the qualifications, limitations and assumptions set forth therein, the Exchange Ratio pursuant to the Merger Agreement was fair to the Dynegy stockholders (other than the holders of the cancelled shares and the Dynegy Principal Stockholders) from a financial point of view.

Strategic Alternatives

 

    The Dynegy Board reviewed strategic alternatives available to Dynegy, including potential transactions with other counterparties, including Company A.

 

    Dynegy senior management and financial advisor perspectives that potential counterparties to other alternative strategic alternative transactions, including strategic companies and financial sponsors, would either not be interested or capable of pursuing such transactions on terms as favorable as the transaction with Vistra Energy.

 

    Following publicly reported rumors regarding a potential combination of Dynegy and Vistra Energy, no party indicated to Dynegy that it was interested in a possible merger or other strategic transaction with Dynegy.

Certain Terms of the Merger Agreement

 

    The fact that the Dynegy stockholders would have an opportunity to vote on the adoption of the Merger Agreement.

 

    Although the closing of the Merger is subject to regulatory approval, including U.S. antitrust approval, FERC approval, PUCT approval and NYPSC approval, the Dynegy Board believes that the parties will be able to obtain all required regulatory approvals and, in the event (1) the parties are unable to obtain all required regulatory approvals (other than with respect to the NYPSC approval), (2) the terms and conditions of such approvals, individually or in the aggregate, impose a specified burdensome effect (as defined in the Merger Agreement) and Vistra Energy elects not to consummate the Merger as a result, or (3) Vistra Energy breaches its obligations with respect to obtaining required regulatory approvals and the Merger Agreement is terminated in certain circumstances, Vistra Energy must pay Dynegy a termination fee of $100 million;

 

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    Vistra Energy will be required to pay Dynegy a termination fee of $100 million in the event the Merger Agreement is terminated (1) due to the Vistra Energy Board changing its recommendation in favor of the Merger or (2) in order for Vistra Energy to enter into a definitive agreement for a superior transaction.

 

    Vistra Energy is obligated to reimburse Dynegy for certain fees and expenses up to $22 million in the event Vistra Energy stockholders do not approve the Merger Proposal or the Stock Issuance Proposal.

 

    The Merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code, with the result that a U.S. holder of Dynegy Common Stock generally would not recognize any gain or loss upon receipt of Vistra Energy Common Stock solely in exchange for Dynegy Common Stock in the Merger, except with respect to cash received in lieu of fractional shares of Vistra Energy Common Stock.

 

    The governance provisions of the Merger Agreement specify that immediately after the effective time of the Merger, the board of directors of the combined company will be comprised of eleven members, with three of those members being current members of the Dynegy Board.

 

    There is no third-party consent condition to the closing of the Merger.

 

    Dynegy is permitted to seek specific performance remedies to cause Vistra Energy to perform its obligations under the Merger Agreement, including its obligation to close the Merger after the satisfaction or waiver of all applicable closing conditions.

 

    The end date under the Merger Agreement, after which Dynegy or Vistra Energy, subject to specified exceptions, may terminate the Merger Agreement, allows for sufficient time to close the Merger.

 

    The Dynegy Principal Stockholders entered into the Dynegy Stockholder Support Agreements. Pursuant to such merger support agreements, each of the Dynegy Principal Stockholders agreed to vote its shares of Dynegy Common Stock, as applicable, to approve the Merger Proposal. The Dynegy Stockholder Support Agreements will automatically terminate upon the earliest to occur of (i) a change of recommendation by the Dynegy Board, (ii) the termination of the Merger Agreement in accordance with its terms or (iii) the effective time of the Merger.

Dynegy No-Shop Provisions

 

    Prior to obtaining Dynegy stockholder approval of the Merger Proposal, Dynegy is restricted from soliciting transactions from third parties as an alternative to the Merger. However, Dynegy may furnish information with respect to Dynegy and its subsidiaries to, or enter into discussions and negotiations with, third parties in connection with a written competing proposal that does not result from a breach of Dynegy’s non-solicitation obligations if the Dynegy Board determines in good faith (after consultation with a financial advisor and outside legal counsel) that such competing proposal constitutes or would reasonably be expected to result in a superior proposal.

 

    Subject to compliance with the terms of the Merger Agreement, in response to the receipt of a written superior proposal that does not result from a breach of Dynegy’s non-solicitation obligations, the Dynegy Board may change its recommendation to Dynegy stockholders that they vote “FOR” the Merger Proposal or authorize Dynegy to terminate the Merger Agreement if the Dynegy Board determines in good faith (after consultation with outside legal counsel) that the failure to make such change in recommendation or to authorize such termination would be inconsistent with the Dynegy Board’s fiduciary duties under applicable law, subject to a four-business-day “match right” that would allow Vistra Energy to match a superior proposal, and which will renew for two additional business days upon any material revisions to the terms of the superior proposal.

 

   

Subject to compliance with the terms of the Merger Agreement, in response to certain developments that materially improves the business, assets or operations of Dynegy and its subsidiaries, taken as a

 

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whole, that was not known to the Dynegy Board or reasonably foreseeable as of the date of the Merger Agreement, the Dynegy Board may change its recommendation to Dynegy stockholders that they vote “FOR” the Merger Proposal if the Dynegy Board determines in good faith (after consultation with outside legal counsel) that the failure to make such change in recommendation would be inconsistent with the Dynegy Board’s fiduciary duties under applicable law, subject to a four-business-day “match right” that would allow Vistra Energy to improve the terms of the Merger Agreement to Dynegy.

 

    The structure of the transaction as a merger allows sufficient time for a third party to make a superior proposal if it desires to do so.

 

    The Dynegy Board’s consideration of the foregoing provisions in the context of other strategic alternatives available to Dynegy, including hypothetical strategic transactions with parties other than Vistra Energy, and the Dynegy financial advisors’ presentations regarding the likelihood that such parties would be interested in pursuing any such strategic transaction, and publicly reported rumors regarding a strategic transaction between Dynegy and Vistra Energy.

 

    The Dynegy Board’s belief, in light of the foregoing context, that it was unlikely that any third party would make a competing proposal to acquire Dynegy. Further, the Dynegy Board believes that the no-shop provisions were reasonable in light of such context, consistent with non-solicitation provisions in comparable transactions, and not preclusive of other offers.

 

    The Merger Agreement requires Dynegy to pay Vistra Energy a termination fee of $87,000,000, or approximately 4% of the implied equity value and approximately 1% of the implied enterprise value of Dynegy based on the Exchange Ratio as of the date of the Merger Agreement, if Vistra Energy terminates the Merger Agreement because the Dynegy Board changes its recommendation to Dynegy stockholders or if Dynegy terminates the Merger Agreement to enter into a definitive agreement for a superior proposal, which the Dynegy Board believes is reasonable in light of the circumstances (including the context discussed above, the overall terms of the Merger Agreement and the amount of such termination fee being consistent with fees in comparable transactions and not preclusive of other offers).

Risks, Uncertainties and Other Factors Weighing Negatively Against the Merger

 

    The Exchange Ratio is fixed and will not change based on changes in the trading prices of Vistra Energy Common Stock or Dynegy Common Stock or changes in the business performance or financial results of Vistra Energy or Dynegy. Accordingly, if the value of Dynegy’s businesses increases relative to the value of Vistra Energy’s businesses prior to completion of the Merger, Dynegy stockholders’ percentage ownership in the combined company may be less than Dynegy’s relative contribution to the combined company. However, the Dynegy Board determined that the method for determining the Exchange Ratio was appropriate and the risks acceptable in view of the relative intrinsic values and financial performance of Vistra Energy and Dynegy and the historic trading prices of Vistra Energy Common Stock and Dynegy Common Stock. The Dynegy Board also noted the inclusion in the Merger Agreement of certain structural protections, such as the Dynegy Board’s right to change its recommendation in the event of certain unforeseeable developments or changes in circumstances that materially improve Dynegy’s and its subsidiaries’ business, assets or operations, taken as a whole.

 

    The risk that the Merger will be delayed or will not be completed, including the risk that the required U.S. antitrust approval, FERC approval, PUCT approval or NYPSC approval for the Merger may not be obtained.

 

    The risk that, as a condition to granting a required regulatory approval, a governmental entity may impose conditions that materially change the expected financial position, assets or results of operations of the combined company after the effective time of the Merger.

 

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    The potential loss of value to Dynegy stockholders and the potential negative impact on the financial position, operations and prospects of Dynegy if the Merger is delayed or is not completed for any reason.

 

    The risk, if the Merger is not consummated, that the pendency of the Merger could affect adversely the relationship of Dynegy and its subsidiaries with their respective regulators, customers, employees, suppliers, agents and others with whom they have business dealings.

 

    Vistra Energy may furnish information with respect to Vistra Energy and its subsidiaries to, or enter into discussions and negotiations with, third parties in connection with a written competing proposal that does not result from a breach of Vistra Energy’s non-solicitation obligations if the Vistra Energy Board determines in good faith (after consultation with a financial advisor and outside legal counsel) that such competing proposal constitutes or would reasonably be expected to result in a superior proposal.

 

    Subject to compliance with the terms of the Merger Agreement, in response to the receipt of a written superior proposal that does not result from a breach of Vistra Energy’s non-solicitation obligations, the Vistra Energy Board may change its recommendation to Vistra Energy stockholders that they approve the Merger Proposal or authorize Vistra Energy to terminate the Merger Agreement if the Vistra Energy Board determines in good faith (after consultation with a financial advisor and outside legal counsel) that the failure to make such change in recommendation or to authorize such termination would be inconsistent with the Vistra Energy Board’s fiduciary duties under applicable law, subject to a four business day “match right” that would allow Dynegy to match a superior proposal, and which will renew for two additional business days upon any material revisions to the terms of the superior proposal.

 

    Subject to compliance with the terms of the Merger Agreement, in response to certain developments that materially improves the business, assets or operations of Vistra Energy and its subsidiaries, taken as a whole, that was not known to the Vistra Energy Board or reasonably foreseeable as of the date of the Merger Agreement, the Vistra Energy Board may change its recommendation to Vistra Energy stockholders that they approve the Merger Proposal if the Vistra Energy Board determines in good faith (after consultation with a financial advisor and outside legal counsel) that the failure to make such change in recommendation would be inconsistent with the Vistra Energy Board’s fiduciary duties under applicable law, subject to a four business day “match right” that would allow Dynegy to improve the terms of the Merger Agreement to Vistra Energy.

 

    The terms of the Merger Agreement that restrict the conduct of Dynegy’s businesses prior to completion of the Merger, which may delay or prevent Dynegy from undertaking business opportunities that may arise prior to completion of the Merger and the resultant risk if the Merger is not consummated.

 

    The substantial costs to be incurred in connection with the Merger, including (1) the substantial management time and effort required to close the Merger and the related disruption to Dynegy’s day-to-day operations during the interim period between execution of the Merger Agreement and the closing, (2) the expenses arising from potential litigation and (3) transaction expenses arising from the Merger.

 

    The challenges inherent in combining the businesses, operations and workforces of Dynegy and Vistra Energy.

 

    The number of Dynegy directors on the board of directors of the combined company will represent less than half of the members of the combined company’s board of directors.

 

    Forecasts of future results of operations and benefits are necessarily estimates based on assumptions, the risk of not realizing anticipated benefits and cost savings between Dynegy and Vistra Energy and the potential risk that other anticipated benefits might not be realized.

 

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    The risk that Dynegy may be required to reimburse Vistra Energy for certain fees and expenses up to $22 million if Dynegy stockholders do not approve the Merger Proposal.

 

    The absence of appraisal rights for Dynegy stockholders.

 

    The Dynegy Board also was apprised of certain interests in the Merger of Dynegy’s directors and executive officers that may be different from, or in addition to, the interests of Dynegy stockholders generally. These interests include (1) the continued service of certain directors of Dynegy as directors of Vistra Energy, (2) the treatment of equity incentive awards, including acceleration of vesting under Dynegy PSUs upon consummation of the Merger and the potential for accelerated vesting of other awards upon a qualifying termination of employment following the Merger, (3) the potential for enhanced severance benefits for executive officers upon a qualifying termination of employment following the Merger and (4) the interests of Dynegy’s directors and officers in continued indemnification and insurance coverage that will be provided by the surviving corporation following the effective time of the Merger pursuant to the terms of the Merger Agreement.

Other Considerations

 

    The Dynegy Board’s fiduciary duties in light of the foregoing.

 

    The resolutions approving the Merger Agreement were unanimously approved by the Dynegy Board, which is comprised of a majority of independent directors and not employees of Dynegy or any of its subsidiaries and which retained and received advice from Dynegy’s outside legal counsel and financial advisors.

Conclusion

The Dynegy Board unanimously believes that, overall, the potential benefits of the Merger to Dynegy stockholders outweigh the risks and uncertainties of the Merger.

The foregoing discussion of factors considered by the Dynegy Board is not intended to be exhaustive but instead includes material factors considered by the Dynegy Board. In light of the variety of factors considered in connection with its evaluation of the Merger, including the factors set forth above and other factors, the Dynegy Board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determinations and recommendations. Moreover, each member of the Dynegy Board applied his or her own personal business judgment to the process and may have given different weight to different factors. The Dynegy Board did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. The Dynegy Board based its recommendation on the totality of the information presented.

Opinion of Vistra Energy’s Financial Advisor

Citigroup Global Markets Inc., which is referred to herein as Citi, was retained by Vistra Energy to act as its financial advisor in connection with the Merger and to provide financial advice and assistance and, upon Vistra Energy’s request, to render a financial opinion, in each case in connection therewith. The Vistra Energy Board selected Citi to act as its financial advisor based on Citi’s qualifications, expertise and reputation, its knowledge of and involvement in recent transactions in Vistra Energy’s industry and its knowledge and understanding of the business and affairs of Dynegy. In connection with this engagement, Vistra Energy requested that Citi evaluate the fairness, from a financial point of view, of the Exchange Ratio of 0.652x provided for in the Merger Agreement. On October 29, 2017, at a meeting of the Vistra Energy Board, Citi rendered to the Vistra Energy Board (in its capacity as such) an oral opinion, which was subsequently confirmed by delivery of a written opinion, dated October 29, 2017, to the effect that, as of that date and based on and subject to the matters, considerations and limitations set forth in the opinion, Citi’s work and other factors it deemed relevant, each as described in greater detail below, the Exchange Ratio of 0.652x provided for in the Merger Agreement was fair, from a financial point of view, to Vistra Energy.

 

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The full text of Citi’s written opinion, dated October 29, 2017, to the Vistra Energy Board, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by Citi in rendering its opinion, is attached to this joint proxy statement and prospectus as Annex B and is incorporated into this joint proxy statement and prospectus by reference in its entirety. You are encouraged to read the full text of Citi’s written opinion in its entirety. Citi’s opinion, the issuance of which was authorized by Citi’s fairness opinion committee, was provided to the Vistra Energy Board (in its capacity as such) in connection with its evaluation of the Merger and was limited to the fairness, from a financial point of view, as of the date of the opinion, to Vistra Energy of the Exchange Ratio. Citi’s opinion does not address any other aspects or implications of the Merger and does not constitute a recommendation to any stockholder as to how such stockholder should vote or act on any matters relating to the proposed Merger or any related matter. Citi’s opinion does not address the underlying business decision of Vistra Energy to effect the Merger, the relative merits of the Merger as compared to any alternative business strategies that might exist for Vistra Energy or the effect of any other transaction in which Vistra Energy might engage. The following is a summary of Citi’s opinion and the methodology that Citi used to render its opinion.

In arriving at its opinion, Citi, among other things:

 

    reviewed a draft, dated October 29, 2017, of the Merger Agreement;

 

    held discussions with certain senior officers, directors and other representatives and advisors of Vistra Energy concerning the businesses, operations and prospects of Vistra Energy and Dynegy;

 

    examined certain publicly available business and financial information relating to Vistra Energy and Dynegy as well as certain financial forecasts and other information and data relating to Vistra Energy and Dynegy which were provided to Citi by the management of Vistra Energy, including financial forecasts related to Vistra Energy and Dynegy, that Citi was directed to use in connection with its analysis and its opinion, which are referred to herein as the Forecasts, and information relating to the potential pro forma financial effects and operational benefits, including streamlining of costs and operational, capital structure and capital expenditure efficiencies, anticipated by the management of Vistra Energy to result from the Merger (including the amount, timing and achievability thereof), which are referred to herein as the Merger Benefits;

 

    reviewed the financial terms of the Merger as set forth in the Merger Agreement in relation to, among other things: current and historical market prices and trading volumes of Vistra Energy Common Stock and Dynegy Common Stock, the historical and projected earnings and other operating data of Vistra Energy and Dynegy, and the capitalization and financial condition of Vistra Energy and Dynegy;

 

    considered, to the extent publicly available, the financial terms of certain other transactions that Citi considered relevant in evaluating the Merger;

 

    analyzed certain financial, stock market and other publicly available information relating to the businesses of other companies whose operations Citi considered relevant in evaluating those of Vistra Energy and Dynegy;

 

    evaluated certain potential pro forma financial effects of the Merger on Vistra Energy; and

 

    conducted such other analyses and examinations and considered such other information and financial, economic and market criteria as Citi deemed appropriate in arriving at its opinion.

In rendering its opinion, 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 Vistra Energy that they were not aware of any relevant information that had been omitted or that remained undisclosed to Citi. With respect to the Forecasts and the Merger Benefits, Citi was advised by the management of Vistra Energy that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of the management

 

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of Vistra Energy as to the future financial performance of Vistra Energy and Dynegy, the potential pro forma financial effects and operational benefits, including streamlining of costs and operational, capital structure and capital expenditure efficiencies, anticipated to result from the Merger (including the amount, timing and achievability thereof) and the other matters covered thereby and assumed, with the consent of the Vistra Energy Board, that the financial results (including the potential pro forma financial effects and operational benefits, including streamlining of costs and operational, capital structure and capital expenditure efficiencies, anticipated to result from the Merger) reflected in the Forecasts and the Merger Benefits would be realized in the amounts and at the times projected. In addition, Citi relied, at the direction of the Vistra Energy Board, upon the assessments of the management of Vistra Energy, as to, among other things, (i) the potential impact on Vistra Energy and Dynegy of certain market, competitive, cyclical and other trends and developments in and prospects for, and governmental, regulatory and legislative matters relating to or otherwise affecting, the merchant power generation industry, including assumptions of the management of Vistra Energy as to, among other things, future commodity, capacity markets, wholesale and retail energy prices, operational, maintenance and production costs, transmission capacity and demand for energy commodities reflected in the financial forecasts and other information and data utilized in Citi’s analysis or otherwise relevant for purposes of its opinion, which are subject to significant volatility and which, if different than as assumed, could have a material impact on its analyses and opinion and (ii) existing and future commercial relations, agreements and arrangements of Vistra Energy and Dynegy. Citi assumed, with the consent of the Vistra Energy Board, that there would be no developments with respect to any such matters that would have an adverse effect on Vistra Energy and Dynegy or the Merger or that otherwise would be meaningful in any respect to its analyses or opinion.

Citi also assumed, with the consent of the Vistra Energy Board, that the Merger would be consummated in accordance with its terms, without waiver, modification or amendment of any material term, condition or agreement and that, in the course of obtaining the necessary regulatory or third-party approvals, consents and releases for the Merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on Vistra Energy, Dynegy or the contemplated benefits of the Merger that would be material to Citi’s analysis or opinion. Representatives of Vistra Energy advised Citi, and Citi assumed, that the final terms of the Merger Agreement would not vary in any material respect from those set forth in the draft Citi reviewed. Citi also assumed, with the consent of the Vistra Energy Board, that, for U.S. federal income tax purposes, the Merger would be treated as a tax-free reorganization under the provisions of Section 368(a) of the Code. Citi did not express any opinion as to what the value of the Vistra Energy Common Stock actually would be when issued pursuant to the Merger or the price at which the Vistra Energy Common Stock will trade at any time. Citi did not make and it was not provided with an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of Vistra Energy or Dynegy nor did it make any physical inspection of the properties or assets of Vistra Energy or Dynegy. Citi also did not express any view as to, and its opinion does not address, the underlying business decision of Vistra Energy to effect the Merger, the relative merits of the Merger as compared to any alternative business strategies or transactions that might exist for Vistra Energy or the effect of any other transaction in which Vistra Energy might engage. Citi expressed no view as to, and its opinion does not address, the fairness (financial or otherwise) of the amount or nature or any other aspect of any compensation to any officers, directors or employees of any parties to the Merger, or any class of such persons, relative to the Exchange Ratio. Citi’s opinion was necessarily based upon information available to it, and financial, stock market and other conditions and circumstances existing, as of the date of its opinion. The issuance of Citi’s opinion was authorized by Citi’s fairness opinion committee.

In preparing its opinion, Citi performed a variety of financial, comparative and other analyses, including those described below. The summary of these analyses is not a complete description of Citi’s opinion or the analyses underlying, and factors considered in connection with, Citi’s opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to summary description. Citi arrived at its ultimate opinion based on the results of all analyses undertaken by it and assessed as a whole, and did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis for purposes of its opinion. Accordingly, Citi

 

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believes that its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying such analyses and its opinion.

In its analyses, Citi considered industry performance, general business, economic, market and financial conditions and other matters existing as of the date of its opinion, many of which are beyond the control of Vistra Energy and Dynegy. No company, business or transaction used in those analyses as a comparison is identical or directly comparable to Vistra Energy, Dynegy or the Merger and an evaluation of those analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, business segments reviewed or transactions analyzed.

The estimates contained in Citi’s analyses and the valuation ranges resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by its analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold or acquired. Accordingly, the estimates used in, and the results derived from, Citi’s analyses are inherently subject to substantial uncertainty.

Citi was not requested to, and it did not, recommend the Exchange Ratio. The type and amount of consideration payable in the Merger was determined through negotiations between Vistra Energy and Dynegy and the decision to enter into the Merger was solely that of the Vistra Energy Board. Citi’s opinion was only one of many factors considered by the Vistra Energy Board in its evaluation of the Merger and should not be viewed as determinative of the views of the Vistra Energy Board or Vistra Energy’s management with respect to the Merger or the consideration payable in the Merger.

The following is a summary of the material financial analyses presented to the Vistra Energy Board in connection with the delivery of Citi’s opinion. Some of these analyses included public information that had been updated to the latest available information as of the time of the presentation and which were presented orally to the Vistra Energy Board at its meeting on October 29, 2017. The financial analyses summarized below include information presented in tabular format. In order to fully understand Citi’s financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Citi’s financial analyses.

For purposes of the financial analyses described below, (i) the term “EBITDA” means earnings before interest, taxes, depreciation and amortization; (ii) the term “EV/EBITDA” means enterprise value to one year forward EBITDA multiple; (iii) the term “NOL” means net operating loss; (iv) the term “current share price” means the closing share price on October 27, 2017, the last trading day before the proposed merger was announced, (v) the term “pre-leak share price” means the closing share price on October 20, 2017, the last trading day before the week of October 23, 2017, when rumors of the transaction re-emerged, including a The Wall Street Journal article published on October 25, 2017, reporting advanced merger negotiations between Vistra Energy and Dynegy, and (vi) the term “unaffected share price” means the closing share price on May 18, 2017, the last trading day before The Wall Street Journal published an article reporting potential merger negotiations between Vistra Energy and Dynegy. In calculating implied exchange ratio reference ranges as reflected in the financial analyses described below, Citi (i) divided the low-end of the approximate implied equity value per share reference ranges derived for Dynegy from such analyses by the high-end of the approximate implied equity value per share reference ranges derived for Vistra Energy from such analyses in order to calculate the low-end of the implied exchange ratio reference ranges and (ii) divided the high-end of the approximate implied equity value per share reference ranges derived for Dynegy from such analyses by the low-end of the approximate

 

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implied equity value per share reference ranges derived for Vistra Energy from such analyses in order to calculate the high-end of the implied exchange ratio reference ranges.

Discounted Cash Flow Analysis

Citi performed a discounted cash flow analysis of each of Vistra Energy and Dynegy in which Citi calculated the estimated present value of the standalone unlevered free cash flows that Vistra Energy and Dynegy were forecasted to generate during calendar year 2018 through calendar year 2023, based on the Forecasts.

With respect to Citi’s discounted cash flow analysis of Vistra Energy, unlevered free cash flow was calculated based on the Forecasts by taking EBITDA and subtracting depreciation and amortization to derive “EBIT,”; subtracting from EBIT illustrative income taxes on EBIT and TRA payments; adding back depreciation and amortization; subtracting capital expenditures; and adjusting for changes in working capital and the impact of the announced retirements of Vistra Energy’s Big Brown, Sandow and Monticello units. Citi calculated terminal enterprise values for Vistra Energy by applying illustrative EV/EBITDA multiples ranging from 8.0x to 9.0x to estimates of Vistra Energy’s EBITDA for calendar year 2023, as reflected in the Forecasts. Citi derived the range of EV/EBITDA multiples based on its professional judgment taking into account the average of the EV/EBITDA multiples of Calpine Corporation (based on Calpine’s unaffected equity value per share as of May 10, 2017 when rumors of a potential sale emerged) and NRG Energy Inc. (based on pro forma NRG Energy Inc. for full transformational plan as announced by NRG Energy Inc. on July 12, 2017), publicly traded companies in the merchant generation industry. The forecasted unlevered free cash flows for Vistra Energy for calendar years 2018 through 2023 and the derived range of terminal enterprise values were then discounted to present values, as of January 1, 2018, using discount rates ranging from 6.7% to 7.6%, which Citi derived based on estimates of Vistra Energy’s weighted average cost of capital. The present values of the unlevered free cash flows and the range of derived terminal enterprise values were then adjusted for projected cash, preferred equity and debt balances as of December 31, 2017, to derive a range of implied equity values for Vistra Energy. Citi then divided the range of implied equity values for Vistra Energy by the total number of fully diluted shares outstanding of Vistra Energy calculated using information provided by Vistra Energy management, to derive approximate implied per share equity value reference ranges of $16.74 to $19.76 for Vistra Energy.

With respect to Citi’s discounted cash flow analysis of Dynegy, unlevered free cash flow was calculated based on the Forecasts by taking EBITDA and subtracting depreciation and amortization to derive “EBIT,”; subtracting from EBIT illustrative income taxes on EBIT; adding back depreciation and amortization; subtracting capital expenditures; and subtracting certain other expenses including asset retirement obligations, pension, environmental capital projects and uprate investments. Citi calculated terminal enterprise values for Dynegy by applying illustrative EV/EBITDA multiples ranging from 8.0x to 9.0x to estimates of each of Dynegy’s EBITDA for calendar year 2023, as reflected in the Forecasts. Citi derived the range of EV/EBITDA multiples based on its professional judgment taking into account the average of the EV/EBITDA multiples of Calpine Corporation (based on Calpine’s unaffected equity value per share as of May 10, 2017 when rumors of a potential sale emerged) and NRG Energy Inc. (based on pro forma NRG Energy Inc. for full transformational plan as announced by NRG Energy Inc. on July 12, 2017), publicly traded companies in the merchant generation industry. The unlevered free cash flows for Dynegy for calendar years 2018 through 2023, the derived range of terminal enterprise values and estimates of Dynegy’s NOL usage through 2041 on a stand-alone basis from its NOL as reflected in the Forecasts, were then discounted to present values, as of January 1, 2018, using discount rates ranging from 7.0% to 7.7%, which Citi derived based on estimates of Dynegy’s weighted average cost of capital. The present values of the unlevered free cash flows, the range of derived terminal enterprise values and estimated usage of Dynegy’s NOLs were then adjusted for projected cash, non-controlling interest and debt balances as of December 31, 2017, to derive a range of implied equity values for Dynegy. Citi then divided the range of implied equity values for Dynegy by the total number of fully diluted shares outstanding of Dynegy, calculated using information provided by Dynegy management, to derive approximate implied per share equity value reference ranges of $11.45 to $17.82 for Dynegy.

 

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Utilizing the approximate implied per share equity value reference ranges derived for Vistra Energy and Dynegy described above, Citi calculated the following implied exchange ratio reference range, as compared to the Exchange Ratio of 0.652x provided for in the Merger Agreement:

 

Implied Exchange Ratio

Reference Range

0.579x – 1.065x

Citi noted that the above exchange ratio reference range implied an overall range of contributed equity values by Vistra Energy and Dynegy to Vistra Energy, on a pro forma basis giving effect to the consummation of the proposed transaction, of approximately 70.0% to 81.0%, in the case of Vistra Energy, and approximately 30.0% to 19.0%, in the case of Dynegy, as compared to the ownership of holders of Vistra Energy Common Stock, and the ownership of holders of Dynegy Common Stock, in Vistra Energy, on a pro forma basis giving effect to the consummation of the proposed transaction, implied by the Exchange Ratio, of 79.0% and 21.0%, respectively.

Sum-of-the-Parts Analysis

Citi performed a sum-of-the-parts analysis to calculate an approximate implied per share equity value reference range for Vistra Energy based on separate valuations for Vistra Energy’s different generation power plants and its retail business conducted through TXU Energy Retail Company LLC (“TXU Energy”), as follows:

 

    Generation power plants, valued by applying a $276/kW weighted average multiple based on select precedent transactions in the ERCOT region (11,347 MW), Vistra Energy management’s expected cost to build the Upton Solar 2 power plant (180 MW) and Wall Street analyst research value for the Comanche Peak nuclear power plant (2,300 MW); and

 

    Retail business of TXU Energy, valued by applying 2018 EV/EBITDA multiple of 8.5x derived based on Wall Street analyst research to Vistra Energy management’s estimated 2018 EBITDA for TXU Energy as reflected in the Forecasts.

In performing the sum-of-the-parts analysis Citi performed a sensitivity analysis of the valuation of Vistra Energy’s power plant assets by applying a sensitivity range of +/- 5% to the implied multiple of $276/kW applied to those assets in the aggregate (based on the individual kW multiples described above) and a sensitivity range of +/- 0.5x to the 2018 EV/EBITDA multiple of 8.5x applied to TXU Energy’s estimated EBITDA for calendar year 2018. Enterprise values were adjusted for projected cash, preferred equity and debt balances as of December 31, 2017. Based on this analysis and the assumptions and methodologies described above, Citi derived an approximate implied per share equity value reference range for Vistra Energy of $17.07 to $19.78 per share, with a mid-point of $18.43 per share.

Citi also performed a sum-of-the-parts analysis to calculate an approximate implied per share equity value reference range for Dynegy based on separate valuations for Dynegy’s power plants in the different electricity markets, its retail business and its NOLs, as follows:

 

    Generation power plants, valued by applying a $345/kW weighted average multiple based on select precedent transactions in the following regions: PJM (10,871 MW), ISO-NE (3,518 MW), ERCOT (4,529 MW), NYISO (1,212 MW), CAISO (1,185 MW), IPH (3,563 MW) and MISO (1,323 MW);

 

    Retail business, valued by applying a 2018 EV/EBITDA multiple of 6.5x, derived based on EV/EBITDA multiple for Calpine’s acquisition of Noble Americas Energy Solutions in 2016, to Vistra Energy management’s estimated 2018 EBITDA for Dynegy’s retail business as reflected in the Forecasts; and

 

    NOLs, valued based on projected NOL usage through 2041 as reflected in the Forecasts discounted to present value, as of January 1, 2018, using a 7.4% discount rate, which Citi derived based on Dynegy’s weighted average cost of capital.

 

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In performing the sum-of-the-parts analysis Citi also performed a sensitivity analysis of the valuation of Dynegy’s power plant assets by applying a sensitivity range of +/- 5% to the implied multiple of $345/kW applied to those assets in the aggregate (based on the individual kW multiples described above) and a sensitivity range of +/- 0.5x to the 2018 EV/EBITDA multiple of 6.5x applied to the estimated EBITDA from the Dynegy retail business for calendar year 2018. Enterprise values were adjusted for projected cash, non-controlling interest and debt balances as of December 31, 2017. Based on this analysis and the assumptions and methodologies described above, Citi derived an approximate implied per share equity value reference range for Dynegy of $10.34 to $15.77 per share, with a mid-point of $13.05 per share.

Utilizing the approximate implied per share equity value reference ranges derived for Vistra Energy and Dynegy described above, Citi calculated the following implied exchange ratio reference range, as compared to the Exchange Ratio of 0.652x provided for in the Merger Agreement:

 

Implied Exchange Ratio

Reference Range

0.523x – 0.924x

Citi noted that the above exchange ratio reference range implied an overall range of contributed equity values by Vistra Energy and Dynegy to Vistra Energy, on a pro forma basis giving effect to the consummation of the proposed transaction, of approximately 73.0% to 82.0%, in the case of Vistra Energy, and approximately 27.0% to 18.0%, in the case of Dynegy, as compared to the ownership of holders of Vistra Energy Common Stock, and the ownership of holders of Dynegy Common Stock in Vistra Energy, on a pro forma basis giving effect to the consummation of the proposed transaction, implied by the Exchange Ratio of 79.0% and 21.0%, respectively.

Illustrative Value Creation Analysis

Citi performed an illustrative value creation analysis in which Citi observed the impact of the proposed merger on the equity value of Vistra Energy shares owned by Vistra Energy stockholders by calculating and comparing illustrative per share equity values for Vistra Energy on a standalone basis and Vistra Energy on a pro forma basis giving effect to the consummation of the proposed transaction, as of December 31 of each of calendar years 2017 through 2022. For purposes of this analysis, Citi calculated enterprise values by applying illustrative EV/EBITDA multiples to estimates of Vistra Energy’s EBITDA for each calendar year, on a standalone basis and on a pro forma basis giving effect to the consummation of the proposed transaction, as reflected in the Forecasts, assuming, per Vistra Energy’s management guidance, debt paydown during calendar years 2017 through 2022 with a target gross debt to EBITDA multiple of 3.0x, and with respect to Vistra Energy on a standalone basis, minimum cash balance of $1,000 million and excess cash paid out in dividend each year. Enterprise values were adjusted for projected cash, preferred equity and debt balances as of December 31 of each calendar year, to derive implied equity values. With respect to Vistra Energy on a standalone basis, Citi divided the implied equity values by the total number of fully diluted shares outstanding of Vistra Energy calculated using information provided by Vistra Energy management, and also added estimates of cumulative dividends per share for each calendar year, to derive approximate implied per share equity values for Vistra Energy on a standalone basis as of December 31 of each of calendar years 2017 through 2022. With respect to Vistra Energy, on a pro forma basis giving effect to the consummation of the proposed transaction, Citi multiplied the resulting equity values for each calendar year by 79%, representing the ownership of holders of Vistra Energy Common Stock in Vistra Energy, on a pro forma basis giving effect to the consummation of the proposed transaction, and divided by the total number of fully diluted shares outstanding of Vistra Energy calculated as described above to derive approximate implied per share equity values for Vistra Energy, on a pro forma basis giving effect to the consummation of the proposed transaction, as of December 31 of each of calendar years 2017 through 2022.

 

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The results of these analyses are provided in the table below:

 

     2017      2018      2019      2020      2021      2022  

Per Share Equity Value—Vistra Energy Pro Forma for Merger

   $ 22.32      $ 28.17      $ 29.48      $ 29.38      $ 29.85      $ 32.70  

Per Share Equity Value—Vistra Energy Standalone

   $ 19.03      $ 20.74      $ 21.93      $ 23.09      $ 24.06      $ 25.19  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Implied Value Creation

   $ 3.29      $ 7.43      $ 7.54      $ 6.29      $ 5.79      $ 7.51  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Relative Contributions Analysis

Citi performed a relative contribution analysis in which Citi observed the relative contributions of Vistra Energy and Dynegy to Vistra Energy, on a pro forma basis giving effect to the consummation of the proposed transaction, based on the following metrics: (i) implied equity values based on current share prices, pre-leak share prices and unaffected share prices of Vistra Energy Common Stock and Dynegy Common Stock and equity values implied by the proposed merger based on Vistra Energy’s pre-leak share price; (ii) Vistra Energy’s and Dynegy’s estimated EBITDA for calendar years 2018 through 2023; (iii) Vistra Energy’s and Dynegy’s estimated pre-tax unlevered free cash flow for calendar years 2018 through 2023; and (iv) Vistra Energy’s and Dynegy’s estimated pre-tax levered free cash flow for calendar years 2018 through 2023. Financial data of Vistra Energy and Dynegy was based on the Forecasts. Vistra Energy’s pre-tax unlevered free cash flow reflected deduction for TRA Payments. Implied ownership based on EBITDA and pre-tax unlevered free cash flow, was adjusted for year-end 2017 expected leverage, based on pre-leak enterprise value builds. This analysis indicated an implied relative equity ownership of holders of Vistra Energy Common Stock in Vistra Energy, on a pro forma basis giving effect to the proposed transaction, based on the financial metrics described above ranging from 54.8% to 86.5%, and an implied exchange ratio ranging from 2.022x to 0.383x.

Certain Informational Factors

Citi also observed certain additional factors that were not considered part of Citi’s financial analyses with respect to its opinion but were referenced for informational purposes, including, among other factors, the following:

 

    undiscounted publicly available Wall Street research analysts’ price targets for Vistra Energy Common Stock and Dynegy Common Stock, which indicated standalone price targets for Vistra Energy Common Stock and Dynegy Common Stock of $19.00 to $22.00 per share and $7.00 to $18.00 per share, respectively, and an implied exchange ratio reference range of 0.318x to 0.947x as compared to the Exchange Ratio of 0.652x provided for in the Merger Agreement; and

 

    the historical prices of Vistra Energy Common Stock and Dynegy Common Stock during the 52-week period ended October 27, 2017, which indicated a 52-week low to high per share price range for Vistra Energy Common Stock and Dynegy Common Stock of $13.60 to $20.49 and $5.93 to $11.22, respectively, and an implied exchange ratio reference range of 0.289x to 0.825x as compared to the Exchange Ratio of 0.652x provided for in the Merger Agreement.

Miscellaneous

In connection with the Merger, Citi and Vistra Energy executed an engagement letter on October 12, 2017. Under the terms of Citi’s engagement, Vistra Energy has agreed to pay Citi an aggregate fee of $19 million, of which $1.5 million was payable upon delivery of its opinion and the remainder is payable contingent on consummation of the Merger. In addition, Vistra Energy has agreed to reimburse Citi for its expenses and to indemnify Citi against certain liabilities arising out of its engagement.

Citi and its affiliates in the past have provided, and currently are providing and in the future may provide, investment banking services to Vistra Energy unrelated to the proposed merger, for which services Citi and such

 

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affiliates have received compensation, including, without limitation, during the two-year period prior to the date of its written opinion, having acted as joint lead arranger in connection with certain term loan credit facilities of Vistra Energy, for which Citi received $1.1 million. Citi and its affiliates in the past have provided, and currently are providing and in the future may provide, services to EFH Corp., Vistra Energy’s parent company until October 2016, unrelated to the proposed merger, for which services Citi and such affiliates have received compensation, including, without limitation, during the two-year period prior to the date of its written opinion, having acted or acting as lead arranger, administrative agent and/or bookrunner in connection with certain term loan and other credit facilities of EFH Corp, for which Citi received $30.1 million. In the ordinary course of its business, Citi and its affiliates may actively trade or hold the securities of Vistra Energy, Dynegy, EFH Corp. and their respective affiliates for its own account or for the account of its customers and, accordingly, may at any time hold a long or short position in such securities. In addition, Citi and its affiliates (including Citigroup Inc. and its affiliates) may maintain relationships with Vistra Energy, Dynegy, EFH Corp. and their respective affiliates.

Vistra Energy selected Citi to act as its financial advisor in connection with the Merger based on Citi’s reputation and experience. Citi is an internationally recognized investment banking firm that regularly engages in the valuation of businesses and their securities in connection with transactions and acquisitions, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes.

Opinions of Dynegy’s Financial Advisors

Opinion of Morgan Stanley

Morgan Stanley was retained by Dynegy to act as its financial advisor in connection with the Merger and to provide financial advice and assistance and, upon Dynegy’s request, to render a financial opinion, in each case in connection therewith. The Dynegy Board selected Morgan Stanley to act as its financial advisor based on Morgan Stanley’s qualifications, expertise and reputation, its knowledge of and involvement in recent transactions in Dynegy’s industry and its knowledge and understanding of the business and affairs of Dynegy. On October 29, 2017, Morgan Stanley rendered its oral opinion, which was subsequently confirmed in writing, to the Dynegy Board to the effect that, as of that date, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in Morgan Stanley’s written opinion, the Exchange Ratio pursuant to the Merger Agreement was fair, from a financial point of view, to the holders of shares of Dynegy Common Stock (other than the holders of the cancelled shares).

The full text of the written opinion of Morgan Stanley delivered to the Dynegy Board, dated October 29, 2017, is attached as Annex C and incorporated into this joint proxy statement and prospectus by reference in its entirety. The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion. Dynegy stockholders are urged to, and should, read the opinion carefully and in its entirety. Morgan Stanley’s opinion is directed to the Dynegy Board and addresses only the fairness, from a financial point of view, of the Exchange Ratio pursuant to the Merger Agreement to the holders of shares of Dynegy Common Stock (other than the holders of the cancelled shares) as of the date of the opinion. Morgan Stanley’s opinion did not address any other aspect of the Merger or other transactions contemplated by the Merger Agreement, including the price at which shares of Vistra Energy Common Stock might actually trade following consummation of the Merger or at any time, the relative merits of the Merger as compared to other business or financial strategies that might be available to Dynegy or the underlying business decision of Dynegy to enter into the Merger Agreement or proceed with any other transaction contemplated by the Merger Agreement. The opinion was not intended to, and does not, constitute advice or a recommendation to any holder of shares of Dynegy Common Stock or any holder of shares of Vistra Energy Common Stock as to how to vote at the stockholder’s meetings to be held

 

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in connection with the Merger. The summary of Morgan Stanley’s opinion set forth in this joint proxy statement and prospectus is qualified in its entirety by reference to the full text of Morgan Stanley’s opinion.

For purposes of rendering its opinion, Morgan Stanley, among other things:

 

    reviewed certain publicly available financial statements and other business and financial information of Dynegy and Vistra Energy, respectively;

 

    reviewed certain internal financial statements and other financial and operating data concerning Dynegy and Vistra Energy, respectively;

 

    reviewed the Dynegy Management Projections prepared by the management of Dynegy;

 

    reviewed information relating to certain strategic, financial and operational benefits anticipated from the Merger, prepared by the managements of Dynegy and Vistra Energy, respectively;

 

    discussed the past and current operations and financial condition and the prospects of Dynegy, including information relating to certain strategic, financial and operational benefits anticipated from the Merger, with senior executives of Dynegy;

 

    reviewed the pro forma impact of the Merger on Vistra Energy’s cash flow, consolidated capitalization and certain financial ratios of Vistra Energy;

 

    reviewed the reported prices and trading activity for the Dynegy Common Stock and the Vistra Energy Common Stock;

 

    compared the financial performance of Dynegy and Vistra Energy and the prices and trading activity of the Dynegy Common Stock and the Vistra Energy Common Stock with that of certain other publicly traded companies that Morgan Stanley deemed to be comparable with Dynegy and Vistra Energy, respectively, and their securities;

 

    reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions that Morgan Stanley deemed to be comparable;

 

    reviewed the Merger Agreement and certain related documents in the form of drafts as of October 28, 2017; and

 

    performed such other analyses, reviewed such other information and considered such other factors as Morgan Stanley deemed appropriate.

In arriving at its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to Morgan Stanley by Dynegy and Vistra Energy, and formed a substantial basis for Morgan Stanley’s opinion. With respect to the Dynegy Management Projections, including information relating to certain strategic, financial and operational benefits anticipated from the Merger, Morgan Stanley assumed that they had been reasonably prepared on bases reflecting the best then-currently available estimates and judgments of the management of Dynegy of the future financial performance of Dynegy and Vistra Energy. Morgan Stanley relied upon, without independent verification, the assessment by the managements of Dynegy and Vistra Energy of: (i) the strategic, financial and other benefits expected to result from the Merger; (ii) the timing and risks associated with the integration of Dynegy and Vistra Energy; (iii) their ability to retain key employees of Dynegy and Vistra Energy, respectively; and (iv) the validity of, and risks associated with, Dynegy’s and Vistra Energy’s existing and future technologies, intellectual property, products, services and business models. In addition, Morgan Stanley assumed that the Merger will be consummated in accordance with the terms set forth in the Merger Agreement draft dated October 28, 2017 without any waiver, amendment or delay of any material terms or conditions, including, among other things, that the Merger will be treated as a tax-free reorganization pursuant to the Section 368(a) of the Code, and that the definitive Merger Agreement will not differ in any material

 

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respect from such draft furnished to Morgan Stanley. Morgan Stanley has assumed that in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the proposed Merger, no delays, limitations, conditions or restrictions will be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the proposed Merger. Morgan Stanley is not a legal, tax, or regulatory advisor. Morgan Stanley is a financial advisor only and relied upon, without independent verification, the assessment of Dynegy and Vistra Energy and their legal, tax, or regulatory advisors with respect to legal, tax, or regulatory matters. Morgan Stanley expresses no opinion with respect to the fairness of the amount or nature of the compensation to any of Dynegy’s officers, directors or employees, or any class of such persons, relative to the consideration to be received by the holders of shares of Dynegy Common Stock in the Merger. Morgan Stanley has not made any independent valuation or appraisal of the assets or liabilities of Dynegy and Vistra Energy, nor was Morgan Stanley furnished with any such valuations or appraisals. Morgan Stanley’s opinion is necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Morgan Stanley as of, October 29, 2017. Events occurring after October 29, 2017 may affect Morgan Stanley’s opinion and the assumptions used in preparing it, and Morgan Stanley did not assume any obligation to update, revise or reaffirm its opinion.

In arriving at its opinion, Morgan Stanley was not authorized to solicit and did not solicit, interest from any party with respect to the acquisition, business combination or other extraordinary transaction, involving Dynegy, nor did Morgan Stanley negotiate with any of the parties which expressed interest to Morgan Stanley in the possible acquisition of Dynegy or certain of its constituent businesses.

Summary of Financial Analyses

The following is a summary of the material financial analyses performed by Morgan Stanley in connection with the preparation of its opinion. The following summary is not a complete description of Morgan Stanley’s opinion or the financial analyses performed and factors considered by Morgan Stanley in connection with its opinion, nor does the order of analyses described represent the relative importance or weight given to those analyses. The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. The analyses listed in the tables and described below must be considered as a whole; considering any portion of such analyses and of the factors, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying Morgan Stanley’s opinion. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before October 24, 2017, which was the last trading day prior to news reports speculating about an impending transaction involving Dynegy and Vistra Energy, and is not necessarily indicative of current market conditions.

In performing the financial analysis summarized below and arriving at its opinion, Morgan Stanley used and relied upon the Dynegy Management Projections, including the Dynegy Market Case Projections, the Dynegy Market + Earnings & Cost Improvement Case Projections and the Vistra Energy Stand-Alone Projections. For more information, please see the section of this joint proxy statement and prospectus captioned “—Certain Unaudited Prospective Forward Information Prepared by Dynegy.” In addition, Morgan Stanley analyzed certain financial projections based on Wall Street research reports and referred to in this joint proxy statement and prospectus as IBES.

Analyses Related to Dynegy

Comparable Companies Analysis

Morgan Stanley performed a comparable companies analysis, which attempts to provide an implied value of a company by comparing it to similar companies that are publicly traded. Morgan Stanley reviewed and compared publicly available financial information and consensus equity analyst research estimates for Dynegy

 

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with comparable publicly available financial information and consensus equity analyst research estimates for Dynegy and Vistra Energy. For reference only and not as a component of its fairness analysis, Morgan Stanley observed publicly available financial information and metrics for Dynegy (as adjusted in the Dynegy Market Case Projections), Vistra Energy (with nuclear fuel amortization subtracted from estimated EBITDA), Calpine Corporation and NRG Energy, Inc. (on an adjusted basis, based on expected Net Debt, and expected EBITDA guidance provided by NRG Energy, Inc. in its publicly available investor presentation related to its transformation plan). The metrics for Dynegy as adjusted in the Dynegy Market Case Projections and Vistra Energy with nuclear fuel amortization subtracted from estimated EBITDA were not used as a component in Morgan Stanley’s fairness analysis given that these metrics are based on non-public information and such adjustments are not generally available to or commonly utilized by public investors. The metrics for Calpine Corporation and NRG Energy, Inc. reflect specific publicly announced strategic initiatives and were therefore also not included in Morgan Stanley’s fairness analysis.

The foregoing companies were chosen based on Morgan Stanley’s knowledge of the industry and because such companies have businesses that may be considered similar to Dynegy’s. Although none of such companies are identical or directly comparable to Dynegy, these companies are publicly traded companies with operations and/or other criteria, such as lines of business, markets, business risks, growth prospects, maturity of business and size and scale of business, that for purposes of its analysis Morgan Stanley considered similar to those of Dynegy. The foregoing summary and underlying financial analyses involved complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the values of the companies to which Dynegy was compared. In evaluating comparable companies, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, which are beyond the control of Dynegy, including, among other things, the impact of competition on the business of Dynegy and the industry generally, regulatory changes, movements in commodity prices, industry growth and the absence of any adverse material change in the financial condition and prospects of Dynegy or the industry or in the financial markets in general.

For purposes of this analysis, Morgan Stanley analyzed:

 

    the ratio of aggregate value (“AV”) (calculated as the market value of equity plus total debt plus leases plus preferred stock plus minority interest less cash) to estimated EBITDA (calculated as revenues less fuel costs less operating and maintenance expenses less sales, general and administrative expenses plus certain other cash flow items) based on the Dynegy Market Case Projections (the “AV / EBITDA Ratio”), for each of calendar year 2018 (“2018E AV / EBITDA Ratio”) and calendar year 2019 (“2019E AV / EBITDA Ratio”); and

 

    the estimated free cash flow yield (calculated as the midpoint of adjusted free cash flow based upon guidance provided by management of each of Dynegy and Vistra Energy divided by their respective market capitalizations) for calendar year 2017 (“2017E FCF Yield”).

Results of the analysis were presented as indicated in the following table:

 

Company Name    2018E AV / EBITDA      2019E AV / EBITDA      2017E FCF Yield  

Dynegy

     6.9x        7.6x        24.6

Vistra Energy

     7.8x        8.1x        9.9

Based on this analysis and its professional judgment, Morgan Stanley selected representative ranges of the 2018E AV / EBITDA Ratio, 2019E AV / EBITDA Ratio and 2017E FCF Yield and applied these ranges to Dynegy’s estimated EBITDA for each of the calendar years 2018 and 2019 and Dynegy’s estimated free cash flow for calendar year 2017, respectively. For calendar year 2018, estimated EBITDA for Dynegy is projected to be $1,468 million in the Dynegy Market Case Projections and $1,441 million from IBES. For calendar year 2019, estimated EBITDA for Dynegy is projected to be $1,338 million in the Dynegy Market Case Projections and $1,300 million from IBES. For calendar year 2017, estimated free cash flow is projected to be $400 million based

 

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upon Dynegy management’s guidance. Based on the number of outstanding shares of Dynegy Common Stock on a fully diluted basis and as provided by Dynegy’s management, the analysis indicated the following implied value per share ranges for Dynegy Common Stock, each rounded to the nearest $0.25:

 

Metric

   Reference
Range
     Implied Value
Per Share of the
Dynegy
Common Stock
 

IBES

     

2018E AV / EBITDA

     6.5x – 7.5x      $ 7.00 – $15.25  

2019E AV / EBITDA

     7.0x – 7.5x      $ 5.50 – $9.25  

Dynegy Market Case Projections

     

2018E AV / EBITDA

     6.5x – 7.5x      $ 8.00 – $16.25  

2019E AV / EBITDA

     7.0x – 7.5x      $ 7.00 – $10.75  

2017E FCF Yield

     15% – 25%      $ 9.00 – $15.00  

Discounted Cash Flow Analysis

Morgan Stanley performed a discounted cash flow analysis, which is designed to provide an implied value of an asset using estimates of the future unlevered free cash flows generated by the asset, taking into consideration the time value of money with respect to those future cash flows by calculating their “present value.” The “unlevered free cash flows” refers to a calculation of the future cash flows generated by an asset without including in such calculation any debt servicing costs. “Present value” refers to the current value of the future cash flows generated by the asset, and is obtained by discounting those cash flows back to the present using a discount rate that takes into account macro-economic assumptions and estimates of risk, the opportunity cost of capital and other appropriate factors. “Terminal value” refers to the present value of all future cash flows generated by the asset for periods beyond the projection period.

Morgan Stanley used estimates and extrapolations from the Dynegy Market Case Projections and the Dynegy Market + Earnings & Cost Improvement Case Projections for purposes of the discounted cash flow analysis, as more fully described below. First, Morgan Stanley calculated the estimated unlevered free cash flows for Dynegy (calculated as EBITDA, less (i) estimated taxes, (ii) capital expenditures, (iii) asset retirement obligations, (iv) pension costs, (v) adjustments to long term service agreements and (vi) certain other cash flow adjustments based on guidance from Dynegy’s management) for the calendar years 2018 through 2021 using information contained in the Dynegy Market Case Projections and the Dynegy Market + Earnings & Cost Improvement Case Projections. Morgan Stanley’s calculation of estimated unlevered free cash flows for Dynegy differed from the Dynegy Management Projections in that it excludes the impact of net operating losses (“NOLs”), which Morgan Stanley valued separately based on guidance from Dynegy’s management. Morgan Stanley then calculated terminal values for Dynegy by applying terminal multiples of 7.0x to 8.0x, which range was selected based on Morgan Stanley’s professional judgment and experience, to Dynegy’s estimated terminal year EBITDA, which was estimated based upon the average of estimated EBITDA for the calendar years 2020 and 2021 as provided by Dynegy’s management less the sum of estimated environmental capital expenditures and asset retirement obligations for the period 2022 onward discounted to the terminal year of 2022, as provided by Dynegy’s management. The cash flows and terminal values were discounted to present values using discount rates ranging from 4.7% to 5.5%, which range of discount rates were selected upon the application of Morgan Stanley’s professional judgment and experience, to reflect Dynegy’s estimated weighted average cost of capital. Dynegy’s estimated weighted average cost of capital was derived by taking into account certain Dynegy-specific metrics, including Dynegy’s capital structure, the cost of long-term debt, the estimated cost of equity as derived by the application of the Capital Asset Pricing Model, an assumed tax rate, as well as certain financial metrics for the financial markets generally. Morgan Stanley then calculated the amount of NOLs that Dynegy’s management forecasted would be utilized for the calendar years 2018 through the expiration or utilization of the NOLs, whichever event occurred first. The NOLs were discounted to present values using equity discount rates ranging from 6.9% to 11.9%, which range of discount rates were selected upon the application of Morgan Stanley’s

 

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professional judgment and experience, to reflect Dynegy’s estimated cost of equity. Morgan Stanley determined the value of the NOLs to range from $1.38 to $2.27 per share in the Dynegy Market Case and from $3.48 to $5.12 per share in the Dynegy Market + Earnings & Cost Improvement Case. The range of discount rates was derived by the application of the Capital Asset Pricing Model, which takes into account certain Dynegy-specific metrics, including the projected beta, as well as certain financial metrics for the financial markets generally. Morgan Stanley then derived a range of aggregate values for Dynegy by adding the ranges of present values of cash flows, NOLs and terminal values. Morgan Stanley then subtracted from such range of aggregate values the amount of Dynegy’s net debt to derive a range of equity values for Dynegy. Morgan Stanley then divided the range of equity values by the number of fully diluted outstanding shares of Dynegy Common Stock calculated using the treasury stock method to derive a range of equity values per share. This analysis indicated the following range, each rounded to the nearest $0.25:

 

Metric

   Implied Value
Per Share of the
Dynegy
Common Stock
 

Dynegy Market Case Projections

   $ 2.00 – $9.00  

Dynegy Market + Earnings & Cost Improvement Case Projections

   $ 10.25 – $18.50  

Precedent Transactions Analysis

For reference only and not as a component of its fairness analysis, Morgan Stanley performed a precedent transactions analysis, which is designed to imply a value of a company based on publicly available financial information of selected transactions that share some characteristics with the Merger. In addition, Morgan Stanley reviewed the take private transactions for Calpine Corporation by Energy Capital Partners and Talen Energy Corporation by Riverstone Holdings, but these transactions were not included as part of Morgan Stanley’s fairness analysis because the consideration in those transactions was all cash.

Precedent Premia. Morgan Stanley reviewed the premia paid for select all-stock transactions with equity values between $1 billion to $2 billion involving U.S. companies between January 1, 2014 and October 27, 2017, the last trading day prior to announcement of the Merger, involving transactions that Morgan Stanley judged to be similar in certain respects to the Merger or aspects thereof based on Morgan Stanley’s professional judgment and experience.

For each transaction included in this analysis, Morgan Stanley noted the implied premium to the target company’s thirty trading day average closing share price prior to announcement. The following is a list of the transactions reviewed:

 

Date Announced

  

Acquiror

  

Target

January 23, 2017

   Pinnacle Financial Partners, Inc.    BNC Bancorp

July 21, 2016

   F.N.B. Corporation    Yadkin Financial Corporation

April 28, 2016

   First Cash Financial Services, Inc.    Cash America International, Inc.

December 7, 2015

   BBCN Bancorp, Inc.    Wilshire Bancorp, Inc.

June 4, 2015

   OPKO Health, Inc.    Bio-Reference Laboratories, Inc.

March 9, 2015

   Arconic Inc.    RTI International Metals, Inc.

October 1, 2014

   Enterprise Products Partners L.P.    Oiltanking Partners, L.P.

February 21, 2014

   Brookdale Senior Living Inc.    Emeritus Corporation

Based on the foregoing results and Morgan Stanley’s professional judgment and experience, Morgan Stanley applied the 25th percentile and 75th percentile of the range of premia for the precedent transactions to the price of the shares of Dynegy Common Stock to derive a range of equity values per share. The results of the

 

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analysis were presented for certain of the selected transactions, rounded to the nearest $0.25, as indicated in the following table:

 

Precedent Premia (25th to

75th percentile)

  Implied Present Value
Per Share
3.4% - 51.3%   $9.50 - $14.00

Morgan Stanley also observed the premium paid in NRG Energy, Inc.’s acquisition of GenOn Energy, Inc. announced on July 23, 2012 and applied this premium to the price of the shares of Dynegy Common Stock to derive an implied equity value per share, rounded to the nearest $0.25, of $11.50.

Precedent Multiple. Morgan Stanley observed the AV / EBITDA Ratio for the NRG Energy, Inc. and GenOn Energy, Inc. transaction for fiscal years 2012 and 2013 as 9.2x and 6.2x, respectively. Morgan Stanley applied these multiples to Dynegy’s estimated EBITDA from IBES for each of the calendar years 2017 and 2018. Dynegy’s estimated EBITDA for calendar years 2017 and 2018 from IBES are projected to be $1,215 million and $1,441 million, respectively. Morgan Stanley then calculated implied equity value per share of Dynegy Common Stock, rounded to the nearest $0.25, as follows:

 

Metric

   AV /EBITDA Multiple      Implied Present Value
Per Share
 

2017 AV / EBITDA Ratio

     9.2x      $ 17.25  

2018 AV / EBITDA Ratio

     6.2x      $ 4.50  

No company or transaction utilized in the precedent transactions analysis is identical to Dynegy or the Merger. In evaluating the precedent transactions, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, market and financial conditions and other matters, which are beyond Dynegy’s control, including, among other things, the impact of competition on Dynegy’s business or the industry generally, regulatory changes, movements in commodity prices, industry growth and the absence of any adverse material change in Dynegy’s financial condition or the industry or in the financial markets in general, which could affect the aggregate value, equity value and premium paid of the transactions to which they are being compared.

Equity Research Analysts’ Price Targets. For reference only and not as a component of its fairness analysis, Morgan Stanley reviewed and analyzed the public market trading price targets as of May 18, 2017, which was the day that news reports first speculated about an impending transaction involving Dynegy and Vistra Energy, for the shares of Dynegy Common Stock prepared and published by six equity research analysts. The range of analyst price targets for Dynegy Common Stock discounted one year to present value using a 9.4% discount rate, selected by Morgan Stanley based on the application of its professional judgment and experience to reflect the midpoint of Dynegy’s cost of equity, was $4.50 to $13.75, rounded to the nearest $0.25. The public market trading price targets published by equity research analysts do not necessarily reflect current market trading prices for Dynegy Common Stock, and these estimates are subject to uncertainties.

Historical Trading Range. For reference only and not as a component of its fairness analysis, Morgan Stanley reviewed the historical trading range of shares of Dynegy Common Stock for the last 12 months and observed a range of $5.75 and $12.25, rounded to the nearest $0.25.

Analyses Related to Vistra Energy

Comparable Companies Analysis

Morgan Stanley performed a comparable companies analysis, which attempts to provide an implied value of a company by comparing it to similar companies that are publicly traded. Morgan Stanley reviewed and compared publicly available financial information and consensus equity analyst research estimates for Vistra

 

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Energy with comparable publicly available financial information and consensus equity analyst research estimates for Dynegy and Vistra Energy. For reference only and not as a component of its fairness analysis, Morgan Stanley observed publicly available financial information and metrics for Dynegy (as adjusted in the Dynegy Market Case Projections), Vistra Energy (with nuclear fuel amortization subtracted from estimated EBITDA), Calpine Corporation and NRG Energy, Inc. (on an adjusted basis, based on expected Net Debt, and expected EBITDA guidance provided by NRG Energy, Inc. in its publicly available investor presentation related to its transformation plan). The metrics for Dynegy as adjusted in the Dynegy Market Case Projections and Vistra Energy with nuclear fuel amortization subtracted from estimated EBITDA were not used as a component in Morgan Stanley’s fairness analysis given that these metrics are based on non-public information and such adjustments are not generally available to or commonly utilized by public investors. The metrics for Calpine Corporation and NRG Energy, Inc. reflect specific publicly announced strategic initiatives and were therefore also not included in Morgan Stanley’s fairness analysis.

The foregoing companies were chosen based on Morgan Stanley’s knowledge of the industry and because such companies have businesses that may be considered similar to Vistra Energy’s. Although none of such companies are identical or directly comparable to Vistra Energy, these companies are publicly traded companies with operations and/or other criteria, such as lines of business, markets, business risks, growth prospects, maturity of business and size and scale of business, that for purposes of its analysis Morgan Stanley considered similar to those of Vistra Energy. The foregoing summary and underlying financial analyses involved complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the values of the companies to which Vistra Energy was compared. In evaluating comparable companies, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, which are beyond the control of Vistra Energy, including, among other things, the impact of competition on the business of Vistra Energy and the industry generally, regulatory changes, movements in commodity prices, industry growth and the absence of any adverse material change in the financial condition and prospects of Vistra Energy or the industry or in the financial markets in general.

Results of the analysis were presented as indicated in the following table:

 

Company Name    2018E AV / EBITDA      2019E AV / EBITDA      2017E FCF Yield  

Dynegy

                 6.9x                                7.6x                    24.6

Vistra Energy

     7.8x                    8.1x                    9.9

 

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Based on this analysis and its professional judgment, Morgan Stanley selected representative ranges of the 2018E AV / EBITDA Ratio, 2019E AV / EBITDA Ratio and 2017E FCF Yield and applied these ranges to Vistra Energy’s estimated EBITDA for each of calendar years 2018 and 2019 and Vistra Energy’s estimated free cash flow for calendar year 2017, respectively. For calendar year 2018, estimated EBITDA for Vistra Energy is projected to be $1,363 million in the Vistra Energy Stand-Alone Projections and $1,425 million from IBES. For calendar year 2019, estimated EBITDA for Vistra Energy is projected to be $1,329 million in the Vistra Energy Stand-Alone Projections and $1,380 million from IBES. For calendar year 2017, estimated free cash flow is projected to be $835 million based upon the midpoint of Vistra Energy management’s publicly available guidance. Based on the number of outstanding shares of Vistra Energy Common Stock on a fully diluted basis and as provided by Vistra Energy’s management, the analysis indicated the following implied value per share ranges for Vistra Energy Common Stock, each rounded to the nearest $0.25:

 

Metric

   Reference Range      Implied Value
Per Share of the
Vistra Energy
Common Stock
 

IBES

     

2018E AV / EBITDA

     7.0x – 8.0x      $ 17.25 – $20.50  

2019E AV / EBITDA

     7.0x – 8.0x      $ 16.50 – $19.75  

Vistra Energy Stand-Alone Projections

     

2018E AV / EBITDA

     7.0x – 8.0x      $ 16.25 – $19.25  

2019E AV / EBITDA

     7.0x – 8.0x      $ 15.50 – $18.75  

2017E FCF Yield

     10% – 15%      $ 12.75 – $19.25  

Discounted Cash Flow Analysis

Morgan Stanley performed a discounted cash flow analysis, which is designed to provide an implied value of an asset using estimates of the future unlevered free cash flows generated by the asset, taking into consideration the time value of money with respect to those future cash flows by calculating their present value. Morgan Stanley used estimates and extrapolations from the Vistra Energy Stand-Alone Projections for purposes of the discounted cash flow analysis, as more fully described below. First, Morgan Stanley calculated the estimated unlevered free cash flows of Vistra Energy (calculated as EBITDA, less (i) taxes and (ii) capital expenditures based on guidance from Dynegy’s management) for the calendar years 2018 through 2021 using information contained in the Vistra Energy Stand-Alone Projections. Morgan Stanley then calculated terminal values for Vistra Energy by applying terminal multiples of 7.0x to 8.0x, which range was selected based on Morgan Stanley’s professional judgment and experience, to Vistra Energy’s estimated terminal year EBITDA, which was estimated based upon the average of estimated EBITDA for the calendar years 2020 and 2021 as provided by Dynegy’s management, less the sum of estimated asset retirement obligations for the period 2022 onward discounted to the terminal year of 2022, as provided by Dynegy’s management. The cash flows and terminal values were discounted to present values using discount rates ranging from 4.6% to 6.0%, which range of discount rates were selected upon the application of Morgan Stanley’s professional judgment and experience, to reflect Vistra Energy’s estimated weighted average cost of capital, which was derived by taking into account certain Vistra Energy-specific metrics, including Vistra Energy’s capital structure, the cost of long-term debt, the estimated cost of equity as derived by the application of the Capital Asset Pricing Model, an assumed tax rate, as well as certain financial metrics for the financial markets generally. Morgan Stanley then separately calculated the present value of the net tax benefits accrued to Vistra Energy for the calendar years 2018 through the full utilization of the benefit per the Tax Receivable Agreement, dated as of October 3, 2016, between TEX Energy LLC and American Stock Transfer & Trust Company, LLC. The Tax Receivable Agreement benefits were discounted to present value using equity discount rates ranging from 5.5 % to 7.5%, which range of discount rates were selected upon the application of Morgan Stanley’s professional judgment and experience, to reflect Vistra Energy’s estimated cost of equity, and derived by the application of the Capital Asset Pricing Model, which takes into account certain Vistra Energy-specific metrics, including the projected beta, as well as certain financial metrics for the financial markets generally. Morgan Stanley then derived a range of aggregate values for

 

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Vistra Energy by adding the ranges of present values of cash flows, Tax Receivable Agreement benefits and terminal values. Morgan Stanley then subtracted from such range of aggregate values the amount of Vistra Energy’s net debt to derive a range of equity values for Vistra Energy. Morgan Stanley then divided the range of equity values by the number of fully diluted outstanding shares of Vistra Energy Common Stock calculated using the treasury stock method to derive a range of equity values per share, rounded to the nearest $0.25, of $15.50 to $19.00.

Equity Research Analysts’ Price Targets. For reference only and not as a component of its fairness analysis, Morgan Stanley reviewed and analyzed the public market trading price targets for the shares of Vistra Energy Common Stock prepared and published by four equity research analysts. The range of analyst price targets for Vistra Energy Common Stock discounted one year to present value using a 6.5% discount rate, selected by Morgan Stanley based on the application of its professional judgment and experience to reflect the midpoint of Vistra Energy’s cost of equity, rounded to the nearest $0.25, was $17.75 to $20.25. The public market trading price targets published by equity research analysts do not necessarily reflect current market trading prices for Vistra Energy Common Stock, and these estimates are subject to uncertainties.

Historical Trading Range. For reference only and not as a component of its fairness analysis, Morgan Stanley reviewed the historical trading range of shares of Vistra Energy Common Stock for the period between May 10, 2017, Vistra Energy’s initial public offering, and October 24, 2017 and observed a range, rounded to the nearest $0.25, of $14.75 and $19.75.

Pro Forma Analyses

Relative Implied Exchange Ratio Analysis

Using the implied per share reference ranges for Dynegy and Vistra Energy indicated in the respective comparable companies analyses and discounted cash flow analyses described above, Morgan Stanley calculated ranges of implied exchange ratios of Dynegy Common Stock to Vistra Energy Common Stock. For reference only and not as a component of its fairness analysis, Morgan Stanley calculated implied exchange ratios of Dynegy Common Stock to Vistra Energy Common Stock based upon the equity research analysts’ price targets and historical trading ranges described above. This implied exchange ratio analysis indicated the following implied exchange ratio reference ranges as compared to the Exchange Ratio of 0.652x provided for in the Merger Agreement:

 

Implied Exchange Ratio

   Low      High  

2018E AV / EBITDA – IBES

     0.3415x        0.8841x  

2018E AV / EBITDA – Dynegy Market Case Projections

     0.4156x        1.0000x  

2019E AV / EBITDA – IBES

     0.2785x        0.5606x  

2019E AV / EBITDA – Dynegy Market Case Projections

     0.3733x        0.6935x  

2017E FCF Yield

     0.4675x        1.1765x  

Discounted Cash Flow Analysis – Dynegy Market Case Projections

     0.1053x        0.5806x  

Discounted Cash Flow Analysis – Dynegy Market + Earnings & Cost Improvement Case Projections

     0.5395x        1.1935x  

Equity Research Analysts’ Price Targets

     0.2222x        0.7746x  

Historical Trading Range

     0.2911x        0.8305x  

Illustrative Value Creation

Based on publicly available information and estimates from Dynegy’s management, Morgan Stanley provided an illustrative value creation overview that compared the implied equity value of Dynegy on a standalone basis with the implied equity value for the pro forma combined company after the Merger.

To derive the implied equity value of the pro forma combined company, Morgan Stanley selected a representative range of the 2018E AV / EBITDA Ratio for the pro forma combined company based on its

 

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professional judgment and experience and applied this range to the sum of Dynegy’s and Vistra Energy’s estimated EBITDA for the calendar year 2018. For calendar year 2018, estimated EBITDA for Dynegy and Vistra Energy were projected to be $1,468 million and $1,363 million, respectively per the Dynegy Market Case Projections and the Vistra Energy Stand-Alone Projections. Morgan Stanley then added to the resulting amount the annual run-rate EBITDA synergies of $225 million, which excludes the Earnings & Cost Improvement-related EBITDA synergies, and $350 million, which includes the Earnings & Cost Improvement-related EBITDA synergies. Morgan Stanley then calculated a range of implied equity values for the pro forma combined company by subtracting the pro forma combined company’s projected net debt as of December 31, 2017 and divided the results by the pro forma number of outstanding shares of the pro forma combined company. This analysis resulted in an implied equity value for Dynegy’s stockholders stake in the pro forma combined company of $13.94 to $21.26 per share of Dynegy Common Stock based on a 2018E AV / EBITDA Ratio range of 7.3x, which is the estimated weighted average 2018 AV / EBITDA multiple for the combined company as weighted by aggregate value, to 9.0x, which is the estimated 2018 AV / EBITDA multiple of NRG Energy, Inc. based on public trading data and publicly available information.

General

In connection with the review of the Merger by the Dynegy Board, Morgan Stanley performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor it considered. Morgan Stanley believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley’s view of the actual value of Dynegy or Vistra Energy.

In performing its analyses, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, regulatory, economic, market and financial conditions and other matters, which are beyond the control of Dynegy and Vistra Energy. These include, among other things, the impact of competition on the businesses of Dynegy and Vistra Energy and the industry generally, industry growth, and the absence of any adverse material change in the financial condition and prospects of Dynegy, Vistra Energy and the industry, and in the financial markets in general. Any estimates contained in Morgan Stanley’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.

Morgan Stanley conducted the analyses described above solely as part of its analysis of the fairness, from a financial point of view, of the Exchange Ratio pursuant to the Merger Agreement to the holders of shares of Dynegy Common Stock (other than the holders of the cancelled shares), and in connection with the delivery of its opinion, dated October 29, 2017, to the Dynegy Board. Morgan Stanley’s opinion did not address any other aspect of the Merger or related transactions. The Exchange Ratio pursuant to the Merger Agreement was determined through arm’s-length negotiations between Dynegy and Vistra Energy and was approved by the Dynegy Board. Morgan Stanley acted as financial advisor to the Dynegy Board during these negotiations but did not, however, recommend any specific exchange ratio to Dynegy or the Dynegy Board, nor opine that any specific exchange ratio constituted the only appropriate exchange ratio for the Merger.

Morgan Stanley’s opinion and its presentation to the Dynegy Board was one of many factors taken into consideration by the Dynegy Board in deciding to consider, approve and declare the advisability of the Merger Agreement and the transactions contemplated thereby and to recommend the adoption of the Merger Agreement by the holders of shares of Dynegy Common Stock. Consequently, the analyses as described above should not be viewed as determinative of the opinion of the Dynegy Board with respect to the Exchange Ratio pursuant to the

 

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Merger Agreement or of whether the Dynegy Board would have been willing to agree to a different exchange ratio. Morgan Stanley’s opinion was approved by a committee of Morgan Stanley investment banking and other professionals in accordance with its customary practice.

Dynegy retained Morgan Stanley based on Morgan Stanley’s qualifications, experience and expertise and its familiarity with Dynegy. Morgan Stanley is a global financial services firm engaged in the securities, investment management and individual wealth management businesses. Its securities business is engaged in securities underwriting, trading and brokerage activities, foreign exchange, commodities and derivatives trading, prime brokerage, as well as providing investment banking, financing and financial advisory services. Morgan Stanley, its affiliates, directors and officers may at any time invest on a principal basis or manage funds that invest, hold long or short positions, finance positions, and may trade or otherwise structure and effect transactions, for their own account or the accounts of its customers, in debt or equity securities or loans of Dynegy, Vistra Energy, Apollo Global Management (“Apollo”), Oaktree Capital Management (“Oaktree”) and Brookfield Asset Management Inc. (“Brookfield”), each of which are significant stockholders of Vistra Energy, as well as certain majority controlled affiliates and portfolio companies of each (together with Apollo, Oaktree and Brookfield, the “Vistra Energy Related Parties”) or any other company, or any currency or commodity, that may be involved in the Merger, or any related derivative instrument.

Under the terms of its engagement letter dated October 23, 2017, Morgan Stanley provided Dynegy financial advisory services and a financial opinion, described in this section and attached to this joint proxy statement and prospectus as Annex C, in connection with the Merger, and Dynegy has agreed to pay Morgan Stanley a fee of $22 million for its financial advisory services, 33% of which was paid upon execution of the Merger Agreement, 33% of which is contingent upon Dynegy stockholder approval of the Merger Proposal, and 34% of which is contingent upon the closing of the Merger. Dynegy has also agreed to reimburse Morgan Stanley for its reasonable out-of-pocket expenses incurred from time to time in connection with this engagement. In addition, Dynegy has agreed to indemnify Morgan Stanley and its affiliates, its and their respective officers, directors, employees and agents and each other person, if any, controlling Morgan Stanley or any of its affiliates, against any losses, claims, damages or liabilities, relating to, arising out of or in connection with Morgan Stanley’s engagement and to reimburse certain expenses relating to such indemnity.

In the two years prior to the date of its opinion, Morgan Stanley has provided financial advisory and financing services for Dynegy, Vistra Energy and the Vistra Energy Related Parties and has received fees in connection with such services in the ranges of approximately $20 million to $25 million, approximately $10 million to $15 million and approximately $20 million to $25 million, respectively. Morgan Stanley may also seek to provide financial advisory and financing services to Dynegy, Vistra Energy and the Vistra Energy Related Parties and their respective affiliates in the future and would expect to receive fees for the rendering of these services.

Opinion of PJT Partners

Dynegy has retained PJT Partners to act as Dynegy’s financial advisor in connection with the Merger. On October 29, 2017, at a meeting of the Dynegy Board held to evaluate the Merger, PJT Partners rendered its oral opinion (which was subsequently confirmed in writing) to the Dynegy Board that, as of such date and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the Exchange Ratio pursuant to the Merger Agreement was fair to the holders of Dynegy Common Stock (other than the holders of the shares of Dynegy Common Stock cancelled pursuant to the Merger Agreement and the Dynegy Principal Stockholders) from a financial point of view.

The full text of PJT Partners’ written opinion delivered to the Dynegy Board, dated October 29, 2017, is attached as Annex D and incorporated into this joint proxy statement and prospectus by reference in its entirety. PJT Partners’ written opinion sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations upon the review undertaken by PJT Partners in rendering its

 

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opinion. You are encouraged to read the opinion carefully in its entirety. The following is a summary of PJT Partners’ opinion and the methodology that PJT Partners used to render its opinion. This summary is qualified in its entirety by reference to the full text of the opinion. PJT Partners provided its opinion to the Dynegy Board, in its capacity as such, in connection with and for the purposes of its evaluation of the Merger only and PJT Partners’ opinion is not a recommendation as to any action the Dynegy Board should take with respect to the Merger or any aspect thereof. The opinion does not constitute a recommendation to any Dynegy stockholder or Vistra Energy stockholder as to how any such stockholder should vote or act with respect to the Merger or any other matter. The summary of PJT Partners’ opinion set forth in this joint proxy statement and prospectus is qualified in its entirety by reference to the full text of PJT Partners’ opinion.

In arriving at its opinion, PJT Partners, among other things:

 

    reviewed certain publicly available information concerning the businesses, financial conditions and operations of Dynegy and Vistra Energy;

 

    reviewed certain internal information concerning the business, financial condition and operations of Dynegy prepared and furnished to PJT Partners by the management of Dynegy;

 

    reviewed certain internal financial analyses, estimates and forecasts relating to Dynegy, including the Dynegy Market Case Projections and the Dynegy Market + Earnings & Cost Improvement Case Projections, that were prepared by or at the direction of, approved and furnished to PJT Partners by the management of Dynegy;

 

    reviewed the net operating loss utilization projections of Dynegy that were prepared, approved and furnished to PJT Partners by the management of Dynegy (the “Dynegy NOL Projections”);

 

    reviewed certain financial analyses, estimates and forecasts relating to Vistra Energy, including the Vistra Energy Stand-Alone Projections, that were prepared, approved and furnished to PJT Partners by the management of Dynegy;

 

    reviewed certain estimates relating to the fiscal year end 2017 capital structure of Vistra Energy furnished to PJT Partners by the management of Dynegy and at the direction of the management of Dynegy used such estimates in PJT Partners’ analysis;

 

    held discussions with the management of Dynegy concerning, among other things, their evaluation of the Merger and Dynegy’s and Vistra Energy’s respective businesses, operating and regulatory environments, financial conditions, prospects and strategic objectives;

 

    reviewed the expectations of the management of Dynegy with respect to the pro forma impact of the Merger on the future financial performance of the combined company, including cost savings and operating, financing and tax synergies (the “Expected Synergies”), and other strategic benefits expected by the management of Dynegy to result from the Merger;

 

    reviewed certain estimates relating to the utilization of the pro forma net operating losses and certain other tax attributes of the surviving corporation following the Merger prepared by Dynegy’s accountants and approved and furnished to PJT Partners by the management of Dynegy (the “Pro Forma Tax Projections”);

 

    reviewed the historical market prices and trading activity for the shares of Dynegy Common Stock and Vistra Energy Common Stock;

 

    compared certain publicly available financial and stock market data for Dynegy and Vistra Energy with similar information for certain other companies that PJT Partners deemed to be relevant;

 

    reviewed the publicly available financial terms of certain other business combination transactions that PJT Partners deemed to be relevant;

 

    reviewed a draft, dated October 29, 2017, of the Merger Agreement; and

 

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    performed such other financial studies, analyses and investigations, and considered such other matters, as PJT Partners deemed necessary or appropriate for purposes of rendering its opinion.

In preparing its opinion, with the consent of Dynegy, PJT Partners relied upon and assumed the accuracy and completeness of the foregoing information and all other information discussed with or reviewed by it, without independent verification thereof. PJT Partners assumed, with the consent of Dynegy, that the Dynegy Market Case Projections, the Dynegy Market + Earnings & Cost Improvement Case Projections, the Vistra Energy Stand-Alone Projections and all other financial analyses, estimates and forecasts provided to PJT Partners by the management of Dynegy were reasonably prepared in accordance with industry practice and represent, as of the date of PJT Partners’ opinion, the best estimates and judgments of the management of Dynegy (subject, in each case, to the assumptions set forth therein) as to the businesses and operations and future financial performance of Dynegy and Vistra Energy. PJT Partners assumed, with the consent of Dynegy, that the estimates of the tax effects set forth in the Dynegy NOL Projections and the Pro Forma Tax Projections were reasonable and that the net operating losses and other tax attributes described therein would be utilized in accordance with such estimates. PJT Partners assumed, with the consent of Dynegy, that the amounts and timing of the Expected Synergies were reasonable and that the Expected Synergies would be realized in accordance with such estimates. With the consent of Dynegy, PJT Partners assumed no responsibility for and expressed no opinion as to the Dynegy Market Case Projections, the Dynegy Market + Earnings & Cost Improvement Case Projections, the Vistra Energy Stand-Alone Projections, the Dynegy NOL Projections, the Expected Synergies, the assumptions upon which any of the foregoing were based or any other financial analyses, estimates and forecasts provided to PJT Partners by the management of Dynegy. With the consent of Dynegy, PJT Partners also assumed that there were no material changes in the assets, financial condition, results of operations, businesses or prospects of each of Dynegy or Vistra Energy since the respective dates of the last financial statements made available to PJT Partners, other than as may be reflected in the Dynegy Market Case Projections, the Dynegy Market + Earnings & Cost Improvement Case Projections or the Vistra Energy Stand-Alone Projections. PJT Partners further relied, with the consent of Dynegy, upon the assurances of the management of Dynegy that they were not aware of any facts that would make the information and projections provided by them inaccurate, incomplete or misleading.

PJT Partners was not asked to undertake, and did not undertake, an independent verification of any information provided to or reviewed by it, nor was it furnished with any such verification, and it did not assume any responsibility or liability for the accuracy or completeness thereof. PJT Partners did not conduct a physical inspection of any of the properties or assets of Dynegy or Vistra Energy. PJT Partners did not make an independent evaluation or appraisal of the assets or the liabilities (including any contingent, derivative or off-balance sheet assets and liabilities) of Dynegy or Vistra Energy, nor was it furnished with any such evaluations or appraisals, nor did it evaluate the solvency of Dynegy or Vistra Energy under any applicable laws.

PJT Partners also assumed, with the consent of Dynegy, that the final executed form of the Merger Agreement would not differ in any material respects from the draft reviewed by it and that the consummation of the Merger would be effected in accordance with the terms and conditions of the Merger Agreement, without waiver, modification or amendment of any material term, condition or agreement, and that, in the course of obtaining the necessary regulatory or third-party consents and approvals (contractual or otherwise) for the Merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on Dynegy, Vistra Energy, the surviving corporation in the Merger or the contemplated benefits of the Merger. PJT Partners further assumed, with the consent of Dynegy, that for U.S. federal income tax purposes the Merger would qualify as a reorganization within the meaning of Section 368(a) of the Code. PJT Partners did not express any opinion as to any tax or other consequences that might result from the Merger, nor did its opinion address any legal, tax, regulatory or accounting matters, as to which PJT Partners understood that Dynegy obtained such advice as it deemed necessary from qualified professionals. PJT Partners are not legal, tax or regulatory advisors and, with the consent of Dynegy, relied upon without independent verification the assessment of Dynegy and its legal, tax and regulatory advisors with respect to such matters.

In arriving at its opinion, PJT Partners was not authorized to solicit, and did not solicit, interest from any party with respect to an acquisition, business combination or other extraordinary transaction involving Dynegy or

 

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its assets. PJT Partners’ opinion does not address the underlying decision by Dynegy to engage in the Merger. PJT Partners’ opinion is limited to the fairness as of the date thereof, from a financial point of view, to the holders of Dynegy Common Stock (other than the holders of the shares of Dynegy Common Stock cancelled pursuant to the Merger Agreement and the Dynegy Principal Stockholders) of the Exchange Ratio pursuant to the Merger Agreement, and PJT Partners’ opinion does not address any other aspect or implication of the Merger, the Merger Agreement, or any other agreement or understanding entered into in connection with the Merger or otherwise. PJT Partners further expressed no opinion or view as to the fairness of the Merger to the holders of any other class of securities, creditors or other constituencies of Dynegy or as to the underlying decision by Dynegy to engage in the Merger. PJT Partners also expressed no opinion as to the fairness of the amount or nature of the compensation to any of Dynegy’s officers, directors or employees, or any class of such persons, relative to the Exchange Ratio or otherwise. PJT Partners’ opinion was necessarily based upon economic, market, monetary, regulatory and other conditions as they existed and could be evaluated, and the information made available to PJT Partners, as of the date thereof. PJT Partners expressed no opinion as to the prices or trading ranges at which the shares of Dynegy Common Stock or the shares of Vistra Energy Common Stock would trade at any time.

PJT Partners assumed no responsibility for updating or revising its opinion based on circumstances or events occurring after the date thereof. The issuance of PJT Partners’ opinion was approved by a fairness committee of PJT Partners LP in accordance with established procedures.

Summary of Financial Analyses

In connection with rendering its opinion, PJT Partners performed certain financial, comparative and other analyses as summarized below. In arriving at its opinion, PJT Partners did not ascribe a specific range of values to the shares of Dynegy Common Stock but rather made its determination as to fairness, from a financial point of view, to the holders of Dynegy Common Stock (other than the holders of the shares of Dynegy Common Stock cancelled pursuant to the Merger Agreement and the Dynegy Principal Stockholders) of the Exchange Ratio pursuant to the Merger Agreement on the basis of various financial and comparative analyses. The preparation of a fairness opinion is a complex process and involves various determinations as to the most appropriate and relevant methods of financial and comparative analyses and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to summary description.

In arriving at its opinion, PJT Partners did not attribute any particular weight to any single analysis or factor considered by it but rather made qualitative judgments as to the significance and relevance of each analysis and factor relative to all other analyses and factors performed and considered by it and in the context of the circumstances of the Merger. Accordingly, PJT Partners believes that its analyses must be considered as a whole, as considering any portion of such analyses and factors, without considering all analyses and factors as a whole, could create a misleading or incomplete view of the process underlying its opinion.

The following is a summary of the material financial analyses used by PJT Partners in preparing its opinion to the Dynegy Board. Certain financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses used by PJT Partners, the tables must be read together with the text of each summary, as the tables alone do not constitute a complete description of the financial analyses. In performing its analyses, PJT Partners made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Dynegy or any other parties to the Merger. None of Dynegy, PJT Partners, or any other person assumes responsibility if future results are materially different from those discussed. Any estimates contained in these analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth below. In addition, analyses relating to the value of the businesses do not purport to be appraisals or reflect the prices at which the businesses may actually be sold. The financial analyses summarized below were based on the Dynegy Market Case Projections, the Dynegy Market + Earnings & Cost Improvement Case Projections, the Vistra Energy Stand- Alone Projections and other financial

 

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information prepared and furnished to PJT Partners by or on behalf of the management of Dynegy. The following summary does not purport to be a complete description of the financial analyses performed by PJT Partners. The following quantitative information, to the extent that it is based on market data, is based on market data as it existed, for Dynegy and Vistra Energy, on October 24, 2017 (which represented the last “unaffected” trading day for shares of Dynegy Common Stock and Vistra Energy Common Stock prior to an article published in The Wall Street Journal on October 25, 2017 reporting that Dynegy and Vistra Energy were in advanced talks to combine), and, unless otherwise indicated, on or before October 29, 2017, and is not necessarily indicative of current or future market conditions. Fully diluted share numbers for Dynegy and Vistra Energy used below were provided by, and used at the direction of, the management of Dynegy. PJT Partners assumed that Dynegy would not be required to repurchase any Dynegy Common Stock held by Oaktree Capital Management, L.P. or its affiliates pursuant to any agreement among Dynegy, Vistra Energy and Oaktree Capital Management, L.P. entered into in connection with the Merger. Implied price per share ranges for shares of Dynegy Common Stock and Vistra Energy Common Stock described below were rounded to the nearest $0.05.

Selected Comparable Company Analysis—Dynegy

In order to assess how the public market values shares of similar publicly traded companies and to provide a range of relative implied equity values per share of Dynegy Common Stock by reference to these companies, which could then be used to calculate implied exchange ratio ranges, PJT Partners reviewed and compared specific financial and operating data relating to Dynegy with selected companies that PJT Partners deemed comparable to Dynegy. The selected comparable companies were NRG Energy, Inc. (“NRG”), Calpine Corporation (“Calpine”) and Vistra Energy.

PJT Partners calculated and compared various implied financial multiples and ratios of Dynegy and the selected comparable companies. As part of its selected comparable company analysis, PJT Partners calculated and analyzed the following ratios and multiples: (1) total enterprise value (calculated as the equity value based on fully diluted shares outstanding using the treasury stock method, plus debt and less cash, after giving effect to certain adjustments for minority interests) (“TEV”) as a multiple of 2017E EBITDA and (2) TEV as a multiple of 2018E EBITDA. All of these calculations were performed and based on publicly available financial data and, for Dynegy and Vistra Energy, on Dynegy’s and Vistra Energy’s closing share prices as of October 24, 2017 and 2017E EBITDA and 2018E EBITDA consensus estimates, for NRG, on NRG’s closing share price as of October 27, 2017 and guidance provided publicly by the management of NRG and, for Calpine, on Calpine’s unaffected share price as of May 9, 2017 and 2017E EBITDA and 2018E EBITDA consensus estimates. The results of this selected comparable company analysis are summarized below:

 

Selected Comparable Company & Dynegy

   TEV / 2017E EBITDA      TEV / 2018E EBITDA  

NRG Energy, Inc.

     12.8x        9.0x  

Calpine Corporation

     8.3x        7.8x  

Dynegy Inc.

     7.9x        6.6x  

Vistra Energy Corp.

     8.2x        8.2x  

PJT Partners, based on its professional judgement, selected the comparable companies listed above because PJT Partners believed their businesses and operating profiles are reasonably similar to that of Dynegy. However, because of the inherent differences between the business, operations and prospects of Dynegy and those of the selected comparable companies, PJT Partners believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the selected comparable company analysis. Accordingly, PJT Partners also made qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of Dynegy and the selected comparable companies that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis. These qualitative judgments related primarily to the differing sizes, growth prospects, profitability levels and degree of operational risk between Dynegy and the companies included in the selected company analysis. Based upon these judgments, PJT Partners selected a TEV to EBITDA multiple range of 7.0x to 8.0x for 2017E—2018E EBITDA for Dynegy

 

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and applied such range to Dynegy’s average 2017E—2018E EBITDA based on the Dynegy Market Case Projections and the Dynegy Market + Earnings & Cost Improvement Case Projections to calculate a range of implied prices per share of Dynegy Common Stock based on the fully diluted number of shares of Dynegy Common Stock as of October 24, 2017. In estimating 2017E EBITDA, PJT Partners assumed that Dynegy’s sale of the Milford (MA), Dighton, Lee, Troy, and Armstrong facilities had closed on January 1, 2017. The following summarizes the results of these calculations:

 

Projections for Low End of Selected TEV / EBITDA Multiple
Range

  

Projections for High End of
Selected TEV / EBITDA Multiple

Range

   Implied prices per share of
    Dynegy Common Stock    
 

Dynegy Market Case Projections

   Dynegy Market + Earnings & Cost Improvement Case Projections    $ 6.10 - $16.10  

Selected Comparable Company Analysis—Vistra Energy

In order to assess how the public market values shares of similar publicly traded companies and to provide a range of relative implied equity values per share of Vistra Energy Common Stock by reference to these companies, which could then be used to calculate implied exchange ratio ranges, PJT Partners reviewed and compared specific financial and operating data relating to Vistra Energy with selected companies that PJT Partners deemed comparable to Vistra Energy. The selected comparable companies were NRG, Calpine and Dynegy.

PJT Partners calculated and compared various implied financial multiples and ratios of Vistra Energy and the selected comparable companies. As part of its selected comparable company analysis, PJT Partners calculated and analyzed the following ratios and multiples: (1) TEV as a multiple of 2017E EBITDA and (2) TEV as a multiple of 2018E EBITDA. All of these calculations were performed and based on publicly available financial data and, for Vistra Energy and Dynegy, on Vistra Energy’s and Dynegy’s closing share prices as of October 24, 2017 and 2017E EBITDA and 2018E EBITDA consensus estimates, for NRG, on NRG’s closing share price as of October 27, 2017 and guidance provided publicly by the management of NRG and, for Calpine, on Calpine’s unaffected share price as of May 9, 2017 and 2017E EBITDA and 2018E EBITDA consensus estimates. The results of this selected comparable company analysis are summarized below:

 

Selected Comparable Company

   TEV / 2017E EBITDA      TEV / 2018E EBITDA  

NRG Energy, Inc.

     12.8x        9.0x  

Calpine Corporation

     8.3x        7.8x  

Dynegy Inc.

     7.9x        6.6x  

Vistra Energy Corp.

     8.2x        8.2x  

PJT Partners, based on its professional judgment, selected the comparable companies listed above because PJT Partners believed their businesses and operating profiles are reasonably similar to that of Vistra Energy. However, because of the inherent differences between the business, operations and prospects of Vistra Energy and those of the selected comparable companies, PJT Partners believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the selected comparable company analysis. Accordingly, PJT Partners also made qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of Vistra Energy and the selected comparable companies that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis. These qualitative judgments related primarily to the differing sizes, growth prospects, profitability levels and degree of operational risk between Vistra Energy and the companies included in the selected company analysis. Based upon these judgments, PJT Partners selected a TEV to EBITDA multiple range of 8.0x to 9.0x for 2017E - 2018E EBITDA for Vistra Energy and applied such range to Vistra Energy’s average 2017E - 2018E EBITDA based on the Vistra Energy Stand-Alone Projections to calculate a range of implied prices per share of Vistra Energy Common Stock based on the fully diluted number of shares of Vistra Energy Common Stock as of

 

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October 24, 2017. The following summarizes the results of these calculations, as compared to the closing price per share of Vistra Energy Common Stock as of October 24, 2017:

 

Implied prices

per share of

Vistra Energy

Common Stock

 

Price per share of

Vistra Energy

Common Stock as

of October 24, 2017

$18.50 - $21.55

  $19.58

Based on the range of implied equity value per share for Dynegy and the range of implied equity value per share for Vistra Energy that were calculated by PJT Partners in its comparable company analyses, PJT Partners calculated a range of implied exchange ratios for Vistra Energy Common Stock per each share of Dynegy Common Stock. PJT Partners calculated the high end of the implied exchange ratio range by dividing the high value of the Dynegy implied equity values per share reference range by the high value of the Vistra Energy implied equity values per share reference range. PJT Partners calculated the low end of the implied exchange ratio range by dividing the low value of the Dynegy implied equity values per share reference range by the low value of the Vistra Energy implied equity values per share reference range. The result of this analysis, as compared to the Exchange Ratio of 0.652x provided for in the Merger Agreement, was an implied exchange ratio range of 0.330x to 0.747x.

Selected Precedent Transaction Analysis

PJT Partners reviewed, to the extent publicly available, and analyzed the valuation and financial metrics relating to the following six selected transactions since 2012 involving companies in the power industry, which PJT Partners in its professional judgment considered generally relevant for comparative purposes:

 

Month and year announced

  

Acquiror

  

Target

August 2017

   Energy Capital Partners    Calpine Corporation

June 2016

   Riverstone Holdings LLC    Talen Energy Corp

February 2016

   Dynegy Inc.    Engie

August 2014

   Dynegy Inc.    Duke Ohio

August 2014

   Dynegy Inc.    EquiPower Resources Corp.

July 2012

   NRG Energy Inc.    GenOn Energy, Inc.

For each precedent transaction, PJT Partners reviewed the transaction value (“Transaction Value”) as a multiple of (i) the target company’s trailing twelve-month (“TTM”) EBITDA, (ii) the target company’s current EBITDA and (iii) the target company’s forward (“Forward”) EBITDA as shown in the following:

 

     High      Mean      Low  

Transaction Value/TTM EBITDA

     10.0x        8.0x        5.2x  

Transaction Value/Current EBITDA

     9.3x        8.6x        6.9x  

Transaction Value/Forward EBITDA

     9.2x        7.8x        6.2x  

The High, Mean and Low calculations of Transaction Value/TTM EBITDA and Transaction Value/Current EBITDA exclude Engie, Duke Ohio and EquiPower Resources Corp. due to the absence of publicly available information. Estimated financial data of the selected transactions were based on publicly available information at the time of announcement of the relevant transaction.

The reasons for and the circumstances surrounding each of the selected precedent transactions analyzed were diverse and there are inherent differences in the business, operations, financial conditions and prospects of Dynegy and the companies included in the selected precedent transaction analysis. Accordingly, PJT Partners believed that a purely quantitative selected precedent transaction analysis would not be particularly meaningful in the context of considering the Merger. PJT Partners therefore made qualitative judgments concerning differences

 

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between the characteristics of the selected precedent transactions and the Merger which would affect the acquisition values of the selected target companies and Dynegy. Based upon these judgments, after reviewing the above analysis, PJT Partners selected a range of 7.0x to 8.5x TEV to EBITDA multiples and applied this range to Dynegy’s average 2017E - 2018E EBITDA based on the Dynegy Market Case Projections and the Dynegy Market + Earnings & Cost Improvement Case Projections to calculate a range of implied enterprise values for Dynegy. PJT Partners then calculated a range of implied prices per share of Dynegy Common Stock subtracting estimated net debt and non-controlling interests as of December 31, 2017 from the estimated enterprise value and dividing such amount by the fully diluted number of shares of Dynegy Common Stock. PJT Partners also included a $2.97 - $3.86 net operating loss (“NOL” or “NOLs”) valuation per share of Dynegy Common Stock, which is the gross valuation of certain Dynegy NOLs in an acquisition scenario based on Dynegy’s analysis, as provided by Dynegy’s tax accountants, regarding NOL limitations in an acquisition scenario under IRS Section 382 and including the impact of a net unrealized built-in gain. The following summarizes the result of these calculations:

 

Projections for Low End of Selected

TEV / EBITDA Multiple Range

   Projections for High End of
Selected TEV / EBITDA Multiple
Range
   Implied prices per share of
Dynegy Common Stock

Dynegy Market Case Projections

   Dynegy Market + Earnings
& Cost Improvement Case
Projections
   $9.10 - $23.85

Discounted Cash Flow Analysis—Dynegy

In order to estimate the present value of Dynegy Common Stock, PJT Partners performed a discounted cash flow analysis of Dynegy. A discounted cash flow analysis is a traditional valuation methodology used to derive a valuation of an asset by calculating the “present value” of estimated future cash flows generated by the asset. “Present value” refers to the current value of future cash flows or amounts and is obtained by discounting those future cash flows or amounts by a discount rate that takes into account macroeconomic assumptions and estimates of risk, the opportunity cost of capital, expected returns and other appropriate factors.

To calculate the estimated enterprise value of Dynegy using the discounted cash flow method, PJT Partners added (a) Dynegy’s projected after-tax unlevered free cash flows for fiscal years 2018E through 2021E based on the Dynegy Market Case Projections and the Dynegy Market + Earnings & Cost Improvement Case Projections to (b) ranges of “terminal values” of Dynegy as of December 31, 2021, and discounted such amount to its present value using a range of selected discount rates. The after-tax unlevered free cash flows were calculated by taking the tax-affected earnings before interest and tax expense, adding depreciation and amortization, subtracting recurring capital expenditures and adjusting for changes in working capital and other cash flow items. PJT Partners’ calculation of after-tax unlevered free cash flows for Dynegy differs from the Dynegy Management Projections in that it excludes the impact of certain Dynegy NOLs, which PJT Partners values separately. The residual value of Dynegy at the end of the projection period, or “terminal value,” was estimated by applying the exit multiple range of 7.5x to 8.5x to Dynegy’s average 2020E - 2021E EBITDA from both the Dynegy Market Case Projections and the Dynegy Market + Earnings & Cost Improvement Case Projections and subsequently adjusting the terminal value for known capital expenditures beyond 2021 as provided by the management of Dynegy. The range of after-tax discount rates of 5.95% to 6.95% was selected based on PJT’s analysis of the weighted average cost of capital of Dynegy. PJT Partners then calculated a range of implied equity values per share of Dynegy Common Stock by subtracting Dynegy’s estimated net debt and non-controlling interest as of December 31, 2017 from the estimated enterprise value derived using the discounted cash flow method and dividing such amount by the fully diluted number of shares of Dynegy Common Stock as of October 24, 2017. This range includes the present value of certain Dynegy NOLs based on the Dynegy NOL Projections, which PJT Partners calculated to have a present value of $1.19 to $2.41 per share of Dynegy Common Stock on the low and high end of the valuation range, respectively, for the Dynegy Market Case Projections, and $3.09 to $5.36 per share of Dynegy Common Stock on the low and high end of the valuation range, respectively, for the Dynegy Market + Earnings & Cost Improvement Case Projections. In calculating the present value of the Dynegy NOLs

 

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contained in the Dynegy NOL Projections, PJT Partners used a discount rate range of 6.45% to 13.75% based on the midpoint of Dynegy’s estimated weighted average cost of capital and the midpoint of Dynegy’s estimated cost of equity, respectively, and, upon the advice of the management of Dynegy, assumed a tax rate of 37.5%. The following summarizes the results of these calculations:

 

Projections

   Implied equity
values per
share of Dynegy
Common Stock

Dynegy Market Case Projections

   $2.15 - $9.55

Dynegy Market + Earnings & Cost Improvement Case Projections

   $10.05 - $19.30

Discounted Cash Flow Analysis—Vistra Energy

In order to estimate the present value of Vistra Energy Common Stock, PJT Partners also performed a discounted cash flow analysis of Vistra Energy.

To calculate the estimated enterprise value of Vistra Energy using the discounted cash flow method, PJT Partners added (a) Vistra Energy’s projected after-tax unlevered free cash flows for fiscal years 2018E through 2021E based on the Vistra Energy Stand-Alone Projections to (b) ranges of terminal values of Vistra Energy as of December 31, 2021, and discounted such amount to its present value using a range of selected discount rates. The after-tax unlevered free cash flows were calculated by taking the tax-affected earnings before interest and tax expense, adding depreciation and amortization, subtracting taxes, capital expenditures and adjusting for changes in working capital and other cash flow items. The residual value of Vistra Energy at the end of the projection period, or “terminal value,” was estimated by applying the exit multiple range of 8.0x to 9.0x to Vistra Energy’s average 2020E - 2021E EBITDA from the Vistra Energy Stand-Alone Projections and subsequently adjusting the terminal value for known capital expenditures beyond 2021 as provided by the management of Dynegy. The range of discount rates of 5.30% to 6.30% was selected based on an analysis of the midpoint of the estimated weighted average cost of capital of Vistra Energy. PJT Partners then calculated a range of implied equity values per share of Vistra Energy Common Stock by subtracting estimated net debt as of December 31, 2017 from the estimated enterprise value derived using the discounted cash flow method and dividing such amount by the fully diluted number of shares of Vistra Energy Common Stock as of October 24, 2017. The following summarizes the results of these calculations:

 

Implied equity values

per share of

Vistra Energy

Common Stock

 

Price per share

of Vistra Energy

Common Stock as

of October 24, 20