By Rory Sweeney

Barely a year after it went public as an independent company, Talen Energy is going private.

The company announced Friday that it had agreed to be acquired by Riverstone Holdings, which is offering $14/share in cash for the company’s outstanding shares, a $2 premium to the closing price Thursday. While the total cost of the stock will be approximately $1.8 billion, the deal has a total value of approximately $5.2 billion including assumed debt. It is expected to close by the end of the year.

Talen was formed last June from the merger of PPL’s generation assets with some of Riverstone’s power plants. Through its affiliates, Riverstone already owns a 35% stake in the Allentown, Pa.-based competitive power producer, which owns or controls 16 GW of capacity in eight states. Most of Talen’s capacity — which is divided between gas (47%), coal (39%) and nuclear (14%) — is in PJM and ERCOT.

Tough competition and tight profit margins battered Talen’s valuation from the beginning, and analysts saw Riverstone’s move as a chance to buy the assets at a bargain.

Formed during a period of historically low natural gas prices, Talen’s stock started to drop the day it hit the exchange and never fully recovered, losing more than half its initial value of $21.23/share within five months. On news of the deal, Talen’s stock — which had been rising amid rumors of the deal — jumped nearly $2/share to settle just shy of the $14 Riverstone is offering.

Talen noted in its announcement that the purchase price represents a 56% premium to the closing price of $9/share on March 31, 2016, the last trading day before public reports of the potential sale CEO Paul Farr said the deal “offers compelling value to our stockholders.”

The agreement provides a 40-day period for Talen to find a better deal and another 20 days to enter into a transaction. Should Talen accept a superior proposal during the “go-shop” period, Talen will pay $25 million to Riverstone. Otherwise, its cost to terminate the agreement for a superior proposal will be $50 million.

The deal is being funded by conversion of Riverstone’s existing Talen stock, Talen’s cash on hand and a $250 million new secured-term loan.

In a research note Friday, UBS Securities suggested Talen shares might rise further on expectations of a better offer.

“With a relatively small go-shop fee and even more secured debt capacity … we would not be surprised to see shares even trade above $14,” UBS said.

UBS said Talen fared worse than its peers in last month’s PJM capacity auction, with fewer assets clearing than last year. It estimated that Talen’s PJM capacity revenue will decline by $230 million to $320 million.

The deal is subject to approval by FERC and the Nuclear Regulatory Commission as well as the 65% non-Riverstone shareholders.

“The scenario under which a deal might not be approved [by shareholders] is if commodities rallied prior to shareholder approval date such that the bid was no longer commensurate with the market environment,” UBS said.

But the analysts said shareholders are unlikely to see another suitor willing to pay more because other independent power producers already have concentrations of generation that would likely trigger market power screens. Talen’s coal generation is anathema to Calpine, and its Susquehanna nuclear plant is likely to scare off anyone not already running a nuclear fleet, UBS said. Dynegy and NRG Energy are in restructurings and unlikely to be able to make a purchase, they added.

“Despite the argument that the company is being bought effectively using its own liquidity and leverage capacity, we do not see an obvious outside bidder desiring to pay such a premium,” they said.