Talen Energy Corp

Previous report

Risks Related to the Freedom and Guernsey Acquisitions

Previous report

The proposed Freedom and Guernsey Acquisitions are subject to a number of conditions which, if not satisfied or waived, could delay or impair our ability to complete the transactions on the agreed terms or at all. Failure to consummate the Freedom and (or) Guernsey Acquisitions as contemplated or at all could adversely affect us and the price of our common stock.

Previous report

Completion of each of the Freedom and Guernsey Acquisitions is subject to the satisfaction or waiver of a number of conditions, including: (i) receipt of all requisite regulatory approvals, including from the FERC; (ii) expiration or termination of the applicable waiting period under the HSR Act; and (iii) other customary closing conditions, including but not limited to the absence of certain “material adverse events.” We cannot guarantee if or when these conditions will be satisfied or that the proposed acquisitions will be completed on the current terms or at all. There can also be no assurance as to the cost, scope, or impact of the actions, restrictions, or other conditions that may be required to obtain regulatory consents and approvals, and the Purchase Agreements generally do not permit us to terminate the transactions due to the terms of required regulatory consents or approvals.

Previous report

It is a condition to closing the acquisitions that no governmental law, ruling, or order is in effect that prohibits their consummation. Although we are not currently aware of any, legal actions relating to the proposed acquisitions could be filed under antitrust, securities, or other laws. There can be no assurance of the outcome of any such actions and, regardless, defending against them could result in delays, additional costs, or diversion of time and resources.

Previous report

Each of the Purchase Agreements provide that either we or the sellers can terminate the applicable agreement if the respective acquisition is not completed by July 17, 2026 (which may be automatically extended to January 17, 2027 in the case of pending antitrust and (or) regulatory approvals). If the Freedom and (or) Guernsey Acquisitions are not consummated, or are consummated on different terms or timing than currently contemplated, we could be subject to a variety of risks, including:

Previous report

•we will still incur and remain liable for significant transaction costs, including legal, accounting, financing, advisory, and other costs;

Previous report

•under certain circumstances, we may be required to pay the sellers a termination fee of approximately $63 million in the case of Freedom and $100 million in the case of Guernsey;

Previous report

•our stockholders may be prevented from realizing the anticipated benefits of the acquisition and (or) the market price of our common stock could decline significantly;

Previous report

•we could experience reputational harm due to the adverse public perception of any failure to successfully complete the acquisition; and

Previous report

•management and employee attention may be diverted from day-to-day matters or our business may be otherwise disrupted by efforts to consummate the proposed transaction.

Previous report

If completed, the Freedom and Guernsey Acquisitions may not achieve their intended results.

Previous report

Although we currently anticipate that the Freedom and Guernsey Acquisitions will be accretive to our earnings and cash flow, that expectation is based on preliminary estimates that are subject to change. We may fail to realize the anticipated benefits of the acquisitions, encounter additional transaction and integration-related costs, or be affected by other factors that impact preliminary estimates, any of which could decrease or delay the expected accretion and (or) contribute to a decrease in the price of our common stock.

Previous report

We entered into the Purchase Agreements with the expectation that the Freedom and Guernsey Acquisitions would result in various benefits to the Company, including enhanced generation capabilities. Achievement of the anticipated benefits is subject to a number of uncertainties, including our ability to effectively integrate the acquired assets, which may be complex, costly, and time-consuming. Additional challenges could include, among others:

Previous report

•implementing our business plan for, and achieving the targeted operating or long-term strategic benefits from, the acquired assets;

Previous report

•issues or costs in integrating (i) financial, information technology, communications, and other systems; (ii) relationships with industry contacts and business partners, including third-party service providers who provide key services for the acquired assets; and (iii) key hedging and other commercial activities, arrangements, and relationships;

Previous report

•possible inconsistencies between our standards, controls, policies, and procedures and those of the acquired assets, as well as the resources required to implement or improve the internal controls, procedures, and policies of the acquired assets to meet public company standards;

Previous report

•potential unknown liabilities and unforeseen expenses, delays, or regulatory conditions associated with the acquisitions, as well as any unexpected write offs or impairment charges resulting from the acquisitions; and

Previous report

•performance of the acquired assets and the costs to operate and maintain them, relative to expectations, including any unanticipated capital expenditures or investments.

Previous report

Furthermore, the Company will not control Freedom or Guernsey until completion of the proposed acquisitions, and the acquired assets or their value could be negatively impacted by conditions occurring while the acquisitions are pending. Adverse changes could result from, among other things, physical asset damage, legal or regulatory developments, deteriorating general business, market, industry, or economic conditions, and other factors both within and beyond the control of the Company and the sellers. In addition, there could be potential unknown liabilities or unforeseen expenses not discovered during due diligence and not adequately covered by representation and warranty insurance (should we choose to procure it) or otherwise adjusted for in the Purchase Agreements. Any such conditions could cause the value of the acquired assets to decline and (or) reduce the benefits of the acquisitions to the Company and its stockholders.

Previous report

Any of the foregoing risks could result in failure to achieve the anticipated benefits of the acquisitions, and the expectations of our future financial condition and results of operations following the acquisitions might not be met. See also “Part I, Item 1A. Risk Factors—Commercial and Operational Risks—Acquisitions, divestitures, mergers, or other corporate transactions may expose us to additional risks” in our 2024 Annual Report.

Previous report

We expect to incur a significant amount of indebtedness to finance the Freedom and Guernsey Acquisitions. However, we are obligated to complete the transactions whether or not we have obtained the necessary funding.

Previous report

We intend to raise approximately $3.8 billion of additional indebtedness to fund the Freedom and Guernsey Acquisitions. The amount of our indebtedness following the acquisitions could have adverse consequences for us, including, among others:

Previous report

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

Previous report

•making us more vulnerable to economic or industry downturns, including interest rate increases;

Previous report

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

Previous report

•reducing flexibility under the terms of our indebtedness to, among other things, make restricted payments, obtain other financing, operate our business, and (or) take advantage of mergers, acquisitions, or other corporate opportunities; and

Previous report

•placing us at a competitive disadvantage compared to less leveraged competitors.

Previous report

Increased indebtedness could also impact our credit ratings, borrowing costs, access to capital markets, and ability to comply with our indebtedness. See also “Part I, Item 1A. Risk Factors—Financial and Equity Risks—The amount and terms of our indebtedness could adversely affect our financial condition and impair our ability to operate our business” in our 2024 Annual Report.

Previous report

The Purchase Agreements do not contain a financing condition, and we would be required to complete the proposed acquisitions even if we do not have the required funds on hand. TEC has issued parent guaranties in favor of the sellers to guarantee performance of our obligations under the Purchase Agreements. While we have obtained 12-month commitments for 364-day bridge facilities, they are subject to a number of conditions and we cannot guarantee that we will be able to close the financings as anticipated or that the acquisitions will close prior to expiration of the bridge commitments. In addition, the tenor, economics, and other terms of the bridge facilities, provide significant incentive for us to not draw on the bridge facilities or, if drawn, to promptly refinance those facilities. Whether to initially fund the purchase price or to later refinance the bridge facilities, we will be required to raise long-term financing for the acquisitions, which could subject us to less favorable timing, costs, and market conditions than we would otherwise choose. If we cannot close on any element of our financing plan, we will need to pursue other financing options and certain existing indebtedness at Freedom and (or) Guernsey or their affiliates may remain in place, which could result in less favorable financing terms that could negatively impact our costs, credit ratings, or financing and operating flexibility, or realization of the anticipated benefits from the acquisitions. See also “Part I, Item 1A. Risk Factors—Financial and Equity Risks—We may not have sufficient access to financing for our business” in our 2024 Annual Report.

Previous report

Additional Risk Factors