On Friday, The Goldman Sachs Group Inc. (GS - Analyst Report) came up with the decision to divest its North Carolina-based Cogentrix Energy LLC, the power plant development unit, to Carlyle Infrastructure Partners, the infrastructure fund of The Carlyle Group LP (CG - Snapshot Report). Financial terms of the deal, which is anticipated to be closed in the fourth quarter of 2012, remained undisclosed.
Under the terms of the deal, Carlyle will receive admittance to three coal-fired and two solar power plants in Florida, Virginia, Colorado and California, along with a development pipeline with over 550 megawatts (MW) of operational capacity. However, Goldman will hold a minority stake in one of the power plants.
With such an investment, Carlyle aims to acquire significant market share in the energy business. Carlyle will finance the deal with the help of infrastructural fund of $1.14 billion.
In 2003, Goldman purchased Cogentrix for $115 million and took over $2.3 billion in debt. Since then, Cogentrix has acquired 26 coal- and natural-gas-fired power plants. However, after the acquisition in the last decade, Goldman vended most of the plants in order to reap financial benefits from the proceedings of the sale. Moreover, through the sales, it aims to maximize the value of the remaining assets and receive commercial benefits.
Other commodity sector investments of Goldman include U.S. metals warehousing firm Metro International bought in 2010, and earlier in 2012, Goldman paid about $400 million to acquire Colombian coal mine assets from Brazil-based Vale S.A. (VALE - Analyst Report).
With the investment in the energy business, Carlyle strategizes to expand in a significant segment of the global economy. Working with the diligent development team of Cogentrix, Carlyle will be able to enhance its investment capabilities. Moreover, with such initiatives, development of conventional and renewable power projects across the U.S. is expected.
Goldman currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain a long-term ‘Neutral’ recommendation on the stock.