Aug. 11--Dynegy will sell nearly a quarter of its power generating capacity in a $1.5 billion cash and stock deal the company says will help shore up its finances.

The company will also cut about 10 percent of its 500 Houston-based employees this week as part of a broader cost-cutting program that the company expects will save $450 million over the next four years.

When the power plant sale is done, the Houston-based power plant operator will have about 13,000 megawatts of generating capacity remaining in seven states, with 59 percent of the plants fueled by natural gas and the remainder by coal, oil or a combination of the two.

"It was a long negotiation and we think that the package of assets that is leaving really leaves us still with a very strong, well-positioned portfolio," Dynegy Chairman and CEO Bruce Williamson told analysts in a conference call to discuss second-quarter earnings.

Dynegy reported a net loss of $345 million, 41 cents per share, compared with a $272 million loss in the April-June period last year -- despite a 53 percent increase in revenue. Analysts surveyed by Thomson Reuters expected a loss of 4 cents per share, but such estimates usually exclude one-time charges.

The nine power plants in the deal will be sold to LS Power, a privately held power plant builder that until earlier this year was in a joint venture with Dynegy to build coal-fired power plants throughout the country. Eight of the plants are natural gas-fired and the ninth is a coal-fired plant under construction near Waco.

Dynegy will get about $1 billion in cash and 245 million of its own shares that LS held as part of the joint venture. LS Power will still hold about 15 percent of Dynegy's shares but is prohibited from buying more of the shares or selling its shares to any other investor if it would increase that investor's holdings to 15 percent of the company.

Analysts generally gave a thumbs-up to the deal, which is expected to close by year's end, saying it puts the company in a good position to pay off debt and weather what has been a bad environment for power plant operators.

Debt analysis agency CreditSights noted that Dynegy received a good price for the plants, particularly compared to the implied value of similar power plants under Exelon Corp.'s failed bid to buy NRG Energy last month.

But in the conference call Monday, some analysts asked whether it would be better to use the $1 billionfor something other than paying down debt, such as buying back stock or acquiring more power plants since prices for such assets are relatively low.

Williamson said the company wouldn't discuss "transactions or rumors or anything until deals come about" and stressed short-term benefits.

"It's not very often that you can do a transaction where you, one, improve your liquidity and your financial strength, two, redeem 30 percent of your common stock outstanding and, three, not negatively impact your public float," Williamson said, according to a transcript of the call.

Becoming a smaller company could make Dynegy a more attractive takeover target, particularly since it is selling off natural gas-fired plants, the value of which will be depressed absent a strong economic recovery.

"But I don't think it's enough of a change to produce a deal where there wasn't one before," said Brandon Blossman, an analyst with Tudor, Pickering, Holt & Co. Securities in Houston. "I think the company continues forward as a stand-alone entity for a while longer."

"But I don't think it's enough of a change to produce a deal where there wasn't one before," said Brandon Blossman, an analyst with Tudor, Pickering, Holt & Co. Securities in Houston. "I think the company continues forward as a stand-alone entity for a while longer."

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