What happened

Shares of independent power producer Dynegy Inc. (NYSE:DYN) jumped more than 17% in late Wednesday trading after reports surfaced that the company is in "advanced talks" to merge with peer power producer Vistra Energy Corp. (NYSE:VST).

Electric power plant at night.

Bright lights, big merger prospects at Dynegy. Image source: Getty Images.

So what

As The Wall Street Journal reported yesterday evening, the two Texas-based power companies have been discussing a potential merger since "at least the spring." (Indeed, we've been hearing such rumors ourselves). Any such merger, if one happens, would almost certainly put Vistra in the driver's seat.

Valued on market capitalization alone, Vistra's $8.4 billion valuation is seven times that of Dynegy. Dynegy also carries some $8.9 billion in net debt, while Vistra is significantly less laden with debt -- less than $3.6 billion net of cash on hand.

Now what

WSJ postulates that a deal could be inked as early as next week -- or not, if the merger talks fall apart. In the latter case, Dynegy shareholders stand to lose much of the increase in their stock price sparked by news of the potential merger. On the other hand, if a merger should be in the offing, they stand to gain either significant profits from the run up, or part ownership in a much stronger combined company.

If I were a shareholder in Dynegy, I'm pretty sure I know how I would hope this one plays out.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.