Diversified power provider NRG Energy Inc. (NRG) decided to expand its domestic portfolio through the purchase of wholesale power provider GenOn Energy Inc. (:GEN) in an all-stock deal worth $1.7 billion.
Per the agreement the shareholders of GenOn Energy will receive 0.1216 of NRG Energy Inc.’s share for each of their GenOn shares. The offer equates to about $2.20 per GenOn shares, based on NRG Energy’s stock close price on Friday. The offer price represents an 18% premium to the GenOn Energy’s stock close price of $1.82 on Friday.
NRG Energy has a long-term strategy to gradually exit its non-core international operations and concentrate more on the domestic business. NRG Energy recently sold its 41.9% stake in a 900 megawatt (MW) power plant in Germany. The decision to acquire GenOn is part of the strategy to focus more on expanding its operation in the core domestic markets.
GenOn Energy has a capacity of 23,000 MW with its facilities spanning across 12 states, which will be accretive to NRG Energy’s earnings. Besides, the cost synergies will boost free cash flow by $300 million per year.
The deal is expected to be completed in the first quarter of 2013, subject to the necessary permission from the regulators and approval from the shareholders of both companies. Post completion, NRG Energy shareholders will have 71% ownership of the combined entity and GenOn shareholders will own the remaining 29%.
We believe the completion of the deal will create a company having a generating capacity in excess of 48,000 MW with power plants running on both fossil fuels and renewable energy. This acquisition will strengthen NRG Energy’s operation in the North-eastern states and in states that have deregulated their electric power industry.
Based in Princeton, New Jersey, NRG Energy is a wholesale power generation company engaged in the ownership, development, construction, and operation of power generation facilities. The company presently has a Zacks #2 Rank which translates into a short-term Buy rating.
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