NRG Energy Inc said on Sunday that it has reached an agreement to buy wholesale power provider GenOn Energy Inc in an all-stock deal worth about US$1.7 billion.
Under terms of the deal, GenOn Energy shareholders will get 0.1216 of a NRG Energy Inc share for each of their GenOn shares. Based on NRG’s Friday closing stock price, the offer equates to about US$2.20 per GenOn share. That represents about an 18 percent premium over Houston-based GenOn’s closing stock price on Friday.
New Jersey-based NRG sells power on the wholesale market and to retail customers in states that have deregulated their electric power industry. It said the acquisition will allow it to cut costs, while boosting efficiency and cash flow.
“This combination ushers in a new era of scale, scope and market and fuel diversification in the competitive power industry,” NRG president and CEO David Crane said in a statement.
NRG expects the higher profits and lower costs stemming from the deal to increase its free cash flow by about US$300 million per year.
NRG has been hurt by a long and steep decline in wholesale power prices. Prices have fallen because electricity demand has been soft in the sluggish economy and because the price of natural gas, which is used by many utilities to run generators, has fallen to its lowest level in years. Also, the mild winter across much of the US reduced demand for heating.
In May, NRG posted a first-quarter loss of US$209 million, or US$0.92 per share. GenOn, which was formed through the combination of Mirant and RRI Energy in 2010, lost US$32 million, or US$0.04 per share in its first quarter.
Once the deal closes NRG shareholders will own 71 percent of the combined company and GenOn shareholders will own 29 percent. Four members of GenOn’s board will join NRG’s board and GenOn Chairman and CEO Edward Muller will be the board’s vice chairman.
The deal is subject to approval by the shareholders of both companies, as well as federal and state regulators. It’s expected to close by the first quarter of next year, the companies said.