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NRG Energy To Buy GenOn Energy In $1.7 Bln All-stock Deal

NRG 072312

Electric utility NRG Energy, Inc. (NRG) agreed Sunday to acquire smaller peer GenOn Energy, Inc. (GEN) in an all-stock deal valued at about $1.7 billion, creating the largest power company in the U.S. Including net debt, the deal is reportedly valued at about $4.2 billion. The deal, primarily subject to approval by shareholders of both companies and regulatory approvals, is expected to close by the first quarter of 2013.

The deal comes at a time when utility companies are seeing consolidation within the power industry and are seeking to overcome falling electricity prices amid weak demand for electricity and low natural gas prices.

"This combination ushers in a new era of scale, scope, and market and fuel diversification in the competitive power industry. The greater depth and breadth gained through the combination with GenOn will put NRG in a uniquely strong position to fulfill the needs of American energy consumers in the 21st century," NRG President and CEO David Crane said in a statement.

The deal will see GenOn shareholders receive 0.1216 of an NRG common stock in exchange for each GenOn share held by them. This translates to an offer price of $2.19 per share, based of NRG's closing stock price of $18.05 on Friday. The offer price also represents a near 21 percent premium over GenOn's closing stock price of $1.82 on Friday.

The combined entity, having a enterprise value of $18 billion, will have a diverse fleet of about 47,000 megawatts (MW) of fossil fuel, nuclear, solar and wind capacity, with asset concentrations in the East, Gulf Coast and West and capacity to power 40 million American homes.

With a combined annual generation capacity of more than 104 terawatt-hours (TWh) of electricity, the combined entity will surpass Calpine Corp. (CPN) as the largest independent U.S. power company.

The deal will also see the combined entity generate $300 million in benefits, including $175 million of annual cost synergies, $25 million of annual operational efficiency synergies, and $100 million of balance sheet efficiencies.

Additionally, the deal will be immediately accretive on an EBITDA basis and substantially accretive in 2014 to both EBITDA and free cash flow before growth investment. The combined entity will also improve its credit metrics by reducing indebtedness by $1 billion amid deleveraging and transaction synergies.

The deal will boost NRG's wholesale retail business in California and Northeastern US, where the bulk of GenOn generation is located.

Following the closure of the deal, NRG shareholders will own 71 percent of the combined company and GenOn shareholders will own 29 percent, with the combined company's 16 member board consisting of 12 NRG directors and four GenOn directors.

The combined company will be dual headquartered, with financial and commercial headquarters in Princeton and operational headquarters in Houston. NRG said it will retain GenOn's management team, with the combined entity being led by Crane. NRG's chairman Howard Cosgrove will retain his role, while GenOn's CEO Edward Muller will become vice chairman. Kirk Andrews will remain as CFO and Mauricio Gutierrez will serve as COO of the combined entity.

"NRG and GenOn are a great fit geographically and operationally and we look forward to working together to capture efficiencies from the scale associated with the transaction to deliver enhanced value to our investors," Muller noted.

Separately, NRG Energy also declared its first ever dividend, a quarterly dividend of $0.09 per share on the company's common stock, payable on August 15 to shareholders of record as of August 1, 2012.

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