NRG Energy plans to buy Houston-based GenOn Energy in a $1.7 billion stock deal that will create the nation’s largest independent power producer, the companies said Sunday.
NRG, which is based in Princeton, New Jersey and has significant operations in Houston, said the deal would improve efficiencies and give the combined company plants that can produce up to 47,000 megawatts of energy, which they said would be enough electricity to power about 40 million homes.
That would move the merged company, which is keeping the NRG name, ahead of Houston-based Calpine Corp. Calpine has about 28,000 megawatts of generating capacity, according to a January 2012 fact sheet on its website.
“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. Crane will keep his current roles after the merger. “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.”
GenOn shareholders will receive 0.1216 shares of NRG stock for each GenOn share, the companies said. That equates to about $2.20 in value for each GenOn share, representing a 21 percent premium on the stock’s closing price Friday.
Independent generators such as NRG and GenOn sell electricity into deregulated wholesale markets. But such companies have faced lower electricity prices, which have crimped returns.
The merger would give NRG a vastly expanded collection of power generating facilities, specifically in the Northeast. That will let NRG build on its Texas model and expand its retail operations to other parts of the country where it will be able to sell electricity to consumers produced by the combined company, the announcement said. NRG already sells directly to consumers via its Reliant, Green Mountain Energy and Energy Plus operations.
The merged company will have concentrations of generating assets in western, eastern and Gulf Coast states, the companies said. The deal is expected to save NRG money by combining overlapping departments and improving operations, giving it an additional $300 million in free cash flow by 2014.
NRG has 12,585 megawatts of generation capacity in Texas, from coal, nuclear, gas and wind sources. GenOn owns 54 megawatts of generation capacity in Orange, Texas.
If the merger is approved, NRG will have two headquarters, an operational base in Houston and a financial and commercial center in Princeton.
The two companies currently have a total of about 8,000 employees. John Ragan, president of NRG’s Gulf Coast region, said in an email that job cuts are expected. “Those reductions will be across both companies in various facilities,” he said. NRG has about 1,400 employees in Houston. GenOn has about 450 in Houston.
Still, NRG expects to continue growing in Texas, where it has developed a network of its eVgo electric vehicle recharging stations it plans to expand. “NRG is increasing its investment in Texas,” Ragan said. “Between Reliant, NRG’s generating facilities, GenOn, eVgo and other subsidiaries, Houston is a very important part of both companies today and will continue to be an integral part of the combined company tomorrow.”
GenOn CEO and Chairman Edward Muller will become vice chairman of the merged company.
The deal is expected to close in the first quarter of 2013, pending approval by shareholders of both companies, the Federal Energy Regulatory Commission and utility commissions in Texas and New York. The combination is not expected to result in “any market power issues or the need to divest any assets,” according to an NRG statement.