NRG and GenOn announce merger

Under the terms of the agreement, GenOn shareholders are expected to receive 0.1216 of a share of NRG common stock in exchange for each GenOn share of common stock. "Based on NRG’s and GenOn’s closing share prices on July 20, the transaction represents a 20.6 percent premium to GenOn’s shareholders," said NRG in a statement released. When the transaction is complete, NRG shareholders will own 71 percent of the combined company, while GenOn shareholders will own 29 percent.

Following the merger, NRG said the largest competitive generator in the U.S. will be created, with a combined fossil fuel, nuclear, solar and wind capacity of 47 GW across the east, Gulf Coast and west regions. It added that the combined companies, which will retain the name NRG Energy, currently generate over 104 terawatt?hours (TWh) of electricity annually.

According to the statement, the merger will boost combined EBITDA by $200 million by 2014 – expected to be the first full year of combined operations. It added that around $100 million will be saved annually, due to the reduction of interest and liquidity costs, and "other balance sheet efficiencies". Overall, it said, the generation of recurring free cash flow (FCF) benefits are expected to be around $300 million annually. Meanwhile, the total enterprise value is said to total US$18 billion.

In 2013, it is projected that the combined company will generated an adjusted EBITDA of between $2.53 billion to $2.73 billion and FCF before investments of between $825 million to $1.02 billion. In 2014, adjusted EBITDA is predicted to be in the range of $2.63 billion and $2.83 billion, while FCF before investments will be between $845 million and $1.05 billion.

The statement added that the merger will "enable the combined company to duplicate in multiple core markets (principally in the East) NRG’s successful integrated wholesale retail business model in ERCOT—the best business model across the price cycle, in an industry that is subject to commodity price volatility." It will have two headquarters: the financial and commercial operations will be centered in Princeton; and the operational headquarters will be located in Houston.

"This combination will deliver immediate value to the shareholders of both companies who will benefit from the combined company’s merger synergies, balance sheet efficiencies, increased scale and additional geographic diversity," stated GenOn chairman and CEO, Edward R. Muller. David Crane, NRG President and CEO, added, "This combination ushers in a new era of scale, scope, and market and fuel diversification in the competitive power industry."

While Muller will join the NRG Board of Directors as vice chairman, Crane will continue on with his present positions in the newly combined company.

In related news, NRG has pre-announced its preliminary results for the second quarter of 2012. It said that adjusted EBITDA will be around $530 million for the quarter, and around $830 million in the first half of the year. Meanwhile, it NRG has reaffirmed its 2012 guidance of $1.82 billion to $2 billion of adjusted EBITDA and $800 million to $1 billion of FCF before growth investment.

GenOn meanwhile said it has raised its full year 2012 adjusted EBITDA guidance from $446 million to $467 million.