NRG Energy, Inc. (NYSE: NRG) and GenOn Energy, Inc. (NYSE: GEN)
today announced they have signed a definitive agreement to combine
the two companies in a stock-for-stock tax-free transaction,
creating the largest competitive generator in the United States
with a diverse fleet of approximately 47,000 megawatts (MW) with
asset concentrations in the East, Gulf Coast and West and a
combined enterprise value of $18 billion.
“This combination ushers in a new era of scale, scope, and
market and fuel diversification in the competitive power industry,”
said NRG President and CEO David Crane, who will continue his
present positions with the combined company. “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.”
The transaction will enhance annual combined company EBITDA by
$200 million by 2014 by realizing cost and operational efficiency
synergies. In addition, the transaction will enable the combined
company to reduce its interest and liquidity costs, and realize
other balance sheet efficiencies, in aggregate, of $100 million per
year. As a result, total recurring FCF benefits generated by this
transaction will be approximately $300 million per year.
“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,” said GenOn Chairman and
CEO, Edward R. Muller, who will join the NRG Board of Directors as
Vice Chairman. “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.”
Strategic & Financial Benefits
- Diversification and scale The
combined company, which will retain the name NRG Energy, will
become the largest competitive power generation company in America
with approximately 47,000 MW of fossil fuel, nuclear, solar and
wind capacity across the merit order, situated almost entirely in
the three premier competitive energy markets in the U.S. The
combined fleet generates more than 104 terawatt-hours (TWh) of
electricity annually.
- Expected Synergies Transaction
benefits will result in at least $200 million per year in
incremental EBITDA and, combined with $100 million of balance sheet
efficiencies, will result in at least $300 million of additional
FCF by 2014, the first full year of combined operations. The $200
million per year breaks down into $175 million per year in cost
synergies, principally resulting from reduced G&A expenses, and
$25 million per year of operational efficiency synergies under
NRG’s FORNRG program. In addition, as a result of interest savings
and reduced liquidity and collateral requirements, the combined
company will realize an additional $100 million in reduced interest
expense and collateral benefits. The transaction costs and total
cash “cost to achieve” the synergies and other cash flow benefits
will primarily be incurred during 2013 and are estimated at
approximately $200 million.
- Immediately and substantially
accretive The transaction will be immediately accretive on an
EBITDA basis and substantially accretive in 2014, the first full
year of operation, to both EBITDA and FCF before growth
investments.
- Enables expanded wholesale-retail
model An expanded core generation fleet 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.
- Dividend This transaction will
reinforce the ability to pay the 9 cents per share quarterly
dividend (36 cents per share on an annual basis) previously
announced by NRG for the benefit of both companies’
shareholders.
- Balance sheet and credit metric
enhancing Balance sheets efficiencies will permit the combined
company to reduce indebtedness by at least $1 billion and
enhancements to corporate EBITDA and funds from operations (FFO)
significantly improve key credit metrics, including:
2014 NRG Standalone(1)
2014 NRG Pro Forma (1) Corporate Debt/Corporate EBITDA
4.6x 4.1x Corporate FFO/Corporate Debt 13.9%
16.4%
(1)
NRG metrics are based on midpoint of
guidance and pro forma metrics reflects impact of transaction
benefits.
- Cleaner energy The combined
company will continue the work of NRG and GenOn in reducing
emissions from their existing conventional fleets. NRG and GenOn
combined have invested over $3 billion since 2000 to reduce
emissions. This investment has helped NRG reduce SO2 emissions by
56% and NOx emissions by 64% below 2000 levels and GenOn reduce SO2
emissions by 90% and NOx emissions by 78% below 1990 levels.In
addition, the combined company will continue to grow NRG’s
industry-leading portfolio of solar generating facilities, its eVgo
electric vehicle charging network and its other clean energy
products and services. In addition, all previously announced plant
retirements and deactivations will be completed on schedule.
Financial Terms
GenOn shareholders will 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% premium to GenOn’s shareholders.
Following completion of the transaction, NRG shareholders will
own 71% of the combined company and GenOn shareholders will own
29%.
Financial Summary
NRG is also announcing preliminary forward pro forma financial
guidance for the combined company for 2013 and 2014. This
includes:
2013 2014
Adjusted EBITDA $2,535-$2,735 million
$2,630-$2,830 million
Free Cash Flow *before investments $825-$1,025 million
$845-$1,045 million
The above pro forma financial guidance includes updated guidance
for GenOn as follows:
- 2013 adjusted EBITDA guidance raised
from $669 million to $687 million
- 2014 adjusted EBITDA guidance provided
of $730 million
Additionally, GenOn announced today that it is raising its full
year guidance for 2012 adjusted EBITDA from $446 to $467
million.
Board Structure, Management and Headquarters
After closing, the Board of Directors will have 16 members with
12 members from the NRG Board and four joining from the GenOn
Board. Howard Cosgrove will remain Chairman of the NRG Board and
GenOn Chairman and CEO Edward R. Muller will join the NRG Board as
Vice Chairman.
In addition to David Crane continuing to serve as Director,
President and CEO, Kirk Andrews will remain as Chief Financial
Officer and Mauricio Gutierrez will serve as Chief Operating
Officer of the combined company. Anne Cleary of GenOn will become
the Chief Integration Officer of NRG at closing.
John Ragan and Lee Davis, both currently of NRG, will act as
Regional Presidents of the Gulf Coast and East regions,
respectively, and John Chillemi of GenOn will become Regional
President of the West region, at which time Tom Doyle will focus
his efforts as President of NRG Solar.
The combined company will be dual headquartered, with financial
and commercial headquarters in Princeton and operational
headquarters in Houston.
Update to NRG Results
NRG is also pre-announcing preliminary results for its second
quarter 2012. For NRG alone, adjusted EBITDA will be approximately
$530 million for the second quarter of 2012 and approximately $830
million in the first half of 2012. NRG also is reaffirming 2012
guidance of $1,825-$2,000 million of adjusted EBITDA and
$800-$1,000 million of FCF before growth investment.
Approvals and Time to Close
NRG and GenOn expect to close the merger by the first quarter of
2013. The transaction is subject to customary closing conditions
and regulatory approvals, including approval by shareholders of
both companies, the Federal Energy Regulatory Commission (FERC),
the New York Public Service Commission and the Public Utility
Commission of Texas. The companies will also submit notice of the
merger to the California Public Utilities Commission and the U.S.
Nuclear Regulatory Commission as well as pre-merger notification to
the U.S. Department of Justice and the Federal Trade Commission
under the Hart-Scott-Rodino Act. Due to the complementary nature of
the two generation portfolios, the merger is not expected to result
in any market power issues.
NRG's financial advisors were Credit Suisse and Morgan Stanley
and J.P. Morgan acted as GenOn’s financial advisor.
Financial Community Presentation
A live webcast regarding this announcement will be held at
9:00am Eastern on Monday, July 23 and be hosted by David Crane, NRG
President and CEO and Edward R. Muller, GenOn Chairman and CEO.
Investors, media and others may access this event by logging on to
either NRG’s website at http://www.nrgenergy.com and clicking on
“Investors” or GenOn’s website, www.genon.com and clicking on
Investor Relations. The webcast will be archived on each site for
those unable to listen in real time.
Press Conference
A telephonic press conference regarding this announcement will
be held at 12:00pm ET/9am PT on Monday, July 23, and will be
co-hosted by David Crane, NRG President and CEO, and Edward R.
Muller, GenOn Chairman and CEO. Members of the media can access
this call by dialing 866.314.5232. The passcode is: 86974439.
About NRG
NRG is at the forefront of changing how people think about and
use energy. A Fortune 500 company, NRG is a pioneer in developing
cleaner and smarter energy choices for our customers: whether as
one of the largest solar power developers in the country, or by
building the first privately funded electric vehicle charging
infrastructure or by giving customers the latest smart energy
solutions to better manage their energy use. Our diverse power
generating facilities can support more than 20 million homes and
our retail electricity providers – Reliant, Green Mountain Energy
Company and Energy Plus – serve more than two million customers.
More information is available at www.nrgenergy.com.
About GenOn
GenOn is one of the largest competitive generators of wholesale
electricity in the United States. With power generation facilities
located in key regions of the country and a generation portfolio of
approximately 22,700 megawatts, GenOn is helping meet the nation’s
electricity needs. GenOn’s portfolio of power generation facilities
includes baseload, intermediate and peaking units using coal,
natural gas and oil to generate electricity. GenOn has experienced
leadership, dedicated team members, financial strength and a solid
commitment to safety, the environment, operational excellence and
the communities in which it operates. GenOn routinely posts all
important information on its web site at www.genon.com.
Forward Looking Statements
In addition to historical information, the information presented
in this communication includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Exchange Act. These statements involve
estimates, expectations, projections, goals, assumptions, known and
unknown risks and uncertainties and can typically be identified by
terminology such as “may,” “will,” “should,” “could,” “objective,”
“projection,” “forecast,” “goal,” “guidance,” “outlook,” “expect,”
“intend,” “seek,” “plan,” “think,” “anticipate,” “estimate,”
“predict,” “target,” “potential” or “continue” or the negative of
these terms or other comparable terminology. Such forward-looking
statements include, but are not limited to, statements about the
anticipated benefits of the proposed transaction between NRG and
GenOn, each party’s and the combined company’s future revenues,
income, indebtedness, capital structure, plans, expectations,
objectives, projected financial performance and/or business results
and other future events, each party’s views of economic and market
conditions, and the expected timing of the completion of the
proposed transaction.
Forward-looking statements are not a guarantee of future
performance and actual events or results may differ materially from
any forward-looking statement as result of various risks and
uncertainties, including, but not limited to, those relating to:
the ability to satisfy the conditions to the proposed transaction
between NRG and GenOn, the ability to successfully complete the
proposed transaction (including any financing arrangements in
connection therewith) in accordance with its terms and in
accordance with expected schedule, the ability to obtain
stockholder, antitrust, regulatory or other approvals for the
proposed transaction, or an inability to obtain them on the terms
proposed or on the anticipated schedule, diversion of management
attention on transaction-related issues, impact of the transaction
on relationships with customers, suppliers and employees, the
ability to finance the combined business post-closing and the terms
on which such financing may be available, the financial performance
of the combined company following completion of the proposed
transaction, the ability to successfully integrate the businesses
of NRG and GenOn, the ability to realize anticipated benefits of
the proposed transaction (including expected cost savings and other
synergies) or the risk that anticipated benefits may take longer to
realize than expected, legislative, regulatory and/or market
developments, the outcome of pending or threatened lawsuits,
regulatory or tax proceedings or investigations, the effects of
competition or regulatory intervention, financial and economic
market conditions, access to capital, the timing and extent of
changes in law and regulation (including environmental), commodity
prices, prevailing demand and market prices for electricity,
capacity, fuel and emissions allowances, weather conditions,
operational constraints or outages, fuel supply or transmission
issues, hedging ineffectiveness.
Additional information concerning other risk factors is
contained in NRG's and GenOn's most recently filed Annual Reports
on Form 10-K, subsequent Quarterly Reports on Form 10-Q, recent
Current Reports on Form 8-K, and other SEC filings.
Many of these risks, uncertainties and assumptions are beyond
NRG's or GenOn's ability to control or predict. Because of these
risks, uncertainties and assumptions, you should not place undue
reliance on these forward-looking statements. Furthermore,
forward-looking statements speak only as of the date they are made,
and neither NRG nor GenOn undertakes any obligation to update
publicly or revise any forward-looking statements to reflect events
or circumstances that may arise after the date of this
communication. All subsequent written and oral forward-looking
statements concerning NRG, GenOn, the proposed transaction, the
combined company or other matters and attributable to NRG or GenOn
or any person acting on their behalf are expressly qualified in
their entirety by the cautionary statements above.
Additional Information and Where To Find It
This communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval, nor shall there be any sale of securities in
any jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of any such jurisdiction. The proposed business
combination transaction between NRG and GenOn will be submitted to
the respective stockholders of NRG and GenOn for their
consideration. NRG will file with the Securities and Exchange
Commission (“SEC”) a registration statement on Form S-4 that will
include a joint proxy statement of NRG and GenOn that also
constitutes a prospectus of NRG. NRG and GenOn will mail the joint
proxy statement/prospectus to their respective stockholders. NRG
and GenOn also plan to file other documents with the SEC regarding
the proposed transaction. This communication is not a substitute
for any prospectus, proxy statement or any other document which NRG
or GenOn may file with the SEC in connection with the proposed
transaction. INVESTORS AND SECURITY HOLDERS OF GENON AND NRG ARE
URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND ANY OTHER
RELEVANT DOCUMENTS THAT WILL BE FILED WITH THE SEC CAREFULLY AND IN
THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN
IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and
stockholders will be able to obtain free copies of the joint proxy
statement/prospectus and other documents containing important
information about NRG and GenOn, once such documents are filed with
the SEC, through the website maintained by the SEC at www.sec.gov.
NRG and GenOn make available free of charge at www.nrgenergy.com
and www.genon.com, respectively (in the “Investor Relations”
section), copies of materials they file with, or furnish to, the
SEC.
Participants in The Merger Solicitation
NRG, GenOn, and certain of their respective directors and
executive officers may be deemed to be participants in the
solicitation of proxies from the stockholders of GenOn and NRG in
connection with the proposed transaction. Information about the
directors and executive officers of NRG is set forth in its proxy
statement for its 2012 annual meeting of stockholders, which was
filed with the SEC on March 12, 2012. Information about the
directors and executive officers of GenOn is set forth in its proxy
statement for its 2012 annual meeting of stockholders, which was
filed with the SEC on March 30, 2012. These documents can be
obtained free of charge from the sources indicated above. Other
information regarding the participants in the proxy solicitation
and a description of their direct and indirect interests, by
security holdings or otherwise, will be contained in the joint
proxy statement/prospectus and other relevant materials to be filed
with the SEC when they become available.
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