NRG Energy Inc. agreed Sunday to buy privately held power generator Texas Genco LLC for $5.8 billion, in a deal that furthers consolidation in the electricity generation industry.
NRG will pay $4 billion in cash and $1.8 billion in common and preferred stock, and will also assume $2.5 billion in Texas Genco debt. The deal comes four months after Duke Energy Corp. agreed to acquire rival Cinergy Corp. in a stock deal worth nearly $9 billion.
In a statement, the two companies said the combination will create a premier wholesale power generation company with broad geographic reach.
Once the deal is completed, the combined company will have a domestic generating capacity of almost 24,000 megawatts.
“Texas Genco is an ideal strategic fit with NRG,” David Crane, NRG’s President and CEO said in a statement. “The strengths of its people and its assets align closely with our own, bolstering NRG’s platform for growth and our ability to drive value for our shareholders.”
West Windsor, N.J.-based NRG owns and operates power-generating facilities in the Northeast, South Central and West Coast regions of the United States. The company also has ownership interests in power generating facilities in Australia, Germany and Brazil.
Altogether the company has about 15,000 megawatts of power-producing capacity, about 2,000 megawatts internationally and the majority in the United States.
NRG, founded as a unit of Xcel Energy Inc. in 1989, built or acquired more than 50 power plants in the United States, Europe, Asia and South America. But the company, which had borrowed heavily to make the acquisitions, couldn’t pay its debt when the energy prices collapsed in 2001.
The company filed for bankruptcy protection, enabling it to eliminate about $6 billion in debt and restructure. NRG emerged from Chapter 11 bankruptcy in December 2003. The company moved its corporate headquarters in January from Minneapolis to New Jersey.
NRG said in a statement that it expects the combined NRG and Texas Genco will increase NRG’S earnings and cash flow per share, giving the company greater financial strength and allowing it to pursue other growth opportunities.
Texas Genco, is the second-largest power generation company in the Electric Reliability Council of Texas, a power grid which includes most of the state, and is capable of producing roughly 11,000 megawatts of power.
Texas Genco used to be a majority-owned subsidiary of CenterPoint Energy, which provides electrical service to the Houston area. Nineteen percent of the company was traded publicly when CenterPoint owned it.
A private equity consortium of The Blackstone Group, Hellman & Friedman LLC, Kohlberg Kravis Roberts & Co. LP and Texas Pacific Group owns Texas Genco. Texas deregulated its energy market in 2002.
Texas Genco owns fully or in part 10 power plants. It has a 44 percent stake in the South Texas Project nuclear plant, which provides power to more than 1 million homes in South Texas. Most of the companies power plants are located in and around Houston and in southeast Texas.
Joe Householder, a company spokesman, said Texas Genco operations will continue as normal and that the company does not plan job cuts. He said the combined company is likely to be based in New Jersey.
The deal is expected to be completed during the first quarter of 2006, pending approval by the Nuclear Regulatory Commission, the Federal Energy Regulatory Commission, and if required the Public Utility Commission of Texas. It will also undergo antitrust review by the Department of Justice. Shareholder approval is not required.