NRG Energy Inc. (NRG - Analyst Report) inked an agreement with bankrupt unregulated utility company Edison Mission Energy (EME), a subsidiary of Edison International (EIX - Analyst Report) to acquire all of EME’s assets for a purchase price of $2.64 billion. The deal also includes purchasing Edison’s equity interest in some of its subsidiaries. The transaction is expected to be concluded by the first quarter of 2014.
A part of the transaction amount will consist of roughly 12.7 million shares of NRG common stock which comes to a value of $350 million. NRG Energy plans to finance the transaction through a combination of cash on hand and newly issued corporate debt in an amount which permits adherence to the company’s balance sheet management commitments.
In addition, the company will take a non-recourse debt of approximately $1.5 billion, of which $273 million is related to assets designated as Non-Core Assets pursuant to the asset purchase agreement.
The EME buyout will add nearly 8,000 megawatt (MW) of capacity to NRG Energy’s generation portfolio. This comprises 1,700 MW of wind capacity, 1,600 MW of gas-fired capacity, 4,300 MW of coal-fired capacity and 400 MW of oil and waste coal-fired capacity. Edison’s marketing and trading business unit will be a part of NRG Energy’s asset basket.
The acquisition will add 2,600 MW of fully-contracted generation, of which 1,600 MW comprises long-term contracts. The contracted projects consist of 1,100 MW of wind capacity and 500 MW of gas-fired capacity from the Walnut Creek facility which attained commercial operation in the 2013 summer.
The deal will also diversify the core generation platform of NRG Energy by adding 1,200 MW of contracted gas assets in California and expand opportunities in Pennsylvania, New Jersey and Maryland (PJM) West for its coal-fired capacity. Furthermore, NRG Energy by virtue of the deal will become the third largest renewable operator in the U.S. with more than 2,900 MW of wind and solar capacities.
NRG Energy expects to utilize its enhanced operational capabilities achieved from the GenOn integration to establish cost synergies and benefit from increased economies of scale. Its customer footprint will also increase, amplifying the revenue stream.
NRG Energy has lately been engaged in a number of acquisition deals. Its recent buy of Energy Curtailment Specialists, Inc. will offer energy saving solutions to its clients.
A strong cash balance of $1.36 billion at the end of Jun 30, 2013 has allowed the company to effectively carry out these acquisitions. We believe NRG Energy’s strong liquidity profile will continue to aid its future diversification and acquisition goals which will be earnings accretive. Currently, NRG Energy carries a Zacks Rank #2 (Buy).
Other well-placed utility counterparts include Zacks Ranked #2 Ameren Corp. (AEE - Analyst Report) and Cleco Corp. .