NRG Energy is in advanced talks to buy Texas Genco Holdings Inc. in a transaction that is expected to be valued at $5 billion or more, the Wall Street Journal reported on Wednesday. Shares of NRG rose 3.66% on the news, finishing Wednesday's trading session up $1.52 to $43.05.
The newspaper said that the possible deal "shows some of the lavish returns that private-equity firms are delivering to their investors." CenterPoint Energy Inc. in April of this year completed the $3.65 billion sale of Texas Genco Holdings to a group of financial heavy hitters, including Kohlberg Kravis Roberts & Co.
Should an NRG deal "come together, the private-equity firms stand to make more than five times their original investment in a little more than a year," the Journal reported.
"Under the terms being discussed, NRG would use a majority of cash, with some stock, to buy Genco," the newspaper reported. "NRG would also assume more than $2 billion of Genco debt. Negotiations are continuing and could fall apart, people familiar with the talks warn."
The article notes that as "recently as last week, Genco was expected to file for an initial public offering, a path it could still pursue. Other bidders for Genco also could emerge."
According to the Journal, power industry observers "have expected NRG to make a purchase, now that it is flush with cash and out from under bankruptcy-court protection, which it exited from in December 2003 after extinguishing $6 billion in debt."
NRG was tied to merger talks with bankrupt Mirant Corp. earlier in 2005, the paper reported. "Industry watchers expect consolidation in coming years as smaller generators team up to give their generating portfolios diversity in terms of power markets," the Journal story said.
The Genco acquisition "would double NRG's asset base, making it one of the nation's larger generators that is able to charge market prices for all its electricity. It also gives it a presence in Texas, which it had lacked, with most of its assets concentrated in the Northeast, mid-Atlantic, California and the Gulf region."
If the deal comes to fruition, it would also mark the latest in a series of mega-mergers in the energy sector announced since the end of 2004, starting with Exelon and Public Service Enterprise Group's proposed merger unveiled in December of that year, followed in 2005 by the proposed combination of Duke Energy and Cinergy and, separately, MidAmerican Energy Holdings Co.'s planned acquisition of PacifiCorp.
David Crane, CEO of NRG Energy, was scheduled to appear before a Deutsche Bank Global High Yield Conference in Arizona last Wednesday, but the presentation was cancelled, without further explanation.
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