NRG Energy Inc. (NRG:US), the largest independent U.S. electricity producer, agreed to buy most of the assets of Edison International (EIX:US)’s bankrupt Edison Mission Energy for $2.64 billion to expand its coal and wind holdings.
The purchase price consists of about 12.7 million NRG shares with the balance to be paid in cash on hand, Princeton, New Jersey-based NRG said today in a statement. It includes about $1.06 billion expected to be on hand at Edison Mission on closing, anticipated in the first quarter of 2014.
Edison Mission operates coal-burning plants with capacity of 4,300 megawatts, enough to power about 3.4 million average homes, based on Energy Department data. It also owns about 1,700 megawatts of wind-driven generation and runs combined heat-and-power plants at refineries owned by Chevron Corp. (CVX:US) Edison Mission filed for bankruptcy in December due to a collapse in power prices and rising pollution control costs.
“Virtually 100 percent of their assets, their particular expertises and the balance of their technologies deployed complement NRG’s own assets,” NRG Chief Executive Officer David Crane said in the statement.
NRG is picking up Midwestern coal plants that can be added to its existing fleet in other U.S. regions and could provide additional revenue if gas prices rebound, said Travis Miller, an analyst for Morningstar Inc. (MORN:US) “We think that NRG can integrate these units and they didn’t pay very much from them,” Miller said in a telephone interview.
NRG will pay about $180 a kilowatt for Edison Mission’s coal and gas units, Miller said. Dynegy Inc. (DYN:US)’s deal in March to take over five coal-fired power plants with 4,119 megawatts in Illinois had an implied value of $189 a kilowatt, according to Morningstar.
Edison Mission’s wind farms with long-term contracts are a “good fit” for NRG’s NRG Yield Inc. (NYLD:US) subsidiary, Miller said.
NRG may sell 1,600 megawatts included in its deal to NRG Yield, including 1,100 megawatts of wind power, according to NRG’s statement.
NRG rose 4.8 percent to $29.30 at the close in New York, bringing the increase in the year to date to 27.5 percent. NRG Yield rose 7.7 percent to $33.70, the most since its initial public offering in July.
NRG will assume about $1.27 billion of Edison Mission non-recourse debt, Karen Cleeve, a spokeswoman, said by phone.
Edison Mission Energy plans to ask a bankruptcy judge in Chicago to approve the deal. A hearing is set to occur “on or before” Oct. 25, the statement showed.
The transaction will also need approvals from the Federal Energy Regulatory Commission, the Federal Trade Commission, the U.S. Department of Justice and the Public Utility Commission of Texas, NRG said.
Baker Botts LLP served as legal counsel to NRG. Deutsche Bank Securities Inc. and Barclays Plc’s investment-banking unit served as financial advisers to NRG. Kirkland & Ellis LLP served as legal counsel to Edison Mission and JPMorgan Chase & Co. and Perella Weinberg Partners, LP served as financial advisers.
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