LOS ANGELES Power company NRG Energy Inc (NRG.N) said on Friday it would pay $2.64 billion to acquire the assets of bankrupt unregulated power producer Edison Mission Energy, adding nearly 8,000 megawatts of coal, gas and wind generation to its business.
NRG's stock closed up 4.8 percent at $29.30 following the announcement. It reached $30.17 earlier in the session, its highest level since 2008.
The purchase price includes 12.7 million shares of NRG common stock, valued at $350 million, with the rest to be paid in cash. Princeton, New Jersey-based NRG will also assume $1.55 billion of EME's non-recourse debt.
EME's assets include four coal-fired plants in Illinois, about 10 gas-fired plants in California and more than 30 wind projects in 11 states. It also has a trading and asset management platform.
The assets are located outside NRG's core territories of Texas and the Eastern United States, said Morningstar analyst Travis Miller, adding that coal-fired plants in the Midwest, which make up more than half of the generation capacity NRG will be acquiring, are challenged due to the region's low power prices and competition from cheap natural gas.
"These aren't great assets, but they didn't pay much for them," Miller said.
But the deal will nearly quadruple NRG's wind generation capacity, the company said, making it the nation's third largest U.S.-based producer of renewable energy. Most of the wind capacity and a 500 MW gas-fired plant could be "dropped down" to NRG's NRG Yield Inc (NYLD.N) subsidiary, which was formed to operate and acquire power assets under long-term contracts. NRG Yield debuted on the public markets this year.
"Edison Mission Energy is a great fit with NRG, as virtually 100 percent of their assets, their particular expertises and the balance of their technologies deployed complement NRG`s own assets, personnel and businesses," NRG Chief Executive David Crane said in a statement.
NRG expects to close the deal, which is subject to approval by the U.S. Bankruptcy Court for the Northern District of Illinois, in the first quarter of 2014.
EME, a unit of Edison International (EIX.N) based in Santa Ana, California, filed for Chapter 11 bankruptcy protection in December, citing heavy debts, weak power prices and high fuel costs.
The company is one of many in the energy space to suffer as a result of the 2007-2009 recession, which cut power demand, and the glut of cheaper natural gas, which caused wholesale power prices to fall.
Dynegy (DYN.N) went bankrupt in July 2012, emerging from Chapter 11 later that year after handing almost all of its equity to unsecured creditors. Patriot Coal PCXCQ.PK declared bankruptcy in 2012 under the weight of pension obligations its shrinking workforce could no longer support. And Texas power giant Energy Future Holdings is in negotiations with creditors to try to restructure $40 billion in debt, and may declare bankruptcy by the end of the month.