Energy company Mirant Corp. is buying RRI Energy (formerly Reliant). The merger, which combines two major natural gas, oil, and coal electricity companies, will create one of the biggest power producers in the US. Reuters reports:
Consolidation of the companies that sell power into the wholesale electricity markets but do not own regulated power utilities has been anticipated for years, since few of the players lack the ability to significantly increase their profits.
Weak power margins and the sluggish U.S. economy have hurt the companies over the past 18 months, and analysts at Macquarie Equities Research said the move was a “survival strategy.”
“Given that both companies have strong balance sheets, the upside should be derived entirely from cost savings,” the analysts wrote in a note to investors. The companies have estimated the cost savings of the link-up would reach $150 million.
The companies said on Sunday they will combine to create GenOn Energy, a new company with value of around $3 billion. After the all-stock, tax-free transaction, Mirant shareholders will own about 54 percent of GenOn’s equity, while RRI’s shareholders will own about 46 percent.
“GenOn Energy will have a pro-forma market capitalization of $3.1 billion and 24,700 megawatts of generating capability,” according to MarketWatch. The recession forced down power prices and profit margins, but electricity demand is expected to pick up this year, writes BusinessWeek. The merger comes at a good time.