This article is provided to FT.com readers by mergermarket—a news service focused on providing actionable, origination intelligence to M&A professionals. www.mergermarket.com
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NRG Energy is seeking a large-scale acquisition within the next 12 months and has Dynegy in its crosshairs, two industry sources close to the situation told mergermarket. NRG is a Princeton, New Jersey-based power generation company.
NRG, with a market cap of USD 7.33bn, has adopted a new consolidation strategy in light of a failed takeover bid from Exelon. Exelon Corporation dropped its USD 14bn hostile bid for NRG, which it had launched in November, after NRG’s shareholders voted against adding Exelon nominees to its board on 21 July.
Repeated calls to NRG were not returned and a spokesperson at Dynegy declined to comment on speculation.
The first source said NRG has been a takeover target for a long time and, since it now seeks to be a consolidator, it has to make a move to bolster its size. An industry banker said NRG probably both wants and needs to become a larger entity with the termination of Exelon’s takeover bid.
Dynegy is high on NRG’s list and when the time is right it will make a move, which should occur within the year, the second source said. NRG will likely make a move once Dynegy becomes a smaller, leaner company by shedding assets and paying down debt, he added.
CEO David Crane of NRG told company employees after the Exelon deal was dropped that it would look at potential acquisitions, said a third source familiar with the company. However, he had not heard about a pending deal with Dynegy, although he acknowledged that it is not out of the realm of possibility. He cautioned that, because NRG already has a generation fleet that is 70% coal and Dynegy is mainly coal, a deal may present too much concentration ahead of potential carbon emissions regulation.
In addition to Dynegy, the banker said NRG would probably consider acquiring Mirant and Calpine. It could also consider looking at private companies such as MACH Gen, US Power Gen, and KGen. Additionally, it could look at buying solar and wind projects to diversify its generation portfolio, he said. It could “scoop up” sizable projects that are either just starting to be developed or one where the owners are looking to sell and reinvest in other projects, he added.
The third source agreed NRG could potentially go after Calpine, but a deal would likely have to be friendly or a distressed sale rather than a hostile bid. It could also possibly go after Mirant, but Mirant might be more likely to be sold to a larger player, he added.
NRG may be more likely to make a smaller buy along the lines of its acquisition of Reliant Energy’s Texas Retail Business for USD 287.5m in March, said the third source. It is also still trying to integrate the large acquisition of Texas Genco from 2005, he added.
The third source felt that instead of being a buyer, the management is running the company to sell and that it’s too small to be a consolidator, five times as small in market cap than Exelon.
NRG’s portfolio has a total capacity of 24,005MW, with most of its projects primarily located in North America, in Texas, the Northeast, South Central and Western areas of the US. Dynegy’s power generation portfolio consists of more than 13,000MW of capacity in 12 states in its primary US regions of the Midwest, the Northeast and the West Coast.
NRG used financial advisors Deutsche Bank, Credit Suisse and Citigroup in the acquisition from Reliant, and law firms Kirkland & Ellis and Dewey & LeBoeuf.
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