By the OGJ Online Staff
HOUSTON, Sept. 27, 2001 — Reliant Resources Inc. Thursday said it will buy independent power producer Orion Power Holdings Inc. for $2.9 billion in cash, a 40% premium over Orion’s Wednesday’s closing price.
Houston’s Reliant Resources also confirmed previous 2002 earnings estimates of $2.05-$2.15/share, assuming completion of the Orion acquisition and planned disposition of the company’s generation assets in the Netherlands. Reliant also said it is not raising earnings estimates for 2002 due to changes in its outlook for electric prices in the West, even though it expects the Orion acquisition to immediately add to earnings.
Chief financial officer Steve Naeve said electricity prices in California have fallen back to December 2000 levels. He said the company is lowering its long-term growth objective to 15% from 20-25%.
In early trading, Reliant’s stock was down 10.67% to $14.90/share. Ratings agency Fitch said it placed Reliant Resources’s ‘BBB+’ implied senior unsecured debt rating on Rating Watch Negative, indicating the rating could be lowered or affirmed in the near term. Fitch said it expected near-term pressure on REI’s balance sheet and credit protection measures but noted management is committed to maintaining an investment grade credit.
Executive vice-president Joe Bob Perkins said the combined company will become the second largest independent power producer in the US. The companies said they expect the transaction to be completed in early 2002, after completion of shareholder and regulatory approvals.
Orion has invested $4 billion in 81 power plants currently in operation with a total capacity of 5,926 Mw and has an additional 5,000 Mw in construction and various stages of development. Orion’s generation capacity is mainly concentrated in New York, Ohio, and Pennsylvania. Its major investors include Goldman, Sachs & Co., Constellation Energy Group Inc., and Japan’s Tokyo Electric Power Co., and Mitsubishi Corp.
Reliant Resources CEO Steve Letbetter said Orion Power’s generation fleet utilizes a diverse fuel mix, provides a wide range of dispatch capabilities, and will expand Reliant’s geographic footprint into attractive power markets in New York and the ECAR power pools, complementing its existing presence in the PJM market.
The transaction is also consistent with “our focus on North America, which we believe continues to offer the most attractive growth opportunities in the gas and power markets,” Letbetter said. Funding for the transaction will be obtained through current cash balances, existing Reliant Resources credit facilities, and a new acquisition financing facility, Reliant said.