NRG Energy said Friday it will acquire competitive retailer Direct Energy from U.K.-based Centrica for $3.63 billion in an all-cash transaction.
Texas-based NRG expects the acquisition will result in $300 million in annual cost savings across the two companies “by leveraging our scalable operating platform,” CEO Mauricio Gutierrez said.
The deal will net NRG an additional 3 million retail customers throughout the U.S. and Canada on top of the 3.7 million the company already serves, concentrated mostly in Texas and the Northeast.
Direct Energy is the third-largest seller of electricity in Texas through its fixed-price electricity and gas plans. Centrica, which also owns British Gas, has been pummeled by the coronavirus pandemic’s oil price collapse and hopes the sale will reduce its mounting debts.
Speaking during NRG’s second-quarter earnings call Friday, Gutierrez called the Direct Energy acquisition “highly complementary.”
“This is a compelling transaction that will greatly expand our retail footprint across North America and further diversify our product offerings and earnings,” Gutierrez said. “This is the right transaction at the right time.”
He said the acquisition will be funded through a mix of debt, equity-linked securities and cash on hand. The move creates a more balanced NRG generation portfolio “particularly in the Northeast, where we can expand the capital-light renewable [power purchase agreement] strategy that we have deployed in ERCOT.”
The takeover will also help NRG continue to lower its dependence on coal and reach long-term emissions reductions targets, Gutierrez said.
NRG targets the end of 2020 for closing the deal, which requires approvals from the Federal Trade Commission, FERC and the Commissioner of Competition under the Canada Competition Act. Centrica will hold a shareholder vote on the acquisition next month.
Gutierrez said the transaction will provide NRG with “the strongest collection of competitive power brands.”
“Since I became CEO four-and-a-half years ago, we have transformed our business from a highly leveraged [independent power producer] to a more stable and predictable integrated power company,” Gutierrez said. “Today’s announcement is consistent with our plan to rebalance our portfolio, reorganize around the customer and continuously improve our business and cost structure while maintaining financial discipline.”
Since emerging from bankruptcy in 2003, the company has been on a buying spree, picking up 11 energy companies, including Texas Genco, Reliant Energy and Green Mountain Energy. Today, NRG generates about 23 GW of capacity from more than 30 power plants. Natural gas and coal dominate the portfolio at 41% and 34%, respectively. Renewables account for 2%.
Houston-based Direct Energy currently purchases electricity from natural gas, coal and nuclear plants.
Gutierrez said NRG leadership is confident in the acquisition despite the near-term impacts of the COVID-19 pandemic. He said NRG has a “proven model of integration” and predicted it would spend about $220 million to consolidate Direct Energy’s systems, processes and personnel with its own.
NRG stock traded higher at $35.50/share early Monday but ended the session at $33.74, down from the previous close of $34.79.
