Reliant Resources Nears Deal to Buy Orion
Reliant Resources Inc. is near an agreement to buy Orion Power Holdings Inc. for $2.9 billion in cash plus the assumption of debt, people familiar with the companies said.
An agreement between the two power-plant developers will be announced this morning if talks proceed as planned, the sources said. The transaction was first reported by Dow Jones News Service and the Wall Street Journal Online edition, which valued the purchase price at $26.80 a share.
Reliant Resources shares have fallen 8.8% and Orion has fallen 12% since Sept. 11 as investors shed power-sellers’ shares because of concerns that terrorist attacks on the U.S. would bring on a recession, reducing electricity demand.
“Power producers have been trading below market value,” said Neil Stein, an analyst with Credit Suisse First Boston.
Houston-based Reliant Resources will assume $1.8 billion of Orion’s debt and pay off $700 million with cash that Orion has on hand, the sources said. Goldman Sachs Group Inc., which helped form Orion and owns 37% of the venture, held an auction that attracted five bidders, one of the people familiar with the firms said.
Reliant Energy Inc., owner of Houston’s utility, sold 18% of Reliant Resources to the public in April, raising $1.56 billion. Shares of Reliant Resources have fallen 44% since the initial offering as declining power prices in California and other parts of the U.S. lowered expectations for its earnings.
Orion shares have fallen 4% since they were first sold to the public in November. Goldman formed Orion as a private partnership with Constellation Energy Group, owner of Baltimore Gas & Electric Co., in 1998.
Orion has interests in 81 North American power plants that can produce about 5,900 megawatts of power, or enough to light 5.9 million typical U.S. homes. It plans to add 5,000 megawatts.
Baltimore-based Orion reported net income of $21.3 million in the second quarter, more than triple the $5.5 million it reported for the period last year.
The firm provides about 25% of New York’s power, according to the company’s Web site. New York assets include the gas-fired Astoria generating station, the Gowanus Gas Turbines and oil-fired Narrows Gas Turbines.
The power plants, located in Queens and Brooklyn, supply the city with 2,030 megawatts.
In recent weeks, Reliant Resources has said it’s considering selling all or part of its business telecommunications and Internet unit and a Dutch company that generates about 20% of the power in the Netherlands. It plans to invest the proceeds in faster-growing businesses.
Reliant Resources also reported profit from operations of $142.6 million in the second quarter, 37% more than the year-earlier period.
Shares of Reliant Resources fell 37 cents to $16.68, Reliant Energy fell 79 cents to $26.85 and Orion rose 10 cents to $19.20, all on the New York Stock Exchange.
