NRG Energy (NRG) said it has entered into a definitive agreement to acquire Centrica PLC’s (CNA) North American subsidiary Direct Energy for $3.63 billion in an all-cash transaction.
Upon closure, the transaction is expected to generate about $740 million in annual run-rate adjusted EBITDA, while enhancing free cash flow strength and stability and providing earnings diversification. NRG Energy shares rose 2.9% to $34.19, while Centrica jumped 19% to $2.36 at the close of U.S. trading on Friday.
The deal will almost double the number of NRG’s retail customers by adding more than 3 million consumers across 50 U.S. states and Canada. The energy provider expects the combined company to create $300 million in annual run-rate synergies by leveraging NRG’s scalable operational platform and best-in-class cost discipline.
“This combination improves NRG’s status as one of North America’s premier integrated power companies, bringing the power of energy to people and organizations through our diverse generation platform and leading retail brands,” said NRG CEO Mauricio Gutierrez. “The acquisition aligns with our broader strategy of perfecting our integrated business model and drives significant value creation for our customers and stakeholders.”
Houston-based Direct Energy is one of North America’s leading retail providers of electricity, natural gas, and home and business energy-related products and services, operating in 50 U.S. states and 6 Canadian provinces.
The closing for the transaction, which is still subject to regulatory approvals, is targeted for year-end of 2020.
Wall Street analysts have a cautiously optimistic outlook on NRG Energy’s stock. The Moderate Buy consensus shows 4 Buy ratings versus 1 Sell rating. With shares down 14% so far this year, the $46 average analyst price target indicates shares may advance 35% over the coming year. (See NRG Energy stock analysis on TipRanks)
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