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Reliant buys Orion Power
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September 27, 2001: 11:03 a.m. ET
Deal, valued at $2.9B, seen expanding utility's business in Northeast
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NEW YORK (CNNfn) - Reliant Resources Inc. said Thursday it agreed to acquire Orion Power Holdings Inc. for $2.9 billion cash, giving the combined energy provider a stronger foothold in the Northeast.
Separately, Reliant said it expects 2002 earnings per share between $2.05 and $2.15, assuming completion of the acquisition. That's in line with expectations prior to the deal.
Under terms of the deal, which will be immediately accretive to Reliant's earnings per share, Reliant will pay $26.80 a share cash and assume $1.8 billion in Orion debt, the companies said.
A $26.80 purchase price represents a 40 percent premium over Orion's (ORN: Research, Estimates) closing price of $19.20 Wednesday.
Under the deal, Baltimore-based Orion will be merged with Reliant's domestic wholesale group. Reliant, based in Houston, expects the deal to provide a diverse portfolio across North America and allow the company to target new regions with attractive market fundamentals and growth opportunities.
"This transaction positions the company for continued attractive growth in earnings," Reliant CEO Steve Letbetter said. "...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."
Reliant re-affirmed 2001 earnings expectations between $1.60 and $1.70 per share. Analysts on average projected Reliant would earn $1.66 per share this year, according to research firm First Call.
With the acquisition, Reliant further taps into the U.S. independent power production market, which analysts expect to grow at an annual rate of 30 percent over next five years.
Most analysts expected Orion's earnings per share to be around $1.15 for 2001, indicating a price multiple of 23.3 times being paid by Reliant, higher than the average multiple of 15.7 times at which other independent power producers (IPPs) are trading.
The IPP industry in the United States has been proliferating recently, mainly driven by deregulation across the country. Analysts estimate that at least 180,000 megawatts of generation capacity will be needed in the United States in next four years.
Deregulation has seen 16 percent of the country's generation capacity change hands already while the remaining 84 percent is expected to change ownership during the next 10 years.
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Reliant Resources owns the non-regulated assets of Reliant Energy and already operates 12,700 megawatts of generating capacity in the United States and the Netherlands.
Reliant's (RRI: Research, Estimates) shares finished 37 cents lower at $16.68 Wednesday. Reliant – spun off by Reliant Energy – went public in May, raising $1.56 billion. The initial public offering surged 10 percent on the first day of trade. 
From staff and wire reports
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