Coverage: NRG to sell assets, sending shares up 20 percent

NRG Energy Inc. said it would raise as much as $4 billion through asset sales and slash debt by $13 billion, sending its shares surging 21 percent to a near two-year high on Wednesday.

John Benny of Reuters had the news:

The largest independent U.S. power producer plans to significantly slash costs, as part of an agreement with activist investors Elliott Management and Bluescape Energy Partners to cut costs and reduce debt.

The three-year program intends to achieve “efficiencies primarily in corporate and lower head costs” CEO Mauricio Gutierrez said in a conference call on Wednesday.

In February NRG made a deal with Elliott and private equity firm Bluescape, agreeing to set up a five-member committee to look into cost-cutting, asset sales, capital allocation and broader strategic initiatives.

Elliott and Bluescape together have an 8.2 percent stake in the company, according to Thomson Reuters data.

NRG said it would sell 50-100 percent of its interest in its unit NRG Yield Inc and renewables platform.

Olivia Pulsinelli of the Houston Business Journal reported that the changes came after a board shakeup:

The announcement comes after NRG shook up its board of directors in February in response to activist investors and after the company entered into a restructuring support agreement to divest its ownership interest in its GenOn Energy Inc. subsidiary last month.

The transformation plan includes $1.065 billion in recurring cost and margin improvements, a target of $2.5 billion to $4 billion in net cash proceeds from asset sales and removing $13 billion in total debt from the balance sheet, according to a July 12 press release.

NRG’s business review committee, which was composed of five directors and supported by two independent advisers, created the transformation plan through a four-month comprehensive review process, NRG leadership said in the release.

The committee targeted divesting businesses that represent more than 60 percent of NRG’s EBITDA, committee chairman John Wilder said in the release.

“We targeted rapidly executing annual improvements with 72 percent of run rate annual benefits of $1.07 billion achieved in 2018, 92 percent in 2019, and 100 percent achieved in 2020,” Wilder continued.

Tom DiChristopher of CNBC.com reported the moves benefitted activist investor Paul Singer:

Singer, the hedge fund titan behind Elliott Management, revealed his stake in NRG in January, along with plans to push for strategic and operational changes aimed at increasing value for shareholders. He partnered with Bluescape Energy, an investment firm chaired by utility industry heavyweight Charles John Wilder Jr., to build a position big enough to lobby for change.

Elliott secured a spot for Wilder and former Texas Public Utility Commission chairman Barry T. Smitherman on NRG’s board in February, and the two were involved in a four-month review of the company’s business.

NRG Energy one-year performance

The result of the review is a plan to raise $2.5 to $4 billion by divesting 50 to 100 percent of its NRG Yield renewable energy business and some of its conventional energy assets, which includes coal and natural gas plants. NRG also aims to remove $13 billion in debt from its balance sheet and generate $855 million in annual free cash flow.

If the plan is 100 percent successful, it will generate $6.3 billion in cash through 2020, which NRG expects to spend on projects or investments.