NRG Energy in talks to purchase Texas Genco

Power-plant operator NRG Energy Inc. is in advanced discussions to purchase Texas Genco Holdings Inc., in a deal expected to be valued at $5 billion or more, the Wall Street Journal said on Wednesday.

Citing people familiar with the matter, the newspaper said NRG would use a  majority of cash, with some stock, to buy Genco, which is owned by funds managed by four private equity investment firms. NRG would also assume more than $2 billion of Genco debt.

Negotiations are continuing and could fall apart, the Journal said. As recently as last week Genco was expected to file for an initial public offering of shares, a path it could still pursue. Other bidders for Genco also could emerge.

The potential deal shows some of the lavish returns that private-equity firms are delivering to their investors, the newspaper said.

A little more than a year ago Texas Pacific Group, Kohlberg Kravis Roberts & Co., Blackstone Group and Hellman & Friedman purchased Texas Genco, a group of Texas-area power plants, for $3.7 billion, using $900 million of their own cash and the rest in debt.

NRG spokesman Jay Mandel said it was the company’s policy not to comment on rumors. Representatives of the private-equity firms either declined to comment or did not return calls seeking comment, the Journal said.

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Should an NRG deal come together the private-equity firms stand to make more than five times their original investment in a little more than a year, it said.

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Industry watchers have expected NRG to make a purchase, now that it is flush with cash and out from under bankruptcy-court protection, which it left in December 2003 after extinguishing $6 billion of debt.

The Genco acquisition would double NRG’s asset base, making it one of the larger U.S. generators that is able to charge market prices for all its electricity. It also gives it a presence in Texas, which it had lacked, with most of its assets concentrated in the Northeast, mid-Atlantic, California and the Gulf region.