NRG and GenOn to Merge, Creating Largest U.S. Power Generation Company

NRG Energy Inc. and GenOn Energy Inc. announced they have signed a definitive agreement to combine the two companies in a stock-for-stock tax-free transaction, creating the largest competitive generator in the United States with a diverse fleet of approximately 47,000 MW with asset concentrations in the East, Gulf Coast and West and a combined enterprise value of $18 billion.

“This combination ushers in a new era of scale, scope, and market and fuel diversification in the competitive power industry,” said NRG President and CEO David Crane, who will continue his present positions with the combined company. “The greater depth and breadth gained through the combination with GenOn will put NRG in a uniquely strong position to fulfill the needs of American energy consumers in the 21st century.”

The transaction will enhance annual combined company EBITDA by $200 million by 2014 by realizing cost and operational efficiency synergies. In addition, the transaction will enable the combined company to reduce its interest and liquidity costs, and realize other balance sheet efficiencies, in aggregate, of $100 million per year. As a result, total recurring FCF benefits generated by this transaction will be approximately $300 million per year.

“This combination will deliver immediate value to the shareholders of both companies who will benefit from the combined company’s merger synergies, balance sheet efficiencies, increased scale and additional geographic diversity,” said GenOn Chairman and CEO, Edward R. Muller, who will join the NRG Board of Directors as Vice Chairman. “NRG and GenOn are a great fit geographically and operationally and we look forward to working together to capture efficiencies from the scale associated with the transaction to deliver enhanced value to our investors.”

Strategic & Financial Benefits

— Diversification and scale: The combined company, which will retain the name NRG Energy, will become the largest competitive power generation company in America with approximately 47,000 MW of fossil fuel, nuclear, solar and wind capacity across the merit order, situated almost entirely in the three premier competitive energy markets in the U.S. The combined fleet generates more than 104 terawatt-hours (TWh) of electricity annually.

— Expected Synergies: Transaction benefits will result in at least $200 million per year in incremental EBITDA and, combined with $100 million of balance sheet efficiencies, will result in at least $300 million of additional FCF by 2014, the first full year of combined operations. The $200 million per year breaks down into $175 million per year in cost synergies, principally resulting from reduced G&A expenses, and $25 million per year of operational efficiency synergies under NRG’s FORNRG program. In addition, as a result of interest savings and reduced liquidity and collateral requirements, the combined company will realize an additional $100 million in reduced interest expense and collateral benefits. The transaction costs and total cash “cost to achieve” the synergies and other cash flow benefits will primarily be incurred during 2013 and are estimated at approximately $200 million.

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— Immediately and substantially accretive: The transaction will be immediately accretive on an EBITDA basis and substantially accretive in 2014, the first full year of operation, to both EBITDA and FCF before growth investments.

— Enables expanded wholesale-retail model: An expanded core generation fleet will enable the combined company to duplicate in multiple core markets (principally in the East) NRG’s successful integrated wholesale-retail business model in ERCOT–the best business model across the price cycle, in an industry that is subject to commodity price volatility.

— Dividend: This transaction will reinforce the ability to pay the 9 cents per share quarterly dividend (36 cents per share on an annual basis) previously announced by NRG for the benefit of both companies’ shareholders.

— Balance sheet and credit metric enhancing: Balance sheets efficiencies will permit the combined company to reduce indebtedness by at least $1 billion and enhancements to corporate EBITDA and funds from operations (FFO) significantly improve key credit metrics, including:

        
                                                 2014 NRG Standalone(1)  2014 NRG Pro Forma (1)
                                                 ----------------------  ----------------------
                Corporate Debt/Corporate EBITDA  4.6x                    4.1x
                -------------------------------  ----------------------  ----------------------
                Corporate FFO/Corporate Debt     13.9%                   16.4%
                -------------------------------  ----------------------  ----------------------
                (1)  NRG metrics are based on midpoint of guidance and pro forma
                     metrics reflects impact of transaction benefits.

— Cleaner energy: The combined company will continue the work of NRG and GenOn in reducing emissions from their existing conventional fleets. NRG and GenOn combined have invested over $3 billion since 2000 to reduce emissions. This investment has helped NRG reduce SO2 emissions by 56 percent and NOx emissions by 64 percent below 2000 levels and GenOn reduce SO2 emissions by 90 percent and NOx emissions by 78 percent below 1990 levels. In addition, the combined company will continue to grow NRG’s industry-leading portfolio of solar generating facilities, its eVgo electric vehicle charging network and its other clean energy products and services. In addition, all previously announced plant retirements and deactivations will be completed on schedule.

Financial Terms

GenOn shareholders will receive 0.1216 of a share of NRG common stock in exchange for each GenOn share of common stock. Based on NRG’s and GenOn’s closing share prices on July 20, the transaction represents a 20.6 percent premium to GenOn’s shareholders.

Following completion of the transaction, NRG shareholders will own 71 percent of the combined company and GenOn shareholders will own 29 percent.

Financial Summary

NRG is also announcing preliminary forward pro forma financial guidance for the combined company for 2013 and 2014. This includes:

        
                                            2013                   2014
                                            ---------------------  ---------------------
        Adjusted EBITDA                     $2,535-$2,735 million  $2,630-$2,830 million
        ----------------------------------  ---------------------  ---------------------
        Free Cash Flow *before investments  $825-$1,025 million    $845-$1,045 million
        ----------------------------------  ---------------------  ---------------------

The above pro forma financial guidance includes updated guidance for GenOn as follows:

— 2013 adjusted EBITDA guidance raised from $669 million to $687 million

— 2014 adjusted EBITDA guidance provided of $730 million

Additionally, GenOn announced today that it is raising its full year guidance for 2012 adjusted EBITDA from $446 to $467 million.

Board Structure, Management and Headquarters

After closing, the Board of Directors will have 16 members with 12 members from the NRG Board and four joining from the GenOn Board. Howard Cosgrove will remain Chairman of the NRG Board and GenOn Chairman and CEO Edward R. Muller will join the NRG Board as Vice Chairman.

In addition to David Crane continuing to serve as Director, President and CEO, Kirk Andrews will remain as Chief Financial Officer and Mauricio Gutierrez will serve as Chief Operating Officer of the combined company. Anne Cleary of GenOn will become the Chief Integration Officer of NRG at closing.

John Ragan and Lee Davis, both currently of NRG, will act as Regional Presidents of the Gulf Coast and East regions, respectively, and John Chillemi of GenOn will become Regional President of the West region, at which time Tom Doyle will focus his efforts as President of NRG Solar.

The combined company will be dual headquartered, with financial and commercial headquarters in Princeton and operational headquarters in Houston.

Update to NRG Results

NRG is also pre-announcing preliminary results for its second quarter 2012. For NRG alone, adjusted EBITDA will be approximately $530 million for the second quarter of 2012 and approximately $830 million in the first half of 2012. NRG also is reaffirming 2012 guidance of $1,825-$2,000 million of adjusted EBITDA and $800-$1,000 million of FCF before growth investment.

Approvals and Time to Close

NRG and GenOn expect to close the merger by the first quarter of 2013. The transaction is subject to customary closing conditions and regulatory approvals, including approval by shareholders of both companies, the Federal Energy Regulatory Commission (FERC), the New York Public Service Commission and the Public Utility Commission of Texas. The companies will also submit notice of the merger to the California Public Utilities Commission and the U.S. Nuclear Regulatory Commission as well as pre-merger notification to the U.S. Department of Justice and the Federal Trade Commission under the Hart-Scott-Rodino Act. Due to the complementary nature of the two generation portfolios, the merger is not expected to result in any market power issues.

NRG’s financial advisors were Credit Suisse and Morgan Stanley and J.P. Morgan acted as GenOn’s financial advisor.

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