Archive for April, 2010

Mirant, RRI Energy combining in $1.61B deal (AP)

Sunday, April 11th, 2010 | Finance News

ATLANTA – Energy providers Mirant Corp. and RRI Energy Inc. said Sunday they are combining in a $1.61 billion stock-swap deal, renaming the company and creating a utility powerhouse that will become one of the nation's largest independent power producers.

The combined company, which will have a market capitalization of about $3.1 billion, will be called GenOn Energy. It will bring together roughly 24,650 megawatts of electric generating capacity, operations from coast to coast and have total revenue of $4.13 billion, based on full-year 2009 figures.

GenOn will be led by Mirant Chairman and CEO Edward R. Muller until 2013, when he will retire and the top post will be taken by Mark M. Jacobs, RRI Energy's current president and CEO. Jacobs will serve as GenOn's president, chief operating officer and a director until that time.

There likely will be job cuts among the two companies' 3,600 employees, but how many has not been decided, Jacobs told The Associated Press. Muller, who has been Mirant CEO since 2005, said that once he retires he has no plans to head another major company.

Mirant stockholders will receive 2.835 RRI common shares for each Mirant share they own. Based on RRI's Friday closing price of $3.95, that values Mirant at $11.20 per share — a 4 percent premium. Based on Mirant's 143.9 million shares outstanding at March 8, the deal values Atlanta-based Mirant at $1.61 billion.

Mirant stockholders will own roughly 54 percent of the combined company, while shareholders of RRI Energy will own roughly 46 percent.

The two companies said they expect $150 million in annual cost savings starting in January 2012 from reductions in corporate overhead. The transaction, expected to close by the end of the year, is subject to regulatory and stockholder approvals and the refinancing of a portion of each company's existing debt.

GenOn will be based in Houston, where RRI Energy is headquartered, and the Mirant and RRI Energy corporate names will be phased out, according to the companies. The GenOn board will include 10 members — five from each of the two companies' existing boards. Mirant Chief Financial Officer J. William Holden III will serve as GenOn CFO.

As for the name change, that decision was made because the companies wanted to show their employees they were creating a "merger of equals" and starting anew rather than one company acquiring another, executives said.

The merger is the second big transaction in the power industry this year. In February, FirstEnergy agreed to buy Allegheny Energy in a $4.7 billion stock deal that will create a company made up of 10 utilities with $16 billion in annual revenue.

The deal would conclude a remarkable turnaround for Mirant. In 2003, the company filed what was at the time the 11th largest bankruptcy in US history. In January 2006, it emerged from Chapter 11 protection after having reduced its work force and shaved billions in debt from its balance sheet as part of its return to the public markets.

Mirant later made a play for rival NRG Energy Inc., but rescinded its $8 billion bid to acquire the company after NRG's board rebuffed the unsolicited offer.

"Since Mirant came out of bankruptcy, it has been focused on delivering value to its owners," Muller said in an interview. "We have tried various ways to do that, and some efforts didn't pan out. But we have through various cycles ... been a healthy company and done many things we set out to do, including divesting our assets outside the United States at a very good time in the market."

RRI Energy owns and leases a total of 14,581 MW of generation assets in Southern California, the Midwest, the Mid- Atlantic and the Southeast. Mirant owns and leases a total of 10,076 MW of generation assets in Northern California, the Mid-Atlantic and the Northeast. Both companies generate electricity using coal, natural gas and oil.

The combined cash balance of the companies as of Dec. 31 totaled $2.9 billion.

Mirant was advised by J.P. Morgan and Wachtell, Lipton, Rosen & Katz. Goldman, Sachs & Co. and Morgan Stanley acted as RRI Energy's financial advisers and Skadden, Arps, Slate, Meagher & Flom LLP acted as legal counsel.

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Hungary’s ruling Socialists suffer stinging defeat (AP)

Sunday, April 11th, 2010 | Finance News

BUDAPEST, Hungary – Hungary's center-right party reclaimed the right to govern on Sunday, winning over 50 percent of the vote and handing the ruling Socialists a humiliating defeat. Extreme rightists backed by black clad paramilitary troops took more than 15 percent to come in third.

While widely forecast, the strong gain of the extreme right Jobbik party represented the greatest political shake-up of the election, shattering Hungary's traditional post-communist status quo of a parliament dominated by the center right and the left.

Fidesz's landslide victory had been expected by pollsters and its result of 52.8 percent in the first round translated into 206 seats for now in the 386-seat legislature.

The governing Socialists, whom many Hungarians blame for their dismal economy, were far behind with 19.3 percent and 28 seats, followed closely by the far-right, anti-Gypsy Jobbik with 26 seats and 16.7 percent — over three times as much as any other far-right party since the country's return to democracy from communism in 1990.

The depth of the Socialist fall was reflected in a comparison of their present showing to that of the last election four years ago, when they garnered 43 percent support.

A green party, Politics Can Be Different, exceeded expectations with 7.4 percent and 5 seats ahead of a second round on April 25 when the fate of the remaining 111 seats is decided in runoffs for 57 constituencies where no candidate got at least half the votes.

"I can see that there is complete joy ... but at the same time I know deep in my heart that I stand before the biggest task of my life," Fidesz leader Viktor Orban, who was prime minister in 1998-2002, said as a huge crowd gathered outside the party's election headquarters at downtown Vorosmarty Square. "People voted for unity, order and security."

Jobbik, which burst onto the political scene last year with a nationalist platform blaming Gypsies and Jews for many of the country's problems, claimed that only a series of scandals about some of its candidates created by the media prevented it from overtaking the Socialists.

"Despite the strong headwinds, Jobbik has managed to double its voters over the past year," Jobbik president Gabor Vona said after preliminary results were announced by the National Election Office. "I still feel, however, that two-thirds of Hungarians are Jobbik supporters but don't know it yet."

To varying degrees, Jews and Gypsies have traditionally served as scapegoats in Eastern Europe for resident majorities during hard times. Jobbik has been able to inflate the traditional, relatively small base of extreme nationalist and anti-Semitic supporters with voters from Hungary's struggling country villages where the lack of jobs and poverty-related thievery has exacerbated tensions with Gypsies, or Roma, as they are also called.

Jobbik's rise also has been aided by the popularity of the Magyar Garda, or Hungarian Guard, an extremist group whose uniforms are reminiscent of those worn in the 1940s by the Arrow Cross, Hungary's infamous wartime Nazi party.

The Garda was co-founded by Vona, the Jobbik leader, although he is no longer an active member. It was disbanded last year by the courts for breaking laws governing the operation of groups and associations, but it continues to exist under a new name.

The Garda's most confrontational actions have been a series of marches through small countryside towns and villages meant to intimidate their large Gypsy populations and stop what Jobbik calls "Gypsy crimes" — mostly petty thefts too numerous and considered too minor for police to deal with.

An unprecedented series of Roma killings in 2008 and 2009 claimed six lives in several villages, reflecting the depth of hatred against the minority.

The Socialists owed their stunning defeat to loss of credibility amassed during eight years of government and deeply unpopular austerity measures imposed in the past months.

Despite the euphoria of Fidesz supporters, the party has a difficult task ahead. Hungary's economy is mired in a recession which saw the economy contract by 6.3 percent last year and unemployment rise to a new high of 11.4 percent.

Fidesz highlighted making current officials accountable for the increasing number of corruption, emphasized job creation, a much simpler tax system, lower taxes and tighter regulation of the financial system. Details, however, were scarce.

Hungary is under the close watch of the International Monetary Fund, the biggest contributor to a standby loan of 20 billion euros ($27 billion) pledged in late 2008 as fears spread about Hungary's possible default on its foreign debt.

Fidesz claims the "crisis management government" led by Gordon Bajnai during the past year has left skeletons piled up in the closet, an attempt to hedge its position about sticking to the tight 2010 state budget, which is planned to reach 3.8 percent of gross domestic product.

"The Fidesz government will try to do its best keep the budget as low as possible ... but 3.8 (percent) is ridiculous," said Fidesz spokesman Peter Szijjarto, while also acknowledging that a tight budget was "very important" for Hungary's image in the financial markets.

"The new government may well try to test the patience of the IMF and the markets," said a report from Goldman Sachs analyst Magdalena Polan. "However, we believe that it has limited scope for maneuver, as the currency is likely to respond to prolonged and rocky negotiations with the IMF ... and any attempts to implement more populist campaign promises."

Around 1.7 million Hungarian families are paying back mortgages and other loans taken out in foreign currencies — mostly in Swiss francs — and their payments rise when the forint weakens.

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Associated Press writer George Jahn contributed to this report from Vienna.

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Euro governments offer Greece euro30 billion backstop (AP)

Sunday, April 11th, 2010 | Finance News

BRUSSELS – Trying again to halt a debt crisis that has hammered the euro, fellow eurozone governments tossed struggling Greece a financial lifeline Sunday, saying they would make euro30 billion in loans available this year alone — if Athens asks for the money.

The International Monetary Fund stands ready to chip in another euro10 billion, said Olli Rehn, the EU monetary affairs chief.

The promise — filling in details of a March 25 pledge of joint eurozone-IMF help — was another attempt to calm markets that have been selling off Greek bonds in recent days.

Markets viewed the March pledge as too vague and carrying such tough restrictions that Greece could not easily get the money. As a result, investors demanded high rates to loan to the government as it struggles to avoid default — rates the government says it can't go on paying. Greece has some euro54 billion in debt coming due this year and a huge budget deficit.

In an emergency video conference, the finance ministers of the 16-eurozone nations agreed on a complex three-year financing formula that generates an interest rate of "around 5 percent."

This is less than commercial market rates — which have soared above 7 percent on Greek 10-year borrowing in recent weeks as the debt crisis dragged on — but more than beneficiaries of IMF usually pay. European Central Bank president Jean-Claude Trichet and German Chancellor Angela Merkel have insisted that Greece not get below-market interest rates amounting to an EU subsidy for its past bad behavior.

"This is certainly no subsidy" to Greece, Rehn told a news conference.

The test of Sunday's announcement will be whether it restores confidence that Greece will not default and gives it a chance to borrow normally at lower rates. Under last week's rates, Greece would have had to pay more than twice what Germany pays.

The danger is that interest payments themselves begin to sink the budget despite severe cutbacks imposed in recent days. A Greek default would be a serious blow to the euro, rattle markets and inflict losses on European banks that have bought Greek government bonds.

Greek Finance Minister George Papaconstantinou said Greece had not asked for the plan to be activated, and still hoped to borrow on markets rather than seeking a rescue.

"The Greek government has not asked for the activation of the mechanism, even though this is already immediately available," Papaconstantinou said in Athens. "The aim is, and we believe we will continue to borrow unhindered on the markets."

Officials, speaking privately, told The Associated Press they first want to see how markets react on Monday.

European Commission President Jose Manuel Barroso said the pledge of cash for Greece showed the 16 euro-zone nations will defend Europe's single currency and help a partner in trouble.

"It shows that the euro area is serious in doing what is necessary to secure financial stability," Barroso said in a statement.

"I am convinced that it will help Greece to continue vigorously correct public finances imbalances and to deliver the necessary structural reforms."

Rehn said the loan deal will be "the clarification that the markets are waiting for."

Those markets, however, have so far ignored repeated EU claims of support for Greece causing commercial lending rates for Athens to go to 7 percent and more in recent weeks.

At two summit meetings — one in February and one in March — the EU leaders made determined noises about their readiness to end the Greek debt crisis.

But the terms were tough, with Greece needing approval of all 15 other eurozone governments and only if it could not borrow any other way. German fears a bailout with soft loans will only rile German public opinion which already takes a dim view of Greece's financial housekeeping.

EU and IMF officials will meet Monday to work out details of IMF and EU lending for 2011 and 2012, especially on amounts and loan conditions. Officials estimated that over a three-year period Greece was being offered a total of euro80 billion in financial aid by the EU and the IMF.

Greece has been spending beyond its means for years, leaving it with a 2009 budget deficit of 12.9 percent of economic output. The revelation of its statistics fudging has slammed the euro and gutted market confidence, fueling higher borrowing costs.

Athens plans to cut its deficit to 8.7 percent this year and has launched a euro4.8 billion austerity program cutting public sector wages, freezing pensions and hiking taxes.

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Associated Press Writer Elena Becatoros in Athens contributed to this report

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