Reliant Resources Inc. of Houston completed its $4.8 billion purchase yesterday of Baltimore's Orion Power Holdings Inc. to create the second-largest independent power producer in the nation.
Orion's top five leaders - including founders Chief Executive Officer Jack Fusco, Chief Legal Officer W. Thaddeus Miller and Chief Financial Officer Scott B. Helm - stepped down at 2 p.m., as expected, when the transaction received its final approval - a certificate of merger from the Delaware secretary of state.
The closing of the deal also means that Baltimore will lose the headquarters of a company listed on the New York Stock Exchange.
Reliant Resources will close Orion's Redwood Street office and move about one-third of the 70 workers to Houston and Pennsylvania. The rest will be let go after a transition period.
"This is a very good fit for us," said Curt Morgan, president of parent company Reliant Energy Inc.'s wholesale group in the East.
"The Orion team didn't have a trading and marketing operation, but we were able to bring our marketing and risk skills to the transaction. We now will have over 10,000 megawatts in operation and another 2,000 to 3,000 in construction in the Northeast. That's a very significant presence.
"Orion was a company that we had targeted for merger prior to signing an agreement with them," Morgan said.
As stated in its September announcement to merge, Reliant Resources will pay $26.80 a share for Orion, which was a 40 percent premium over its stock price at the time. Reliant Resources will pay $2.9 billion in cash and assume $1.8 billion in debt as part of the deal.
"It's a very high-quality transaction," said Tom Burnett, president of Merger Insight, a research service for institutional investors. "It makes sense. They're buying Orion at a price that will allow them to do well."
The acquisition also allows Reliant Resources entry into the attractive Midwest and New York energy markets through 81 power plants that Orion owned in Pennsylvania, Ohio, West Virginia and New York.
Orion was started in March 1998 as a joint venture between Goldman Sachs & Co. and the Baltimore Gas and Electric Co., which is now a subsidiary of Constellation Energy Group Inc. Two Japanese companies later invested $200 million in the company.
But marked changes in the industry last year, including the California power crisis and the collapse of Enron Corp., helped lower energy prices and produce a glut of power as more plants were rushed into construction.
As a result, many aggressive power producers had to rethink their growth strategy. Many companies, including Constellation, abandoned plans to split while smaller companies like Orion realized that bigger was better.
"I love this company," said Fusco on the day the merger was announced. "It was the right decision, but not an easy decision for me. But I am pleased that a company as excellent as Reliant Resources was interested in merging with us. ...
"When it became evident that we would need a stronger balance sheet to grow the business as aggressively as we wanted, that's when this merger started to make more sense strategically."
Shares of Reliant Resources gained 9 cents to close at $11.18. Orion shares gained 7 cents to close at $26.77. Both were traded on the New York Stock Exchange.