The total value of the deal, including Vivint’s debt, is $5.2 billion. What’s more, the price is a 33% premium to Vivint’s closing price on Dec. 5. While the news is sending VVNT stock up today, NRG stock is dropping more than 10% lower in early trading.
Vivint is a “smart home” company that installs and maintains home security cameras systems. It competes with companies like ADT (NYSE:ADT), which is up about 13% year-to-date (YTD).
VVNT Stock and the NRG Evolution
Based in Utah, Vivint came public in January 2020 via a special purpose acquisition company (SPAC) deal that valued it at $4.2 billion. The company is not related to Vivint Solar, which was spun out in 2014 and eventually sold to Sunrun (NASDAQ:RUN) in 2020.
Based in Texas, NRG calls itself an “integrated power company” and has 5.5 million customers. At one time, it was known as a green power advocate. While it still has solar assets, it also sells power from coal, natural gas and nuclear plants.
NRG stock had been up on the year until it reported its most recent quarter in November, which saw net income of $67 million on revenue of $8.5 billion. That saw shares lose a chunk of value, but the Vivint deal will cost shareholders more.
NRG CEO Mauricio Gutierrez said NRG telegraphed the possibility of this kind of transaction at last year’s investor day. The deal pushes the company further into home services and away from its roots as an electric utility.
What Happens Next?
Gutierrez says NRG will pay for Vivint with “excess free cash flow” in 2023, but investors seem leery. NRG had just $379 million in cash on its books at the end of September. Its free cash flow was -$1.5 billion at the end of September as well, per The Wall Street Journal. The numbers are down due to problems at its W.A. Parish facility that won’t be fixed until the second quarter of 2023.
NRG has taken a bigger risk than it realizes with Vivint and VVNT stock. The deal makes it tougher to value as a utility at a time when its utility operations are taking a hit.
On the date of publication, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.