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Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: 7bit X-From: Schneider, Chip </O=ENRON/OU=NA/CN=RECIPIENTS/CN=CSCHNEID< X-To: Kitchen, Louise </O=ENRON/OU=NA/CN=RECIPIENTS/CN=Lkitchen<, Duran, W. David </O=ENRON/OU=NA/CN=RECIPIENTS/CN=Dduran<, Vetters, Charles </O=ENRON/OU=NA/CN=RECIPIENTS/CN=Cvetter<, Calger, Christopher F. </O=ENRON/OU=NA/CN=RECIPIENTS/CN=Ccalger< X-cc: X-bcc: X-Folder: \ExMerge - Kitchen, Louise\'Americas\East Power X-Origin: KITCHEN-L X-FileName: louise kitchen 2-7-02.pst -----Original Message----- From: Stein, Neil [mailto:neil.stein@csfb.com] Sent: Friday, September 28, 2001 7:02 AM To: undisclosed-recipients Subject: RRI: Analysis of Orion Power Acquisition; Maintaining BelowConse nsus Estimates; Reducing Target Price <<RRI092701.pdf<< Good Morning, Attached, please find our FC note on Reliant Resources. Summary: 1. On September 27, 2001, RRI announced it would acquire Orion Power for $26.80 in an all-cash transaction. ? 2. In our view this deal has very positive implications for the sector. The purchase price is essentially in-line with our estimate of the private market value of ORN's asset portfolio ($26.83). Overall, the deal gives us addition confidence in our valuation framework and reinforces our view that valuations in the sector are extremely attractive. ? 3. RRI is leaving unchanged its 2002 EPS guidance of $2.05-$2.15. In doing so, RRI noted that the earnings contribution from this deal (+$0.30) will offset the negative impact of sluggish conditions in the Western power markets. ? 4. Our 2001 and 2002 EPS estimates remain unchanged at $1.62 and $1.95. Our 2002 estimate continues to be below company guidance, giving us comfort in our forecast. ? 5. Importantly, for 2002 RRI's Western generation assets are currently less than 50% hedged, which is well below the company's peers including CPN (Strong Buy, $19.75) and MIR (Buy, $19.60). As such, the company is relatively more exposed to commodity price volatility in that region of the country. 6. We are reducing our target price to $30 from $40. We derive this valuation from our Discounted Cash Flow (DCF) analysis, which employs an 11.4% discount rate. Our revised target price reflects: 1. The $2.9 billion acquisition expenditure; 2. The $1.8 billion of assumed net debt; 3. The incremental earnings and synergies associated with the deal; and, 4. The earnings shortfall at RRI's Western operations and slower overall growth prospects for the business. Regards, Neil Stein 212/325-4217 This message is for the named person's use only. It may contain confidential, proprietary or legally privileged information. No confidentiality or privilege is waived or lost by any mistransmission. If you receive this message in error, please immediately delete it and all copies of it from your system, destroy any hard copies of it and notify the sender. You must not, directly or indirectly, use, disclose, distribute, print, or copy any part of this message if you are not the intended recipient. CREDIT SUISSE GROUP and each of its subsidiaries each reserve the right to monitor all e-mail communications through its networks. Any views expressed in this message are those of the individual sender, except where the message states otherwise and the sender is authorised to state them to be the views of any such entity. Unless otherwise stated, any pricing information given in this message is indicative only, is subject to change and does not constitute an offer to deal at any price quoted. Any reference to the terms of executed transactions should be treated as preliminary only and subject to our formal written confirmation.
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