NRG Energy (NRG) revealed a $1.7 billion deal over the weekend to acquire rival GenOn Energy (GEN) in an all-stock combination that will create the largest competitive power generation company in the U.S.

The pact calls for GenOn shareholders to receive 0.1216 of NRG shares for each of their shares. That offer values the company at $2.20 a share, a 20% premium over GenOn’s Friday close of $1.82.

Based in Houston, GenOn has about 22,700 mega-watts of net electric generating capabilities, making it one of the largest competitive generators of wholesale electricity in the U.S. The company has just over 3,100 employees and posted revenue of $3.61 billion last year.

“This combination ushers in a new era of scale, scope, and market and fuel diversification in the competitive power industry,” NRG CEO David Crane said in a statement.

Princeton, N.J.-based NRG said it expects the combination to boost the combined company’s Ebitda by $200 million by 2014 through cost and operational synergies. It also sees an additional $100 million in efficiencies.

The transaction is expected to close by the first quarter, at which point NRG shareholders will own 71% of the combined company while GenOn shareholders will own 29%.

The combined company will be run by Crane, while GenOn CEO Edward Muller will join the NRG board as vice chairman. It will maintain a dual headquarters structure, with financial and commercial operations in Princeton and operational duties in Houston.

“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,” said Muller.

Shares of GenOn soared 24.73% to $2.28 Monday morning, while NRG rallied 7.26% to $19.36.

Looking ahead, NRG backed its forecast for 2012 Ebitda of $1.825 billion to $2 billion. Second-quarter Ebitda is seen coming in at $530 million on an adjusted basis.

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