Mirant: Fast rise, hard fall

In March 2001, the young chief executive of a fledgling new energy company penned a stunning prediction to shareholders.

Mirant Corp., then about to be spun off from Atlanta-based Southern Co., would leave the mighty Southern in the dust, wrote CEO Marce Fuller: “We could be bigger than Southern Co. in five years.”

The opportunities, she wrote, were “endless.”

This week, Mirant’s current CEO announced a merger with another modest-sized independent power company, RRI Energy Inc. of Houston.

The move culminates a decade-long rise and fall in which Mirant soared on the prospects for deregulated power markets and energy trading and sank on the heels of the Enron scandal.

“It’s really kind of symptomatic of how markets can reflect the psychology and perceptions of a time, and how rapidly those things can change,” said analyst Paul Patterson, of Glenrock Associates.

The merger is intended to strip $150 million in overhead costs from the combined company, which will be called GenOne Energy Inc., based in Houston. GenOne will be one of the nation’s largest independent wholesale power-sellers, but such companies have been hurt by subdued demand.

Mirant’s saga began when Southern Co., the giant Atlanta utility that owns Georgia Power and other electric companies, tried to shed its stodgy holding company image and become a national and international energy player.

“I don’t know if it was badly conceived from the start,” said Patterson, who has followed Mirant for years. “But the perceptions of the market clearly didn’t hold water as people expected, when the company was first developed by Southern Co.”

Mirant started as a Southern subsidiary during the years when Houston-based Enron was creating new expectations for what a power company could be in the global marketplace.

Originally called Southern Energy, the company flitted around the globe snatching up power plants and other energy projects, making international headlines as it paid top dollar to expand into China, the Philippines, the Caribbean, Latin America and Europe.

It built or bought power plants across the United States, too, in deregulated regions where independent merchant power companies were able to sell directly to the electric grid. It also jumped into the energy trading business pioneered by Enron.

At the time, its pricey acquisitions were considered a risk worth taking. As Mirant’s bankruptcy lawyer would later put it, Mirant shared with Wall Street the “perception that there would be great opportunity” in privatizing electric markets abroad and deregulated markets at home.

Mirant’s culture was different from Southern’s. The energy trading floor at Mirant’s Perimeter offices was the size of a football field. It was populated with 20-somethings earning up to $500,000 per year.

Southern Co. spun off Southern Energy in two parts, ending in April, 2001. At the time, it was billed as a way to let the newcomer soar, without an old-fashioned utility dragging it down.

Mirant’s initial public offering brought $1 billion in one day. Its stock price soared beyond $60. Southern’s shareholders all got stock and, at first, couldn’t have been happier.

The company’s earnings in the first three quarters of 2001 were 84 percent, 50 percent and 97 percent higher than in the same quarters a year earlier, when it was still part of Southern. Revenues climbed from $2.2 billion 1999 to $31 billion in 2001, earning it the No. 52 spot on the Fortune 500.

The numbers relied heavily on accounting treatments Mirant would later abandon.

Mirant’s demise began publicly in late 2001, when Enron collapsed. Jittery credit agencies downgraded most independent power companies, drying up credit for an industry that thrived on it. The downgrades kicked off contractual demands for more collateral from Mirant’s trading partners and made it harder to get its substantial debts refinanced.

The company began selling assets to stay afloat, often at huge losses.

Regulators bore down. Mirant was accused of manipulating the power market during the California energy crisis. A series of restated earnings, meanwhile, attracted the Securities and Exchange Commission -- and brought Mirant’s heady early revenue claims back down to earth.

Mirant filed for Chapter 11 protection in 2003. The process would eventually turn Mirant’s shareholders and creditors against its former parent. Mirant sued Southern in 2005, saying that Southern had saddled the company with crippling debt before spinning it off. Southern settled for $202 million last year.

Mirant emerged from bankruptcy in late 2005 under the leadership of new CEO Ed Muller. Pre-bankruptcy shareholders got warrants for a limited amount of post-bankruptcy shares and, later, about 12 cents per share related to the Southern settlement.

The company stabilized but, amid the tough market, continued to shrink.

In an analyst conference Monday, Muller didn’t make big promises. The merger will cut costs, he said, although Mirant did not respond to calls for comment about the effect on its Atlanta operations.

“We don’t need two executive management teams, two finance teams, two accounting groups, two IT teams,” he said. “We have a very high confidence level,” in the savings the merger will achieve.”