Mirant Corp agreed to take over rival RRI Energy , creating one of the largest U.S. independent power producers and cutting costs as they deal with weak electricity prices that have challenged the entire industry.

The companies said on Sunday they will combine to create GenOn Energy, a new company with value of around $3 billion. After the all-stock, tax-free transaction, Mirant shareholders will own about 54 percent of GenOn's equity, while RRI's shareholders will own about 46 percent.

Independent power producers like Mirant and RRI, who sell electricity at competitive rates, have been hit hard in recent years as weak demand for electricity and low natural gas prices have taken their toll on power prices.

Still, the chief executives of the two companies said the catalyst behind the deal was the $150 million in annual cost savings they expect to pull in.

There is no question our industry has been going through some challenging times, RRI CEO Mark Jacobs said in an interview.

But just as the value proposition (driving the deal) is here in difficult times, it'll be here in good times as well.

The companies expect to pull in the cost savings from reductions in corporate overhead in areas like accounting, IT and human resources. They believe the $150 million in yearly savings will fully kick in from January 2012.

Mirant shareholders will receive 2.835 RRI shares -- worth about $11.20 as of Friday's close -- for each Mirant share they own.

While that represents a 4 percent premium over Mirant's Friday closing price of $10.73, the companies said the value is in line with the average price of the stock over the previous 10 trading days.

RRI shares closed at $3.95 on the New York Stock Exchange on Friday.

LARGER SCALE, STRONGER FINANCES

GenOn will have around 24,700 megawatts of power generating capacity, making it slightly smaller than rival IPP Calpine and slightly larger than NRG Energy Inc. It will have a mixture of coal, natural gas and oil-fired plants in California, the Midwest and the East Coast

The companies said that GenOn will also have ample liquidity -- the combined cash balance of the companies at the end of last year was $2.9 billion.

Though larger and stronger, the company will still face headwinds in the near-term.

The economic downturn forced down demand for electricity, meaning U.S. utilities did not need to buy as much power on the open market. Recent signs of economic recovery have not resulted in a commensurate recovery in power markets.

Current Mirant Chief Executive Edward Muller will be chairman and CEO of the combined company until 2013, when the company said he plans to retire. RRI's Jacobs will be the president and COO of GenOn and will succeed Muller as CEO in 2013, the companies said.

The GenOn board will have five members of the current Mirant board and five from the RRI board. It will be headquartered in Houston, where RRI is based, instead of Mirant's home base of Atlanta.

RRI was previously known as Reliant Energy -- the company changed its name to RRI in May 2009, after selling its Texas retail power business to NRG.

The Texas sale was part of a wider evaluation of the company's strategic alternatives, but Reliance did not at that time find a deal for the whole company.

(Additional reporting by Yinka Adegoke; editing by Gunna Dickson)

Energy