VANCOUVER -- Magma Energy Corp. plans to acquire Plutonic Power Corp. to create a more diversified alternative energy producer worth about $575 million.

Magma's current focus is on geothermal power and Plutonic is mainly involved with hydroelectric and wind power as well as some solar-electric projects.

After acquiring Plutonic, Magma would change its name to Alterra Power Corp.

"This merger will strengthen both companies and will create a larger, more diversified renewable energy company with assets across a broader spectrum of the clean energy industry," Magma chairman and CEO Ross Beaty said Monday.

Beaty said the deal has the potential to lower each company's cost of capital and enable them to develop their growth assets more quickly.

Plutonic's principal operating facilities are the Toba Montrose hydroelectric project and the Dokie wind farm, which are held in partnership with GE Energy Financial Services.

Magma has a portfolio of properties in the western United States, Iceland and Latin America that have the potential to harness the power of geothermal hot spots, the type associated with volcanoes and geysers. Magma has one operating power plant in Nevada and two in Iceland.

"Geothermal will remain a core focus of the new company, but hydro, wind and solar assets will be solid business platforms for future growth," Beaty said in a statement.

"In the renewable energy business, bigger is better and this combination will achieve that while enhancing returns to each company's shareholders."

Under the agreement announced Monday, Plutonic (TSX:PCC) shareholders would receive 2.38 shares of Magma (TSX:MXY).

Based on Friday's closing prices, the offer would be worth about $2.90 per Plutonic share — 20 per cent above Plutonic's market price of $2.42.

In a related transaction, Magma has subscribed for a $10-million unsecured convertible debenture from Plutonic.

Plutonic will use proceeds from the debenture to repay an $8 million promissory note held by GE Energy Financial Services Holding Co. Beaty will be executive chairman and chief executive of Alterra Power and Don McInnes, the vice-chairman and CEO of Plutonic, will be Alterra's executive vice-chairman. They'll head a seven-member board of directors.

McInnes said 2010 was "a breakout year" for Plutonic.

"To continue to build on the success of our history as a project developer, a merger with Magma will provide our shareholders with the best path to further value creation achieved through a larger market size, greater liquidity, better access to capital, and diversity of geography and technology with a healthy development pipeline that provides significant growth opportunities."