Exelon walks away from $7.4 billion bid for NRG

By MARK WILLIAMS

posted: 129 DAYS AGO

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COLUMBUS, Ohio -The proposed $7.4 billion, all-stock deal between Exelon and NRG Energy was meant to bring consolidation to a fragmented industry, creating the nation's largest power company that would be able to deliver electricity to 45 million homes.

Instead, the deal collapsed Tuesday when Exelon scrapped the bid — refusing to budge from a second and seemingly final offer.

NRG said even the second bid, worth 12 percent more than the first, was far too low. Many of those following the proposed buyout sided with NRG, as did the company's shareholders on Tuesday.

NRG shareholders rejected a proposal that would have expanded NRG's board, preferably with new and existing seats going to people that would support Exelon's buyout offer.

NRG said preliminary totals show about 65 percent of the outstanding shares and 75 percent of the voted shares were against Exelon's proposals. The results should be available next month.

NRG executives derided the offer from the beginning, saying the attempt to wrest control of the company by installing new board members was not the best strategy.

"Future consolidation will evolve around cooperative transactions," said David Crane, NRG's president and CEO.

The utility sector is already a tough place for buyouts. Regulatory approval can take years and the credit markets have made things even worse.

In 2006, nearly two years after it was first announced, Chicago-based Exelon called off its $17 billion plan to buy Public Service Enterprise Group when New Jersey regulators raised concerns that the combined company would have too much control over the market.

Yet the financial meltdown and recession opened a window, with revenues and share prices falling as major industrial customers cut back and thousands of homes were lost to foreclosure.

In March, Princeton, New Jersey-based NRG bought Reliant Energy's retail business in Texas for $287.5 million in cash plus working capital after the company's 2009 profit outlook sent its shares tumbling. A unit of Warren Buffett's Berkshire Hathaway snapped up Baltimore-based Constellation Energy last fall after the company's stock was pummeled by accounting and liquidity issues.

That deal was called off, however, after French nuclear power giant EdF swept in with a better offer that allowed Constellation to remain an independent company.

"There is a perception of opportunism by the buyer," said Ryan Thomas of the Bass Berry & Sims law firm.

NRG's shares had fallen from $39.24 last summer to $14.39 in the fall as stock markets and Lehman Brothers collapsed and credit markets froze. NRG has maintained, among other things, that Exelon was trying to take advantage of its low stock price.

Exelon made its initial offer of .485 shares for each NRG share in October. It raised the offer by 12 percent to .545 shares earlier this month.

Crane will not rule out a deal. "As a seller, certainly we would be receptive to fair offer," he said.

Exelon said in a statement that it was unwilling to sweeten its offer again.

"NRG shareholders have spoken, and Exelon will move on," said John Rowe, Exelon's chairman and CEO.

The share prices of both companies move higher on the vote. NRG shares rose $1.33, or nearly 6 percent, to $24.89 and Exelon shares were up $1.20, or 2 percent, to $53.25.

Exelon, with nearly $19 billion in annual revenue, has 5.4 million electric customers in northern Illinois and Pennsylvania. It also has 480,000 natural gas customers in the Philadelphia area.

NRG's power plants have 24,000 megawatts of generation capacity, enough to supply more than 20 million homes. Its retail business, Reliant Energy, serves more than 1.7 million residential, business, commercial and industrial customers in Texas.

2009-07-21 17:12:55