Exelon Sweetens Hostile Offer To Acquire NRG Energy By 12.5% - Update

(RTTNews) - Energy utility Exelon Corp. (EXC | Quote | Chart | News | PowerRating), Thursday announced that it sweetened its initial hostile bid to acquire all of the outstanding common stock of rival NRG Energy, Inc. (NRG | Quote | Chart | News | PowerRating) by 12.5%, citing additional synergies and upside value identified since its initial offer. In the all-stock deal, Exelon currently offers a fixed exchange ratio of 0.545 of a share of Exelon common stock for each NRG share, up from the initial exchange offer of 0.485. The sweetened offer values the deal at about $7.45 billion. Exelon's initial offer for NRG in October valued the deal at about $6.2 billion.

In a statement, chairman and chief executive officer of Exelon, John Rowe said, "We listened to NRG investors and balanced their views with the best interests of Exelon shareholders. An exhaustive analysis by our internal team, informed by the best third-party experts, resulted in additional synergies, allowing us to increase our offer to NRG shareholders."

Chicago, Illinois-based Exelon noted that the boosted offer reflects the identification of around $1.5 billion of additional synergies, as well as the value of NRG's recent acquisition of the Reliant Energy retail business. Total cost synergies are now anticipated to be in the range of $3.6 billion to $4.0 billion. The synergies are seen in the corporate/IT, fossil and nuclear fleet, trading, development, and retail operations, reflecting a 30% reduction in NRG's operation and maintenance expense.

Meanwhile, in a separate release, NRG said that it has not received any revised acquisition offer from Exelon. However, NRG confirmed that it is aware through Exelon's news release and SEC filings, that Exelon has made a revised offer. NRG advised shareholder not to take any action at this time pending the review by NRG's Board of Directors.

The current offer value is calculated based on Exelon's closing price on Wednesday of $51.56 per share, with about 265 million NRG shares outstanding. Exelon noted that the boosted offer is the best and final offer, and would use the time leading up to the NRG annual meeting on July 21 to communicate the value of the new offer to NRG shareholders, encouraging them to vote for nine new independent directors who can unlock that value.

Exelon said it is confident, based on discussions with its outside advisers, that the company will be able to meet all financing needs associated with the transaction, including the refinancing of $4.7 billion of NRG's senior notes and other debt. One of the reasons for Exelon's initial offer being rejected was that the proposal was highly conditional, as Exelon had not yet obtained committed financing.

Exelon noted that the combination with NRG would result in a total enterprise value of about $60 billion with a generating capacity of around 47,000 megawatts, or enough electricity to serve nearly 45 million homes. Exelon added that it continues to pursue NRG because of the long-term value that can be created by industry consolidation. The combined company would not only withstand the ever-changing forces of the markets and regulation but also to grow and create more value than each company could on its own, Exelon said.

Exelon also expects the transaction to be immediately accretive to earnings and cash flow, with immediate value creation for NRG shareholders and a commensurate value creation for Exelon shareholders. The combined company would have presence in four major power regions, using uranium, natural gas, coal and oil.

"Together, the two companies would become the first national generation company. There is no model that can do more for shareholders of both companies than an Exelon-NRG combination," Rowe added.

In October, Exelon offered to acquire rival Princeton, New Jersey-based NRG Energy in an all stock deal valued at $6.2 billion, seeking to diversify its generation portfolio geographically and create the largest power company in the U.S. Exelon offered to acquire all of the outstanding NRG common stock at a fixed exchange ratio of 0.485 Exelon share for each NRG share, which valued NRG common shares at $26.43 each, based on Exelon's closing price on October 17, the day prior to announcement of the offer. Pursuant to NRG rejecting the offer as significantly undervalued, Exelon launched a hostile bid to acquire NRG in November.

It's an irony that at that time, NRG, which offered to acquire electricity provider Calpine Corp. (CPN | Quote | Chart | News | PowerRating) in May 2008 for about $11 billion in an all-stock deal, itself become an acquisition target. Calpine, which emerged from bankruptcy protection earlier in 2008, rejected NRG's takeover bid saying that the offer was too low.

Years back, New Jersey regulators raised concerns when Exelon offered to acquire Public Service Enterprise Group, Inc. (PEG | Quote | Chart | News | PowerRating) in December 2004, on the grounds that the merger will result in a hike in electric and gas rates. The $17 billion deal would have created the nation's largest power generation company. Finally in September 2006, Exelon and Public Service Enterprise Group terminated the proposed merger after failing to reach a comprehensive settlement with the state's Board of Public Utilities.

In Thursday's regular trading session, EXC is currently trading at $50.54, down $1.02 or 1.98% on a volume of 2.18 million shares. In the past 52-week period, the stock has been trading in a broad range of $38.41 to $92.13.

NRG is currently trading at $25.36, down $0.69 or 2.65% on a volume of 4.09 million shares. In the past 52-week period, the stock has been trading in a broad range of $14.39 to $43.95.

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