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Utilities consolidation goes on: Exelon for NRG
2008-10-20
COLUMBUS, Ohio - Two years ago when NRG Energy rebuffed an $8 billion buyout offer, it said the bid was far too cheap to be taken seriously. There may be a bit of shareholder remorse this week, with prospective buyers now eying deals through the lense of a global economic downturn. Nuclear power giant and utility operator Exelon late Sunday night made an unsolicited $6.2 billion all-stock bid for NRG in a proposal that would create the nation's largest power company. The combined Exelon and NRG would be big enough to power nearly 45 million homes with 47,000 megawatts, Chicago-based Exelon said. It would have a diverse power mix and a market capitalization of $40 billion. Shares in Princeton, N.J.-based NRG Energy Inc. soared 29 percent, or $5.67, to $25 Monday, still were well off the $43.95 that shares commanded on July 2 and half the money they fetched in 2006, when Mirant backed away from its bid. Exelon is the second utility in the past month to try and take advantage of the credit crisis and global economic slowdown that have pounded the shares of utilities and power generators. A unit of Warren Buffett's Berkshire Hathaway Inc. is buying wholesale power generator Constellation Energy Group Inc. of Baltimore for the bargain price of $4.7 billion after analysts worried that the company might become insolvent. Buyouts and attempted mergers have begun to accelerate just three years after the repeal of the Public Utility Holding Company Act of 1935, which strictly regulated utilities. In May, Calpine Corp., operator of 60 power plants that can produce up 23,000 megawatts of electricity, rejected an unsolicited takeover bid from NRG as too low. Under terms of the proposal, Exelon would exchange 0.485 Exelon shares for each NRG share. NRG shares that cost $43.95 on July 2 had fallen to $19.33 Friday The transaction is valued at $26.43 per share, based on Exelon's closing price of $54.50 on Friday -- a 37 percent premium over NRG's closing price on Friday. "This company combined would be the largest power company in the nation in terms of assets, market capitalization, enterprise value and generation capacity," Exelon Chairman and Chief Executive John Rowe told analysts on a conference call. "And there is simply no doubt that scale is important in turbulent times and it's important as the costs of growth continue to rise." In a letter addressed to NRG President and Chief Executive Officer David Crane, Exelon revealed for the first time Sunday that the CEOs from both companies had met on Sept. 30. Rowe said because of market turbulence, Exelon was not prepared to offer a deal then. "We hope this turns out to be friendly rather than hostile, but we are committed to pursuing this offer and we shall do so," he said. NRG did not return calls seeking comment Monday. In September 2006, Exelon dropped its planned $16 billion takeover of New Jersey's Public Service Enterprise Group Inc., after the companies couldn't overcome regulatory obstacles. Rowe said the deal for NRG should be easier because it isn't a regulated company. Nevertheless, he said Exelon is prepared to sell about 3,000 megawatts of generation where power generation of both companies overlap. He would not a put a timeline on the deal. Exelon, which announced in July plans to cut greenhouses gases, said it had no intention of backing down from those plans and would incorporate NRG, which is much more heavily dependent on coal for power generation, into those plans. Exelon's history dates back more than a century. In 1907, Samuel Insull, a utilities and railroads magnate, combined Commonwealth Electric Co. and Chicago Edison Co. to form Commonwealth Edison, or ComEd. Insull fled the country when his holding company collapsed during the Great Depression. It was that collapse that prompted U.S. regulators to draft the 1935 law. Exelon shares rose 9 cents to $54.59. Its shares have traded between $41.23 and $92.13 over the past year. NRG has ownership interests in 44 power generating facilities, primarily in the U.S., that generate 24,000 megawatts of power. Exelon has nearly $19 billion in annual revenue and 5.4 million electric customers in northern Illinois and Pennsylvania. It also has 480,000 natural gas customers in the Philadelphia area. Its 10 nuclear stations, with 17 reactors, represent approximately 20 percent of the U.S. nuclear industry's power capacity, and about 3 percent of all U.S. power generation. ___ On the Net: http://www.exeloncorp.com and http://www.nrg.energy.com
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