NRG Energy rejects $6.2 billion unsolicited bid from Exelon Corp. as undervalued

10 November 2008

NRG Energy Inc, the second-largest power producer in Texas, has rejected an unsolicited $6.1-billion takeover offer from Exelon Corp., the largest US utility owner. NRG said yesterday its board of directors had rejected the unsolicited bid, which it described as significantly undervaluing the company.

The statement said Exelon's offer was "opportunistically timed" and, in addition to being too low, was "highly conditional, as Exelon has yet to obtain committed financing and has had its credit rating downgraded." The offer, made last month, involved exchanging 0.485 Exelon share for each NRG share, in a deal valued at about $6.2 billion.

Exelon's all-stock bid came after NRG lost half of its market value in two months. The acquisition would have made Exelon the largest US power producer, ahead of Atlanta-based Southern Co. and Columbus, Ohio-based American Electric Power Co. Exelon owns and operates electric utilities in Illinois and Pennsylvania and power plants throughout the US, including the nation's largest fleet of nuclear plants. NRG owns more than 24,000 megawatts of generation.

But in a letter to Exelon Chairman and CEO John Rowe, the board said the bid "is not in the best interests of NRG shareholders, as it manifestly undervalues NRG both on an absolute basis and relative to your own share value."

In the letter NRG CEO David Crane and Chairman Howard Cosgrove cited lack of secured financing as one reason for the rejection, posing ''real risk of non consummation to NRG's shareholders.''

''Under your proposal, NRG shareholders would own only 17 per cent of the combined company while contributing over 30 per cent of a combined NRG-Exelon free cash flow in 2008,'' they said in the letter, made public today by NRG.