Exelon starts proxy battle to win support for NRG bid
Exelon Corp., the largest U.S. utility owner by market value, began its proxy fight and extended an exchange offer to win investor support for a proposed $6.2 billion takeover of NRG Energy Inc.
A solicitation asking NRG owners to expand their company's board and elect nine independent nominees was filed this morning, and Chicago-based Exelon pushed back the deadline for an offer made directly to stockholders after NRG twice rejected the bid as too low to Aug. 21 from June 26.
Today's filing comes almost eight months after the NRG bid was announced and marks the latest step in Exelon's push to create the scale to cope with regulatory changes and fund expansion in transmission and low-carbon generation. Exelon seeks to bring NRG to the negotiating table by winning board seats and investor support for the exchange offer. It also could seek to close on the offer without a negotiated deal.
"We're trying multiple paths to get to the finish line," Bill Von Hoene, Exelon's general counsel, said yesterday in a telephone interview.
Extending the exchange offer will allow NRG holders to focus on the proxy issues at the company's July 21 annual meeting before deciding whether to offer their shares in support of the bid, Exelon said. As of yesterday afternoon, more than 12 percent of NRG shares were offered. When Exelon extended the offer for a second time in February, it said 51 percent or NRG shares were tendered as of the deadline.
Von Hoene said he's not seeing a deterioration of support for the bid. Most shares in an exchange offer are tendered in the last few days and hours before the deadline, he said.
Exelon is continuing to offer 0.485 share for each share of Princeton, New Jersey-based NRG, the second-largest power producer in Texas. At yesterday's closing prices, the proposal valued NRG at $23.73 a share, 3.6 percent above its market value. The premium was 37 percent when the offer was first announced on Oct. 19.
"The relative-value proposition that should matter to all NRG stockholders is today, after months of demonstrated value creation by NRG, not last October during the market dislocation that occurred at the height of the near meltdown of the global financial sector," NRG said in a statement yesterday.
Since the takeover proposal was announced, NRG has risen 18 percent in New York trading and Exelon has dropped 10 percent. Von Hoene attributed NRG's gain to increasing confidence that a deal will happen and speculation that the offer may be increased. It's premature to discuss whether the bid may be revised before the NRG shareholders meeting, he said.
NRG's failure to find a better offer in six months of searching is evidence of the value of Exelon's bid, Von Hoene said. The combined company would yield greater returns for investors than NRG would achieve on its own, he said.
Von Hoene pointed to Exelon's plan to expand its nuclear- power output as an example of steps that will make the company more valuable to investors. Exelon said last week that it will add as much as 1,500 megawatts of capacity to its fleet of nuclear plants, the largest in the U.S., by upgrading existing reactors.
The upgrades will add more generation capacity than a new reactor at 50 percent to 65 percent of the cost of building a unit, according to a June 12 report by Daniel Ford, an analyst at Barclays Capital in New York.
Exelon has 13 buy and 4 hold ratings from analysts. The average analyst price target for the next 12 months is $57.18, 17 percent higher than yesterday's close. NRG, which has eight buy and three hold ratings, has an average price target of $29.29, which would be a 28 percent gain.