Exelon bid for NRG Energy goes to trial
A trial started over a challenge to Exelon Corp.'s $6.2 billion hostile-takeover bid for NRG Energy Inc., owner of power plants in Texas, California and the U.S. Northeast.
NRG sued Exelon, the largest U.S. operator of nuclear power plants, to thwart the bid, which NRG rejected as too low. Exelon is offering 0.485 shares for each share of NRG to create the largest U.S. power producer. U.S. District Judge John Koeltl began hearing evidence today in New York.
Lawyers for NRG argue Exelon can't afford to close on the hostile offer because that would significantly increase the company's debt. The offer is designed to pressure the smaller company into cooperating in a transaction requiring Exelon to take on less debt, the attorneys said.
"Exelon would put its business and business model at risk by closing the exchange offer," NRG's lawyer Yosef Riemer said in his opening statement.
Exelon wouldn't risk buying NRG without doing in-depth due diligence, which it would be denied through a hostile offer, Riemer told the judge.
"Exelon harbors a secret intent not to close its exchange offer," NRG said May 29 in a legal brief, parts of which are blacked out. Also, "the evidence will show that the exchange offer fails to disclose a number of material facts and conditions," NRG said.
Exelon's attorney Walter Carlson told Koeltl today his side will present seven witnesses, including Chief Executive Officer John Rowe and President Christopher Crane, to show it's serious.
Same Debt
Chicago-based Exelon will take on the same debt regardless of whether the deal is hostile or friendly, the lawyer said.
"Exelon is prepared to close that exchange offer," Carlson said.
NRG, based in Princeton, New Jersey, claims Exelon is pressuring shareholders in violation of the Williams Act, a 1968 law on acquisitions. NRG asked that Exelon be ordered to withdraw its offer for at least 60 days and to make additional disclosures.
Exelon on May 21 won U.S. regulators' approval of its bid. It was the first hostile takeover ever approved by the Federal Energy Regulatory Commission.
As of Feb. 25, more than 51 percent of NRG shares were tendered in support of Exelon's offer, which expires June 26.
"Most of NRG's original scattershot allegations in this case were already dismissed by the court," Jeffrey Smith, an Exelon spokesman, said in a statement. "Only one remains, which we'll address in court. This lawsuit is just another attempt by NRG to thwart our acquisition."
Length of Bid
Rowe, the Exelon CEO, said in April that the bid to acquire NRG may continue into next year. Exelon in March proposed expanding NRG's board, with the aim of adding members more receptive to its bid.
Shareholders will have a chance to take up the proposal at a meeting this summer, NRG Chief Executive Officer David Crane said in April.
In addition to a successful tender offer, the combination needs approval of state regulators in California, New York, Pennsylvania, Texas and Massachusetts as well as Exelon shareholders.
Exelon rose $1.33, or 2.7 percent, to $49.34 at 10:23 a.m. in New York Stock Exchange composite trading. NRG Energy rose 74 cents, or 3.2 percent, to $23.24
The case is NRG v. Exelon, 09-2448, U.S. District Court, Southern District of New York (Manhattan).