It took NRG three weeks to reply to a takeover bid from Excelon. When the reply came on Sunday, November 9, the answer was no, but CEO David Crane appeared to be open to a better offer.

NRG, the wholesale power generation company with headquarters in Carnegie Center, had received an unsolicited, all stock $6.2 billion bid from nuclear power giant and utility operator Exelon in a proposed deal that would create the nation’s largest power company. The offer came after NRG’s stock, like so many others, had been hammered in the harsh fall stock market, and as access to credit, essential to the companies plans to build power facilities, dried up.

Exelon, swooping in to get NRG at a bargain price, said that it was willing to get into a hostile takeover fight. In replying to the offer from the larger utility company, NRG said it was not going to be acquired at what it considers to be a price well below its value without a fight.

Under terms of the Exelon proposal, that company would exchange 0.485 Exelon shares for each NRG share. NRG shares that cost $43.95 on July 2 had fallen to $19.33 on October 17, but have since risen to about $24 a share. At the time that Exelon made the offer it represented a 37 percent premium over NRG’s stock price, but that premium has gone down as NRG’s price has risen.

NRG, headed by CEO David Crane, has about 240 employees at its Carnegie Center offices. The company, founded in 1989, has an ownership interest in 44 power generating facilities, and sells energy, capacity, and related products in the United States and abroad. The company’s projects are primarily in North America, but also in Europe and Australia. Its fuel sources include natural gas, oil, coal, and nuclear.

Crane sent an 11-page reply to Exelon’s offer, saying that it “significantly undervalues NRG and is not in the best interests of NRG’s shareholders.”

Crane emphasized that NRG’s problems are not unique, but are part and parcel of a poor economic climate. “We believe that the substantial decline in NRG’s stock price is an unwarranted aberration that completely overlooks unique factors representing our significant growth potential, overall stability, and, most importantly, our exceptional liquidity and cash flow generation,” Crane wrote. “NRG epitomizes growth through standalone development in the competitive power sector, with many of our efforts just now coming to fruition with the potential realization of huge value upside for our shareholders.”

NRG has been working to ignite what Crane refers to as a “nuclear renaissance.” The company has joined with Toshiba to form Nuclear Innovation North America LLC, a joint venture in which NRG owns an 88 percent share. While its range of projects is broad, the company, primarily through Crane, has become a leading advocate for nuclear power, and has tried to position the often controversial fuel source as a clean alternative to fossil fuels and an important tool to combat global warming.

In his missive to Exelon, Crane raises concerns about that company’s ability to effectively manage NRG. He also questions Exelon’s financial stability and its ability to get the deal done, pointing out that no committed financing has been arranged, that the company’s corporate credit rating has been downgraded by rating agencies, and that it has been placed on credit watch with a negative outlook.

“Your obvious difficulties on both the debt financing and credit rating front since your public bid supports our conclusion that, even apart from your proposal’s substantial undervaluation of NRG, your proposal is so highly conditional that it has severe implementation risk for which NRG shareholders are in no way compensated.

Some power industry analysts believe, however, that if Exelon were to sweeten its offer by raising its price and by retaining some members of NRG’s senior management team, the deal could well go through.

But, for now, NRG is on record as opposing Exelon’s offer. Said Crane: “We could not be more certain in our belief that your proposal is opportunistic, serving only as a means for Exelon to extract a severely disproportionate percentage of the current and future value of NRG and its assets from its rightful owners.”

NRG Energy Inc. (NRG), 211 Carnegie Center, Princeton 08540-6213; 609-524-4500; fax, 609-524-4501. David Crane, CEO. Home page: www.nrgenergy.com.

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