Exelon swoops on NRG

20 October 2008

A $6.2 billion offer has been made for nuclear generator NRG after its stock price slid by 50% in a month on worries about its levels of debt. It is the second large power firm buyout in America related to the global financial failure.

 

South Texas Project 
The South Texas Project reactors

NRG's share price recently peaked at $38.88 per share on 27 August, but from then on trended downwards on concerns over its $8 billion debt. On 30 September, when shares were valued at $24.75, top executives from NRG and Exelon met and discussed the potential strengths of a combined company. On 12 October NRG shares fell to $15.17, prompting Exelon to make an offer on 19 October.

 

The approach was made in similar circumstances to MidAmerican's $4.7 billion bid for Constellation Energy in September: Constellation's stock value had been hit hard by uncertainty over levels of exposure in its power marketing division. In three days trading Constellation stock halved and an offer was made for the entire firm by MidAmerican, backed by Warren Buffet's Berkshire Hathaway group.

 

The deal Exeon has now laid on the table for NRG is an all-stock offer which would see Exelon take up all outstanding NRG shares in exchange for 0.485 Exelon shares each. Based on Exelon's own share price, this would be worth $24.43 for each NRG share and value the firm at $6.2 billion. Exelon would aim to refinance NRG's debt.

 

NRG's board of directors acknowledged the offer, saying it was under consideration.

 

If the deal goes ahead, the result would be the largest power firm in the USA with 47,000 MWe of generation capacity, with 18,000 MWe of that coming from nuclear power plants. The company would have a market capitalisation of $40 billion, and an overall value of $60 billion.

 

Exelon chair and CEO John Rowe wrote to NRG's President and CEO David Crane: "I know that you are committed to realizing the upside potential embedded in NRG's stock, which we agree is not fully reflected in its current stock price. We believe our proposal fully addresses that concern. In addition to a 37% premium, the exchange would give NRG shareholders the full upside potential of Exelon, the preeminent company in our industry. That potential is predicated on our consistent leadership in productivity and efficiency and the strength of our carbon position; ownership of seventeen world class nuclear units, the most valuable assets in our industry; a growth pattern in the last eight years unparalleled in the industry; and a balance sheet and liquidity of exceptional strength and value, notwithstanding the recent economic downturn."

 

NRG owns 22,880 MWe of generating capacity, including 44% of the 2500 MWe at the South Texas Project nuclear power plant. Two new reactors are planned there. Exelon's seventeen reactors are distributed across ten sites: Braidwood, Byron, Clinton, Dresden, LaSalle, Limerick, Oyster Creek, Peach Bottom, Quad Cities, and Three Mile Island 1. It is planning an entirely new nuclear power plant with two reactors in Victoria County, Texas.