Thursday, July 23, 2009

Exelon exits hostile takeover effort of NRG

So long it's been good to know you

Parts of this blog post were originally published in Fuel Cycle Week V8;N336 on 7/22/09 by International Nuclear Associates, Washington, DC.

whosonfirstBudandLouExelon Corp. (NYSE:EXE) gave up the ghost on July 21 after a ten-month struggle to execute a hostile takeover of NRG (NYSE:NRG) in a $7.8 billion all stock deal. The firm’s effort to grow by acquisition struck out.

At the company's annual meeting held in Princeton, NJ, NRG's stockholders swept the field in a "no hitter" rejecting Exelon's slate of nominees for the board of directors. The action came after Exelon raised its offer by 12.4% to offer 0.545 shares of Exelon stock for each share of NRG stock.

The die may have been cast for the vote months ago when NRG's largest stockholders, owning 5% or more of NRG's stock each, began to question the value of Exelon's offer.

A major shareholder of NRG, Solus Alternative Asset Management LP, based in New York, balked in February at selling its stake in NRG to Exelon. Christopher Pucillo, president of Solus Asset Management LP, sent a letter to NRG Chairman Howard Cosgrove saying the Exelon offer does not maximize shareholder value. He called Exelon’s bid “highly conditional and undervalues NRG.” Solus at the time owned 6% of NRG's stock.

More recently, NRG has sent a letter to its stockholders reiterating that it opposed the merger and urged them to reject the bid because it offers too low a price for the company. Wall Street analysts apparently agreed and were quoted in NRG's letter saying the stock is currently selling at a substantial discount especially considering NRG’s potential for future growth.

When it rains it pours

morton_saltAs the date NRG's annual meeting got closer, the news for Exelon got worse. On June 26 MFS Investment Management, one of NRG’s larger shareholders, said NRG’s stock has gone up since Exelon made its hostile bid for the firm last Fall. Maura Shaughnessy, manager of the MFS utility fund, told Bloomberg wire service, “Exelon will have to pay much more or the deal won’t go through. I think Exelon is in a bind.” MFS owned 4.6% of NRG’s stock at the time of this statement.

The New York Times reported July 11 that Proxy Governance, an influential voice on corporate takeovers, advised NRG and its stockholders not to accept Exelon's offer for similar reasons.

Exelon accepted defeat with a terse statement by John Rowe, CEO. He told the Wall Street Journal July 21, "The NRG stockholders have spoken and Exelon will move on."

hostile-takeoverBloomberg wire service reminded its readers that this is the third failed takeover effort by Exelon in the past six years. It referenced an effort to buy New Jersey Public Service Enterprise Group for $17.8 billion in 2006 and aborted plans to acquire Dynergy's Illinois Power Co. in 2003. In both cases, Bloomberg reported, the deals fell through because of legislative or regulatory barriers.

The difference in the company's pursuit of NRG is that one thing is clear. NRG’s stockholders flat out rejected the offer as being inadequate even after it was sweetened just weeks before their vote on the offer.

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Here’s a video which illustrates by way of a moving visual metaphor just how confusing this high finance corporate stuff can get for the ordinary stockholder.

Abbott & Costello – Who’s on First?

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