Exelon Offers $6.2 Billion in Stock for NRG Energy

By Christian Schmollinger and Edward Klump

Oct. 20 (Bloomberg) -- Exelon Corp., the biggest U.S. operator of nuclear power plants, offered to buy NRG Energy Inc. for $6.2 billion to take advantage of a 55 percent drop in the debt-laden company's shares since July 1.

Exelon will pay $26.43 for each NRG Energy share, the Chicago-based company said late yesterday in a statement distributed on PR Newswire. The offer represents a 37 percent premium to the target's closing share price on Oct. 17. NRG said it will review the bid and urged shareholders to take no action.

A successful acquisition would create the largest U.S. power company by market value at $40.4 billion, according to data compiled by Bloomberg. NRG, the second-biggest electricity generator in Texas, would give Exelon nuclear reactors outside its Illinois and Pennsylvania operating bases.

``An Exelon-NRG combination would result in a total enterprise value of approximately $60 billion with a generating capacity of around 47,000 megawatts,'' said Chairman John W. Rowe in the statement. ``This combination would not only diversify Exelon's generation portfolio geographically it would also create immediate earnings and cash-flow accretion.''

The joint company would have 18,000 megawatts of nuclear power generation once the deal is approved, the statement said.

NRG holds $8 billion in debt with a credit rating of Ba3/B+, the merger statement said. NRG's market capitalization stood at $4.6 billion on Oct. 17. The deal should reduce NRG's leverage and enhance its credit rating while affecting Exelon's debt outlook, said Exelon.

Shares in NRG have collapsed 55 percent since July 1 and are down 58 percent from a year ago. The shares closed at $19.33, up 6.3 percent on Oct. 17.

Previous Mergers

The company confirmed that it received the proposal, which will swap NRG stock at a ratio of 0.485 Exelon shares, according to a statement on Business Wire. Citigroup Global Markets Inc. and Credit Suisse Securities LLC are acting as NRG's financial advisers and Kirkland & Ellis LLP as legal counsel.

NRG has been at the center of two previous, unsuccessful takeovers.

NRG's $11 billion offer for Calpine Corp., the largest provider of power fueled by natural gas, was rejected in May as inadequate. In August, Calpine ended discussions on a possible merger.

In May 2006, Mirant Corp. offered $7.86 billion for NRG in at hostile takeover. The deal was withdrawn a month later.

NRG was forced into bankruptcy after Enron Corp., the largest U.S. energy trader at the time, collapsed in December 2001 and power prices slid. David Crane joined the company as chief executive officer in 2003 and led NRG out of bankruptcy in December of that year.



Buffett Buys

Billionaire Warren Buffett's Berkshire Hathaway Inc. took a stake in NRG during the second quarter, the Omaha, Nebraska-based company said in a regulatory filing disclosing equity investments. The company had 3.24 million NRG shares as of June 30.

Ranked the world's richest man by Forbes magazine, Buffett built Berkshire by investing in out-of-favor securities and buying businesses whose prospects and management he deemed superior.

NRG also has plants in California, Connecticut, Louisiana and New York. Its total U.S. generating capacity is about 22,925 megawatts, according to its Web site. That's enough power for about 18.3 million average U.S. homes, based on an Energy Department estimate.

In March, NRG formed a joint venture with Toshiba Corp., Japan's biggest supplier of nuclear reactors, for U.S. projects including expansion of its South Texas Project near Houston.

Energy Future Holdings Corp., formerly known as TXU Corp., is the largest power producer in Texas.

Exelon Reactors

Exelon owns and operates 17 nuclear reactors. The company owns utilities Commonwealth Edison in Chicago and Peco in Philadelphia that supply power to about 5.4 million homes and businesses.

The company's profit excluding one-time costs and gains probably fell to $1.16 a share, according to the average of 11 analyst estimates compiled by Bloomberg, from $1.21 a year earlier. Weather-driven demand for cooling was 22 percent lower than a year earlier in Chicago and 17 percent lower in Philadelphia, according to data compiled by Bloomberg.

Exelon has scheduled a conference call for 11 a.m. Eastern Time to discuss the deal. The call-in number in the U.S. and Canada is 800-690-3108 and the international call-in number is 973-935-8753. The ID number for the call is 700034152.

To contact the reporters on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Edward Klump in Houston at eklump@bloomberg.net