Exelon Raises Bid for NRG Energy to $8 Billion

Exelon raised its hostile takeover bid for independent power producer NRG Energy by more than 12 percent to $7.45 billion Thursday but failed to excite investors.

The new offer comes more than eight months after Exelon first announced its intention to buy NRG and create the nation's biggest electricity generator, with the largest fleet of nuclear power plants.

"This is our best and final offer, and we will use the time leading up to the NRG annual meeting on July 21 to communicate the value of our new offer to NRG shareholders," Exelon Chief Executive John Rowe said in a statement.

As part of its hostile bid, Exelon has nominated a slate of directors to stand for election at NRG's annual meeting.

NRG shares fell nearly 2.6 percent in morning trading.

Meanwhile, Exelon was down 1.9 percent, cutting into the value of the bid.

Exelon is offering 0.545 of a share — worth about $28.10 at Wednesday's close — for each NRG share. That amounts to a premium of nearly 8 percent to NRG's closing stock price.

At Wednesday's close, Exelon's previous bid valued NRG shares at $25.01.

NRG, which has said Exelon's previous offer was too low, said it has not yet received a revised proposal from Exelon, but its board is reviewing the bid. It urged NRG shareholders to take no action at this time.

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Analysts were not convinced the higher offer would get the deal done.

"May be a case of too little, too late," Tudor Pickering Holt & Co analyst Rebecca Followill said in a note to investors. "We don't think the small premium gets the deal to the finish line."

Exelon said $1.5 billion of newly identified cost savings as well as value created by NRG's recent acquisition of Reliant Energy's retail business justified the raised bid.

When Exelon made its previous bid last October, the global economy was in shambles. That per-share offer of 0.485 Exelon share came under fire from analysts and investors as NRG's stock price rose above the bid.

Power Couple

A combined Exelon and NRG would own about 48,000 megawatts of power-generating capacity, enough to supply electricity to nearly 40 million homes, Exelon said.

BMO Capital Markets analyst Michael Worms said that Exelon now faces an uphill battle to get its directors elected.

"What clients have suggested is that they wanted a bid north of $30 — maybe even significantly north of $30," Worms said. "The current bid values NRG at around $28 a share, so it looks to be a little light."

The value of the revised Exelon bid — $7.45 billion — is based on Exelon's closing price on Wednesday of $51.56 a share and about 265 million NRG shares outstanding. As Exelon's shares dropped, the value of the offer slid as well, to around $7.31 billion.

Exelon said it was confident, based on discussions with its outside advisers, that it would be able to provide all necessary funding for the takeover, including the refinancing of $4.7 billion of NRG's senior notes and other debt.

If it can close the deal, Exelon said, it would sell $1.6 billion of assets, issue $1.1 billion of mandatory convertibles or common equity, and finance about $4.2 billion of the cost.

Shares of NRG and Exelon fell Thursday.

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