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Exelon-NRG deal runs into deeper trouble over takeover strategy

exelonThe atmosphere between Exelon and its takeover target NRG Energy has further soured with a new lawsuit over Exelon’s strategy and statements.


Top NRG executives have rejected Exelon’s offer, which was made as NRG stock slumped in October last year on worries about its levels of debt. Their primary objection has been the price, and without the NRG board approval the $6.2 billion deal cannot be completed. They allege that Exelon’s subsequent efforts to push the deal have been misleading.

After NRG’s initial rejection, Exelon withdrew its consensual exchange offer and replaced it with an exchange offer on the same terms: Exelon would take up all outstanding NRG shares, exchanging each for 0.485 Exelon shares.

A Registration Statement was filed with authorities to enable Exelon to actually buy the shares from those NRG shareholders that favour the deal, but NRG contends this has not yet become effective. This “atypical, lackadaisical approach,” NRG said in its lawsuit, “evidenced that Exelon’s real intent is not to acquire any shares or control of NRG through the exchange offer,” despite gaining tenders totalling over 51 percent of NRG shares.

NRGNRG said that Exelon has not sought the required approval from its own shareholders for the exchange offer, and concluded that the offer was only made to pressure the NRG board into accepting a consensual offer. Therefore, NRG said, Exelon statements about the seriousness of the exchange offer were false and misleading.

Exelon said that NRG’s allegations were “scattershot” and the lawsuit “is just another attempt by NRG to thwart” the acquisition. The company said it is “fully focused on NRG’s annual meeting and moving forward with [Exelon’s] proposal to expand and reconstitute NRG’s board with independent actors who will act in the best interests of their shareholders.”

The NRG board has consistently opposed Exelon on the ground of price. At the time the offer was made it represented a 37 percent premium on NRG stock, but NRG wrote recently that the change in relative share prices has seen this premium drop to only 4.0 percent. NRG has also said its shareholders would own only 17 percent of the final company but contribute 30 percent of the cash flow.

If the deal eventually 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 capitalization of $40 billion, and an overall value of $60 billion.