NRG-Exelon-Reliant: Merger Soap Opera Continues (NRG, EXC, RRI)

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The CEO and Chairman of NRG Energy, Inc. (NYSE:NRG) have sent a letter to stockholders pointing out the weaknesses in the buyout offer from Exelon Corporation (NYSE:EXC). Earlier this month, Exelon announced that it received tenders for 51% of NRG shares. NRG countered with an offer to buy the retail business of Reliant Energy Inc. (NYSE:RRI).

NRG challenges Exelon’s arithmetic. When the buyout was first offered, on October 17th, Exelon shares traded at $54.50 and NRG shares traded at $19.33. Exelon offered to exchange 0.485 shares of its stock for each share of NRG. The total deal was worth about $6.2 billion. Exelon’s fixed 0.485 exchange rate means that at today’s share price the deal is worth only $20.07/share to NRG shareholders, or about $4.74 billion total.

NRG’s letter goes on to point out Exelon’s recent revelations about its “dramatically lower” hedging levels and expected “decline” in 2011 cash flow, both of which have led to downgrades from analysts.

But it could be too late. NRG has still not scheduled its annual shareholder meeting, probably because it doesn’t want to find out for sure just what cards Exelon is holding. For its part, Exelon has said that it is proceeding with obtaining regulatory approvals and seeking proxies to elect NRG directors at the next annual meeting. Whenever that happens.

Both NRG and Exelon have opened higher this morning.

Paul Ausick
March 13, 2009