NRG is the Company of ‘No’ (NRG, EXC, RRI)

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NRG Energy Inc. (NYSE:NRG) has sent a long letter to shareholders counseling them not to vote for the new slate of directors being proposed by Exelon Corporation (NYSE:EXC).  NRG notes that the price of Exelon’s fixed exchange ratio offer has dropped 17% since Exelon first announced its proposal to acquire NRG. The company is still pounding the point that Exelon’s offer is “inadequate and unacceptable.”  NRG also points out that its proposed acquisition of Reliant Energy Inc.’s (NYSE:RRI) retail business will result in the addition of $150-$200 million in annual EBITDA for NRG shareholders beginning immediately.
There may be some who believe that Exelon’s acquisition could kill NRG’s acquisition of the Reliant business unit.  But where this ‘belief’ comes into play versus reality is that the business unit transaction is expected to close before any time that Exelon and NRG are expected to come to any formal vote or formal meeting.

NRG’s overall point is that it is the stronger company, with better free cash flow, solid liquidity, and better prospects going forward in both solar and nuclear power generation. That may all be true, but Exelon’s market cap is nearly seven times bigger than NRG’s, and big utilities usually enjoy cost and credit advantages.

Exelon has obtained an indication of a majority of shares in a tender offer that has been extended to June 26th, although what those formal numbers are may end up being very different depending upon a variety of factors and terms. NRG still has not announced a date for its 2009 annual meeting, but logic would dictate that should come shortly now that it has mailed its own proxy card.

Both companies are trading above their 50-day moving averages and up more than 20% from 52-week lows. However, Exelon shares trade about 49% lower than 52-week highs and NRG shares are off nearly 60% from 52-week highs.

Paul Ausick
April 3, 2009