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FERC Approves Exelon's Unwelcomed Play for NRG Energy

Despite NRG Energy Inc.'s repeated rejection of a hostile takeover bid by electricity and natural gas powerhouse Exelon Corp., FERC last Thursday approved the merger of the two utility companies.

"We approve the transaction...with the condition that Exelon provide the final documents within 10 days of the closing of the transaction," the Federal Energy Regulatory Commission (FERC) order said [EC09-32]. FERC found that the proposed merger would raise neither horizontal nor vertical market power concerns.

Exelon told FERC that it "expects to implement the [merger] transaction notwithstanding the opposition of NRG's management." The Chicago-based energy company, the largest electric and natural gas utility in the country, further said it "will continue its efforts to reach a negotiated agreement with NRG." Exelon reported that 51% of all NRG shares had been tendered to Exelon as of March.

NRG Energy, a Princeton, NJ-based independent power producer, asked the Commission to "refrain from issuing an order until after a final structure and price have been negotiated in order to not become 'a pawn in Exelon's strategy to pressure NRG's board to negotiate a deal.'"

In November 2008, NRG Energy's board of directors unanimously rejected the unsolicited $6.2 billion merger proposal from Exelon, contending that the offer of 0.485 Exelon shares for every NRG share "grossly undervalued" NRG and was a bad deal for its shareholders (see NGI, Nov. 17, 2008). NRG sent a letter to Exelon CEO John Rowe detailing its reasons for the rejection signed by board Chair Howard Cosgrove and CEO David Crane.

NRG's board concluded that based on the fixed stock exchange ratio of 0.485, NRG shareholders would end up owning about 17% of the combined companies while contributing 30% of the cash flow.

"While undoubtedly an exceptional deal for your [Exelon] shareholders, it is not at all right for our shareholders," Crane and Cosgrove wrote, noting that NRG is a "believer" in industry consolidation, and will be a "willing seller or buyer" when there is genuine value created for both parties.

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