Exelon Corp. upped the ante in its $6.36 billion hostile takeover attempt of NRG Energy on Friday by proposing a slate of independent nominees for election to the NRG board of directors at the next NRG annual meeting of shareholders. Exelon said it also proposes to increase the number of NRG directors to 19 from 12.
Exelon said it would nominate nine "highly qualified, independent candidates" for election at NRG's 2009 meeting of shareholders. The slate includes sitting and former chief executives, and corporate governance experts.
"We believe NRG shareholders deserve a board that will act in the best interests of NRG and its shareholders," said Exelon CEO John W. Rowe. "We are looking forward to election of nominees who will exercise their fiduciary duty and act in the best interests of NRG and its shareholders and who will take seriously the value creation opportunity represented by the proposed combination with Exelon in comparison with any other strategic choices NRG may have. NRG shareholders have shown their support through their participation in Exelon's exchange offer."
In the beginning of January, Exelon announced that NRG shareholders had tendered 106,338,942 common shares to the bid, which represents about 45.6% of all outstanding common shares of NRG.
NRG responded that while Exelon's latest move looks to "compromise the independence" of its board, the governance and nominating committee of NRG's board will review the proposal.
"The company believes Exelon's actions to initiate a proxy fight are a clear attempt to compromise the independence of NRG's board in order to force a sale of NRG to Exelon at a price that is highly dilutive to NRG stockholders on a free cash flow basis," NRG said. "Through this latest aggressive tactic, Exelon is attempting to dilute NRG's board of directors and NRG stockholder value, while attempting to take all the value for Exelon's stockholders."
The NRG board and management reiterated that after careful and impartial consideration, Exelon's current offer is "not only inadequate, but also is dilutive, significantly undervalues NRG, and does not fully reflect the underlying fundamental value of NRG's assets, operations and strategic plan, including its strong market position and future growth prospects."
The board also noted, in regards to Exelon's unsolicited exchange offer, the lack of any committed financing to complete the offer and the many unfulfilled conditions -- including regulatory and Exelon stockholder approvals, among others.
NRG said that Exelon's hand-picked nominees, if elected, would be required to exercise their fiduciary duties properly on behalf of all NRG stockholders. However, the company questions the independence of Exelon's slate and is concerned that, if elected to the NRG board, Exelon's nominees would have inherent conflicts of interest in evaluating any transaction between NRG and Exelon or any alternative transaction.
Four nominees are proposed to replace the NRG Class III directors who are up for election at the 2009 annual shareholder meeting. The nominees are Betsy S. Atkins, Ralph E. Faison, Coleman Peterson and Thomas C. Wajnert. Exelon is also proposing five nominees to fill vacancies created from the proposed expansion of the NRG board to 19 directors. Those nominees are John M. Albertine, Marjorie L. Bowen, Donald DeFosset, Jr., Richard H. Koppes and Ralph G. Wellington.
Exelon noted that if the NRG board is expanded and the entire slate of directors nominated by Exelon is elected, it will represent slightly less than a majority of NRG's board. The two remaining seats on the expanded board would remain open to NRG's own director nominees. Exelon said that its decision to leave two seats open was designed to avoid a change in control of NRG that could trigger a requirement for NRG to pay a significant amount of its debt.
"Exelon is confident that with an expanded and reconstituted NRG board, a majority of NRG directors will exercise their fiduciary duty and vote for the clear path to shareholder value," said Rowe. "Despite the substantial premium our proposal represents to NRG's stock price as of Oct. 17, 2008, and the large number of shares of common stock tendered into Exelon's exchange offer, NRG's current board and management have continued their refusal to allow due diligence -- an essential step for a company that takes its fiduciary obligations to shareholders seriously and wants to create shareholder value. We strongly encourage NRG shareholders to support the slate of director nominees, and to tender their shares into Exelon's exchange offer to further drive this point home."
Exelon announced on Oct. 19 its proposal to acquire all outstanding shares of NRG common stock at a fixed exchange ratio of 0.485 of a share of Exelon common stock for each share of NRG common stock, which represented a 37% premium for NRG stockholders based on closing prices on the New York Stock Exchange on Oct. 17, the last trading day prior to the public disclosure of the Exelon offer. After NRG twice rejected the Exelon offer, Exelon brought its exchange offer directly to the NRG shareholders on Nov. 12 (see NGI, Nov. 17, 2008). In mid-December Exelon asked the Federal Energy Regulatory Commission to approve its proposed and unwelcome deal to acquire NRG. The company also filed notification with the U.S. Department of Justice and the Federal Trade Commission (see NGI, Dec. 22, 2008).
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