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Exelon Walks Away From NRG

July 27, 2009
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NRG Energy Inc. shareholders last Tuesday reelected all of the company's director nominees, prompting Exelon Corp. to withdraw its hostile takeover bid for the company as it previously said it would. Shareholders also rejected Exelon's proposal to expand NRG's board with its own slate of five director nominees.

"The NRG shareholders have spoken, and Exelon will move on. We wish NRG and its owners well," said Exelon CEO John Rowe. "Now we can redouble our focus on Exelon's stand-alone growth opportunities. We have the nation's largest low-carbon nuclear fleet, and our plan to expand our nuclear output through uprates provides even greater upside from carbon legislation. We believe our long-term growth proposition remains the best in the industry."

Exelon said it believed it could have been successful in completing the transaction, but it was unwilling to raise its price to a level that would undermine its own value proposition.

Exelon's offer was "unfair," said NRG CEO David Crane.

"Our stockholders share the same commitment as the company's management and its board of directors to maximizing value either through continued effective implementation of the company's stand-alone business plan or through combination with Exelon or another interested party at a price that reflects the value NRG has created and our future growth prospects," Crane said. "While we will continue to evaluate any combination offers from Exelon or others, we will focus on delivering record financial results, maintaining our substantial liquidity, returning capital to our stockholders and other key elements of our stand-alone strategy."

Analysts at Tudor, Pickering, Holt & Co. Securities Inc. said the scrapping of Exelon's pursuit was a "good outcome in our view." Shares of both companies gained on the news, with NRG closing 5.4% higher Tuesday and Exelon closing 2.5% higher.

A number of proxy advisory firms and several financial analysts had said Exelon's most recent offer for NRG was not rich enough, and they recommended that shareholders reject it (see NGI, July 20). Exelon made its original offer late last year (see NGI, Nov. 17, 2008).

Fitch Ratings last week affirmed its ratings on Exelon (EXC) and Exelon Generation (Exgen) and removed them from "rating watch" with a "stable" outlook. "In Fitch's view, ending the pursuit of NRG is favorable for EXC's credit quality. It eliminates the prospect of a substantial increase in leverage that would have resulted from completing the transaction and assuming approximately $8.8 billion of NRG debt and preferred stock. On a stand-alone basis both EXC and Exgen have healthy credit profiles that are strong within their rating category," Fitch said.

Standard & Poor's Ratings Services (S&P) affirmed its "BBB" rating on Exelon, Exgen and PECO Energy Co. with a "stable" outlook and removed them from "CreditWatch," where they had been listed with a "negative" outlook.

S&P also removed NRG's ratings from CreditWatch and changed its outlook to "stable."

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