Exelon proposes NRG merger

Exelon’s unsolicited proposal has offered to acquire all outstanding NRG common stock. The all-stock transaction will have a fixed exchange ratio of 0.485 Exelon shares for each NRG share. This equates to a value of $26.43 for each NRG common share, representing a total value of $6.2bn based on Exelon’s closing price of $54.40 on 17 October 2008. This is a 37% premium to the closing price for NRG shares on the same day, according to Exelon.

In a statement released yesterday, Exelon said the deal would allow NRG shareholders to exchange their stock for Exelon stock, providing “the opportunity to participate in the future growth of the largest and most diversified power company in the nation”.

Combined, the two companies would have a total enterprise value of approximately $60bn and a generating capacity of approximately 47,000 megawatts – “enough to serve nearly 45 million homes,” according to John Rowe, chairman and CEO of Exelon.

In a letter to David Crane, president and CEO of NRG, Rowe said the merger would “address critical national energy needs in a highly effective fashion” and create substantially more value for shareholders in both companies than either could generate alone.

He noted that board, shareholder and regulatory approvals would be required and that the latter may depend on “modest divesture” of some assets in certain markets. However, Exelon has created a divesture strategy to address any concerns regulatory authorities may have in this respect, according to Rowe.

NRG has confirmed receipt of the proposal and said its board of directors would review the details and respond appropriately “in due course”.