Exelon-NRG combo would form nation’s largest utility

Exelon has proposed the purchase of all the outstanding shares of NRG’s common stock for $6.2 billion. The combination of Exelon and NRG would form a utility with a generating capacity of about 47,000 MW and create the largest utility in the U.S., dwarfing both American Electric Power with 36,000 MW and Duke Energy with 35,000 MW of installed power generating capacity.

NRG Energy Inc.’s shares have plummeted 55% since July 1, and on Sunday, U.S. nuclear giant Exelon Corp. offered to buy the debt-laden New Jersey company for about $6.2 billion.

In a letter to NRG President and CEO David Crane and Chair Howard Cosgrove, Exelon proposed to acquire all of NRG’s outstanding common stock in an all-stock transaction with a fixed exchange ratio of 0.485 Exelon shares for each NRG share.

That means if NRG accepts the proposal, NRG common shareholders could exchange their stock, tax-free for Exelon’s. The proposed deal values each NRG common share at $26.43. It would be based on the Exelon closing price of $54.50 in trading on Oct. 17.

“An Exelon-NRG combination would result in a total enterprise value of approximately $60 billion with a generating capacity of around 47,000 megawatts, or enough electricity to serve nearly 45 million homes,” said John W. Rowe, chair and CEO of Exelon.

The joint company would have 18,000 MW of nuclear power generation once the deal is approved, the Exelon statement said.

“This combination would not only diversify Exelon’s generation portfolio geographically, it would also create immediate earnings and cash flow accretion. We believe a combination of Exelon and NRG would represent an exceptional value for shareholders of both companies.”

In a statement on Monday, NRG confirmed receipt of the “unsolicited” proposal from Exelon. It said it would review it with financial advisors from Citigroup Global Markets and Credit Suisse Securities and respond in due course.

It also asked NRG stockholders to take no action until a decision had been made by the board of directors.

Earlier this year, NRG offered $11 billion to take over Calpine Corp. Calpine ended discussions on the possible merger after rejecting the offer as inadequate this August.

In 2006, Mirant Corp. had offered NRG $7.86 billion in a hostile takeover, but that deal was withdrawn a month later.

The Princeton, N.J., company had been forced into bankruptcy after Enron Corp. collapsed in December 2001.

In its letter to NRG on Sunday, Exelon said that the proposed merger would financially strengthen the company. NRG is highly leveraged with over $8 billion of debt and has a corporate credit rating of B+.

“The combination of Exelon and NRG will reduce the leverage associated with NRG’s current business and enhance its credit rating. Although the combination is expected to reduce Exelon’s credit ratings, Exelon is committed to a path to restore the ratings of the combined company to Exelon’s current ratings.”

Sources: Exelon Corp., NRG Corp.