Earlier today, Exelon (EXC), a utility company with more than five million customers in Illinois and Pennsylvania, announced it was immediately withdrawing its bid to buy NRG Energy (NRG) following an unsuccessful proxy fight. NRG has more than 1.7 million customers in Texas, and it has power plants capable of generating enough energy to power more than 20 million homes.
Exelon's announcement follows the results of a hotly-contested proxy contest held by NRG, in which Exelon attempted to elect its own slate of directors. The attempted acquisition was fought by NRG's existing management, who issued a letter to shareholders saying, "Exelon's offer continues to undervalue NRG and does not compensate you adequately." The letter cited several analyst reports, which valued NRG at $32 to $42 per share, compared to the effective price of the stock deal offered by Exelon of about $26 per share.
Exelon initially offered 0.485 shares of its stock for each share of NRG in October 2008, an amount later raised more than 12 percent to 0.545 shares. According to the shareholder letter, negotiations had been at an impasse, with the last contact between management teams coming in early January.
The total amount of the bid fluctuates because of changes in Exelon's stock price, but based on closing values yesterday, the offer would have equaled about $7.5 billion, or a 15 percent premium to the current trading price. That equals 1.0x NRG Energy's last reported net book value, or 1.5x net tangible book value. Exelon shares trade at 2.9x net book value, or 3.7x net tangible book value. Shares of Exelon are up two percent today, and shares of NRG Energy have risen four percent.
Commenting on the proposed transaction, Exelon CEO John Rowe said, "The NRG shareholders have spoken, and Exelon will move on . . . 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."
James Cullen edits and writes at CollegeAnalysts.com. He has no personal position in the stocks mentioned above.