UPDATE 4-Exelon offers to buy NRG for $6.2 bln in stock

Mon Oct 20, 2008 3:20am EDT

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(Adds NRG comment in paragraph 4)

By Jessica Hall

PHILADELPHIA Oct 19 (Reuters) - Exelon Corp (EXC.N), the largest nuclear power operator in the United States, made an unsolicited offer to acquire NRG Energy Inc (NRG.N) for $6.2 billion in stock, in a move to expand geographically and boost earnings and cash flow.

The combined company would be the No. 1 U.S. power company, with generating capacity of around 47,000 megawatts, or enough electricity to serve nearly 45 million homes, Exelon said in a statement on Sunday.

The company would have a presence in the uranium, natural gas, coal and oil sectors. Buying NRG, an independent power producer, would expand Exelon's unregulated energy business.

In a statement early on Monday, NRG said its board would review the offer and advised its stockholders not to take action pending the review.

The merger would mark a change in strategy for NRG, which does not face the same regulatory structure as typical utilities.

Exelon, which operates ComEd and Peco utilities in Illinois and Pennsylvania, said it offered to pay a fixed exchange ratio of 0.485 Exelon shares for each share of NRG outstanding, which represents $26.43 a share based on Friday's closing prices.

The offer represents a 37 percent premium over NRG's closing price on Friday of $19.33, which was a 6.3 percent gain on the day.

Exelon said it would also "appropriately address the interests of the holders of NRG preferred stock," but additional details were not immediately available.

"I know that you are committed to realizing the upside potential embedded in NRG's stock, which we agree is not fully reflected in its current stock price. We believe our proposal fully addresses that concern," Exelon's Chairman and Chief Executive John Rowe said in a letter to NRG executives.

Exelon asked NRG to hold discussions immediately to forge a definitive agreement. In the letter, Exelon said executives from both companies met on September 30.

The letter was delivered on Sunday to NRG President and CEO David Crane and Chairman Howard Cosgrove, Exelon said.

The unsolicited offer for NRG comes less than five months after NRG saw its unsolicited offer to buy Calpine (CPN.N) for $9.2 billion fail. Calpine rejected NRG's bid as too low. Exelon has its own rocky merger history. In 2006, it walked away from a $17.7 billion takeover of Public Service Enterprises Group Inc after failing to reach an agreement with regulators looking for concessions from the utilities.

DEBT, DIVESTITURES

Although the deal would immediately boost earnings and cash flow, the combination is expected to reduce Exelon's credit ratings, Exelon said. It said it would be committed to restoring the ratings of the combined company to Exelon's current level.

Exelon said it believes "a substantial amount" of NRG debt may need to be refinanced on a change of control of the company. Based on discussions with its financial advisors, Exelon said it believes it could arrange for the refinancing of NRG debt and address an NRG lien facility with trading counterparties.

As of June 30, NRG had $8.1 billion in long-term debt, according to Reuters data.

Exelon also said it believes that "modest divestitures of some assets" of the combined company would need to be made to gain approval from regulatory authorities. It said it was confident its divestment strategy would allow the deal to gain regulatory approval.

The offer is subject to due diligence and review of the companies' proprietary financial records, Exelon said. (Additional reporting by Michael Erman in New York and Savio D'Souza in Bangalore; Editing by Anshuman Daga and Chris Wickham) (For more M&A news and our DealZone blog, go to here)

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