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Exelon Extends Deadline in NRG Bid

Chuck Marvin

Exelon will extend the deadline to Feb. 25 in its hostile bid for NRG Energy(NRG Quote) after NRG shareholders tendered 45.6% of the outstanding shares.

NRG management urged its shareholders to reject the overture.

"The current Exelon offer is highly conditional and significantly undervalues NRG," the Princeton, N.J.-based firm said in the statement. "As always, we remain open to being a buyer or a seller at an appropriate value that compensates for the value and risk of the transaction."

"We are very pleased with the momentum our exchange offer is receiving among NRG shareholders," said John W. Rowe, Exelon chairman and CEO. "This strong tender at this early stage speaks powerfully to the merits of our proposed transaction, a combination we believe will create substantial value for NRG shareholders, both from the immediate premium they will receive and through their ongoing ownership of shares in a stronger combined company."

Exelon first unveiled its intention to buy NRG Energy in October when it offered NRG's board $6.2 billion in stock for the firm. When NRG's management scoffed at the offer and said it was too low for consideration, Exelon immediately circumvented NRG's headquarters and pitched the same offer to its shareholders directly.

NRG's stock price traveled comfortably above $40 per share for more than a year thanks to the recent commodity boom, and then nosedived to a 52-week low of $15 a share between July 1 and Oct. 9. However, shares of NRG had crawled back near $25 when Exelon made its initial unsolicited offer of $26 on Oct. 19.

The success of Exelon's tender offer suggests that NRG's shareholders and management team had wildly differing outlooks about the investment climate and the economy when Exelon offered each side an easy way to cut and run from their positions.

Last summer's slide in energy commodity prices was almost entirely driven by falling demand by way of a violent deceleration in economic activity around the globe. However, the supply and demand fundamentals of energy were still very tight, especially when analyzed three, five and 10 years out.

Although reports of blistering demand for energy from China and other emerging markets dominated energy discussion boards as the energy morphed into an irrational bubble, the steep slope of oil's trajectory was actually caused by a shock on the supply side more than the demand side.

Because the fundamentals of energy supply last October were nearly identical to supply fundamentals early last spring, NRG's executives likely don't want to sell a valuable energy company at the bottom of the economic cycle. However, the picture probably didn't look as rosy for those NRG stockholders who watched their investments shrink by 66% in fewer than six months.

NRG shares closed Wednesday's trading session down 5% to $23.37, and Exelon closed down 3.8% to $55.22.