Exelon CEO says company will do 'whatever it takes' to pursue $6.2 billion NRG acquisition

By Jennifer Lanning Drey

Portland, Ore., Oct. 20 - Exelon Corp. is committing to doing "whatever it takes" to pursue its $6.2 billion unsolicited offer for NRG Energy Inc., John W. Rowe, chief executive officer of Exelon, said Monday during a conference call held to discuss the potential transaction.

"We don't enjoy the hostile side of this. We would like to believe this can be done in a friendly way, but we have received all of the appropriate advice as to what it may take," Rowe said.

Exelon announced its proposal on Monday to acquire NRG Energy in an all-stock transaction with a fixed exchange ratio with a value of $26.43 for each NRG common share. The value is based on the Exelon closing price of $54.50 on Oct. 17.

"We don't offer NRG shareholders a 37% premium simply out of the goodness our hearts. We have analyzed this again and again in terms of earnings, in terms of cash flow, in terms of long-run value appreciation. By all three of those metrics, this is the best thing we've looked at in a long time for our shareholders," Rowe said.

Exelon's preliminary estimates indicate the transaction would be accretive to earnings in the first calendar year of operation and over time provide additions to value of between $1 billion and $3 billion for Exelon shareholders.

Additionally, Rowe said Exelon believes the transaction will increase its levered free cash flows by 20% on an annual basis within its five-year planning horizon.

Path forward

In addition to requiring board and shareholder approvals, Exelon believes the proposed transaction would also require state approvals in Texas, New York, Pennsylvania and California.

Rowe noted that Exelon expects the process of gaining regulatory approvals to be timelier and more predictable than in past transactions because it does not involve an integrated utility with a local distribution company.

Later in the call, the CEO noted, "We can't put a timeline on approvals, but we'll hang in there and get it done."

Exelon believes any difficulty encountered in gaining regulatory approvals could be addressed through the divestiture of up to 3,000 megawatts of its assets in select areas, namely the Electric Reliability Council of Texas (Ercot) and PJM East on the central East Coast.

Committed to current ratings

Also during Monday's call, Rowe said Exelon would remain committed to its investment-grade rating, which it expects to keep but possibly see lowered in the near term.

"We are committed to restoring the credit ratings of the combined company to Exelon's current strong investment-grade ratings," Rowe said.

The company anticipates it will take between two and three years to regain its current investment-grade status.

After funding its basic investment requirements, Exelon's next priority will be debt reduction, Rowe said.

The company has been working with lenders to secure financing commitments to refinance about $8 billion of NRG's debt that is putable or would need to be refinanced under change-of-control provisions.

Exelon is optimistic it will have a commitment in place within the next few days, Rowe said.

Exelon is a Chicago-based electric company.

NRG is a Princeton, N.J.-based power company.

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