By Michael Erman
NEW YORK (Reuters) - EXELON (EXC.NY)Corp
Exelon, the largest nuclear power operator in the United States, unveiled its bid for NRG late on Sunday night. It offered to pay a fixed exchange ratio of 0.485 Exelon share for each NRG share, equal to about $25.27 a share at current prices.
"We hope this turns out to be friendly rather than hostile, but we are committed to pursuing this offer and we shall do so," Exelon Chief Executive John Rowe said in a conference call with investors.
"We did not do this lightly and we were very well advised about what it might take to get this done," Rowe said.
Shares of NRG Energy Inc
NRG Energy shares were one of the top gainers on the New York Stock Exchange, but were still trading below what they would be worth in the Exelon deal. They jumped $4.05 to $23.38, while Exelon shares slipped 4.4 percent, or $2.40, to $52.10, both on the NYSE.
NRG has said its board will review the offer and make a response "in due course."
With the acquisition of NRG Energy, Exelon would expand its unregulated energy business. The combined company would be the No. 1 U.S. power company, with generating capacity of around 47,000 megawatts, enough electricity to serve nearly 45 million homes, according to Exelon.
Exelon said the deal could add between $1 billion and $3 billion for its shareholders and could increase its annual cash flow by more than 20 percent a year over the next five years.
But the company also suspended its $1.5 billion share buyback program announced in September, saying it may not be able to complete it due to current market conditions, even if the NRG deal fell through.
Before Exelon's bid, NRG Energy shares had lost more than one-half of their value since July. Calyon Securities analyst Gordon Howald said the Exelon deal undervalues NRG.
"We believe it underestimates the value of NRG once today's credit crisis lessens. We believe the upside potential for NRG shareholders is greater if NRG were to remain a stand-alone entity," he said.
But Barry Abramson, utility analyst at Gabelli Asset Management Inc, said he believes the offer is fair given current market conditions.
"It's a little on the low side, but we're in a terrible market. You're not going to expect offers to look generous in this environment," he said.
Gabelli owns shares of both NRG Energy and Exelon.
"It's a great fit for both companies," Abramson said, noting that it is now difficult for a company like NRG Energy to raise capital to maintain its plants or build new ones.
Being attached to a company with a large regulated utility business like Exelon would make it easier to finance growth, he said.
(Reporting by Michael Erman; editing by Matthew Lewis)
