NRG Energy president’s support for industry consolidation came back to haunt him. A hostile takeover attempt by Exelon occurred October 19. NRG, which has about 2,000 MW of power in Southern California, is not formally commenting on the $6.2 billion takeover attempt at this time. The move by Exelon comes a few months after NRG’s own unsuccessful bid for Calpine. At that time, NRG president and chief executive officer David Crane said merchant generation needed to consolidate to survive. In May, NRG offered Calpine a 16 percent premium, or $23 share, for a NRG-Calpine stock swap. Calpine fended off the unwanted deal. In its unsolicited takeover bid, Exelon offers a 37 percent premium--$26/share--above the price of NRG’s stock at closing on October 17. Exelon’s bid would swap 0.485 of its shares for each of NRG’s common shares. “It could be a sign of the times that merchant companies are currently undervalued relative to the value of their individual generation assets,” said Gary Ackerman, Western Power Trading Forum executive director. Over the last few years, NRG, which is the third largest independent generator in the U.S., has ping-ponged from acquirer to acquiree. Prior to its bid for Calpine, Mirant tried a hostile takeover of NRG. NRG turned around and tried to acquire Mirant. Neither party was successful. This latest NRG merger attempt is below Mirant’s $7 billion unsuccessful NRG takeover in 2006. However, over the last two years, pressure to curb power plant carbon emissions in and outside California has grown significantly. A merger could help NRG dilute its heavy carbon footprint from its East Coast coal-fired plants. NRG, which holds $8 billion in debt, has seen its share value plunge in the jittery market. A year ago the company split its stock, which was then priced in the low $70 range. After the stock split, the shares were valued at $47--more than double prices this week. If there were an Exelon-NRG merger, the combined company would hold 47,000 MW of capacity, 18,000 MW of which is at nuclear power plants. NRG owns 24,000 MW of generation, 2,000 MW of which are nuclear from Texas plants. Texas-based NRG plans to expand nuclear capacity in its home state by another 2,000 MW for which it already has local and state permits. Owning natural gas, coal and nuclear fired plants, would allow the new mega-company to avoid losses and reap gains when one of the fuel’s prices soar, according to an insider, who asked not to be named. Presumably, Exelon would have to divest some of its power plants because of its market dominance. NRG’s August 2008 quarterly report showed that the company’s net earnings dropped to $129 million from $149 million in the same quarter in 2007. The most recent report showed earnings down overall, but there was a $9 million boost from the 250 MW Long Beach power plant repower (Circuit, Aug. 15, 2008). NRG owns the 960 MW Carlsbad and 650 MW El Segundo coastal power plants, which are being converted from wet cooling to dry cooling. The output of those plants, as well as that from the Long Beach plant, are under contact with Southern California Edison and San Diego Gas & Electric. NRG also has 200 MW worth of peaking units in Southern California, which have reliability must run contracts with the California Independent System Operator.
