Exelon abandons NRG takeover

Exelon Corp. today abandoned efforts to create the nation's largest electricity producer after its proxy battle to take control of power producer NRG Energy Inc. went down to defeat.

The Chicago company, which owns Philadelphia's Peco Energy Co., ended its nine-month hostile takeover bid after NRG said that 75 percent of its shareholders had snubbed Exelon's slate of directors.

"The NRG shareholders have spoken, and Exelon will move on," Exelon chief executive John W. Rowe said in a statement. "We wish NRG and its owners well."

Liberated from the unwelcome embrace, shares in the Princeton company rose 5.4 percent today, closing up $1.27 at $24.82.

Exelon shares also increased 2.5 percent as the company, whose debt was downgraded when it announced its offer last October, is likely to be regarded as a better credit risk now that it does not have to absorb NRG's debt. Exelon shares closed at $53.33, up $1.28.

NRG's rebuff of the $7.5 billion offer was Exelon's third failed takeover attempt since it was formed by the 1999 merger of Peco and Chicago-based Unicom. Friendly merger attempts with Illinois Power Co. in 2003 and with Public Service Enterprise Group in New Jersey in 2006 were foiled by regulators.

Most analysts still expect consolidation to continue in the fragmented power industry. While states exert regulatory control over power distributors that deliver electricity into homes and businesses, the real growth lies in unregulated electricity generators.

By most accounts, Exelon and NRG would have made a sleek combition. Exelon is the nation's largest nuclear-power generator. NRG owns power plants mostly in the Southwest, fueled primarily by gas and coal. It also owns a retail distributor in Texas.

From NRG's view, Exelon's bid was too cheap. Exelon this month increased its offer to exchange 0.545 shares for every NRG share, making NRG worth around $29 per share. But NRG shareholders wanted more. The company was trading at $39 last year, before the stock market crash. And NRG said the bid did not value NRG's potential.

"NRG stockholders understood that this vote was all about value," said David Crane, NRG's chief executive.

The vote was actually close by corporate democratic standards, where directors typically receive 94 percent, said Ralph Walkling of Drexel University's LeBow College of Business. "I think there's some dissatisfaction expressed in those votes," he said.

Indeed, Crane said today that NRG was not closing the door on any suitors.

Today's vote, announced at NRG's annual meeting in Princeton, was not on the merger itself, but on four of 14 directors seats on NRG's board. The shareholders also rejected a second Exelon proposal to expand the board from 14 to 19 members.

Contact staff writer Andrew Maykuth at 215-854-2947 or amaykuth@phillynews.com.