Tuesday, July 7, 2009

When a takeover battle goes nuclear (EXC; NRG)

From Fortune via CNN Money:
...Rowe told Crane that his board had met that afternoon, and he had some news: Exelon, the country's biggest electric utility, was hereby offering to buy NRG (NRG, Fortune 500), the country's fastest-growing independent electricity merchant -- it sells wholesale power to utilities -- for stock in a deal worth $6.2 billion. Term sheet to follow, press release within the hour. "Offer" was a euphemism; this was a hostile act.

Crane was stunned, less by Rowe's uninvited bid (his lust for NRG was no secret) than by his choosing to publicize it instantly. Protocol dictates that a classic bear hug, as the M&A world defines the ritual, begin with a warm embrace, in private, with an eye toward achieving mutual consent. Rowe wasn't even pretending to be nice. Crane could imagine why. NRG was secretly pursuing two deals of its own with Houston-based power companies: one code-named Doris, for Dynegy (DYN), the other Rodeo, for Reliant. Either would create regulatory obstacles that could block Exelon. Somehow Rowe had gotten wind of them. Neither was imminent, Crane says now ("He had a lot more time"), but Rowe didn't know that....


...How you handicap the outcome depends on how you view the broader prospects for the economy. V-shaped cycle, you think? Advantage NRG, which as a wholesale power merchant with ambitious growth plans would benefit disproportionately from a sharp, sustainable recovery; Exelon would have to boost its bid or walk away. U- or L-shaped? Advantage to the bigger, better capitalized Exelon, whose willingness to pay up for a growth company in hard times may look better and better to NRG's battered shareholders the longer the downturn lingers....MORE