Exelon Finally Gives Up On NRG Bid

Last Updated Jul 21, 2009 12:05 PM EDT

Nine months after its initial offer to buy power plant operator NRG Energy for $6.2 billion, Exelon has given up. Stockholders voting this morning at NRG's annual meeting decided to reject all of the new board members proposed by Exelon, letting the suitor know its raised $7.53 billion bid was still far too low. Although NRG CEO David Crane has said several times that NRG is willing to be bought, he fought hard against being taken over. I also argued a month ago that Exelon's bid had made NRG work harder than it normally would have done, setting up partnerships with green energy startups like eSolar and winning a spot in a Department of Energy loan guarantee program for new nuclear plants.
Exelon could have hung on and raised its offer yet again; another 10 to 20 percent bump might have won NRG's shareholders over. But since it was funding the acquisition with stock, its own shareholders might have objected to that.

The question is what Exelon will do now. During the tenure of CEO John Rowe, the company has been on the prowl continuously for an acquisition target, unsuccessfully trying to pick up both Dynegy and the Public Service Enterprise Group. With three strikes against it, it could give up on acquisitions and try to expand through building new plants, especially if nuclear power wins more political support.

But there are also plenty of smaller acquisition targets to be had for about the same amount it was bidding for NRG. The same DOE program NRG won a place in includes Scana, which currently has a market cap of around $4 billion, making it a fairly easily digestible target.

Then again, Exelon may have had its fill of bidding. The company seemed to feel that the recession would provide a good opportunity to take over a new company, since the stock price of most firms has gone down significantly. But the energy industry is also facing a massive shift from carbon cap and trade legislation, and the smaller, more nimble companies may well feel that their value is higher as a result. NRG certainly does.