NRG Asks Stockholders to Continue to Send Message to Exelon That Its Proposal Remains Inadequate
NRG Energy Inc. is mailing a letter to NRG stockholders from David Crane, President and Chief Executive Officer, and Howard Cosgrove, Chairman of the Board, in connection with the Company’s 2009 annual meeting of stockholders, to be held on July 21, 2009.
NRG’s Board of Directors recommends that stockholders vote today for the Board’s four experienced and highly qualified independent directors—John F. Chlebowski, Howard E. Cosgrove, William E. Hantke and Anne C. Schaumburg—by promptly voting the WHITE proxy card by telephone, Internet or mail. NRG’s Board also asks that stockholders vote against Exelon Corporation’s proposal to expand NRG’s Board of Directors and disregard any blue proxy cards they receive from Exelon.
The full text of the letter follows:
June 24, 2009
Dear NRG Stockholders:
NRG STOCKHOLDERS ARE REJECTING EXELON’S INADEQUATE OFFER
Exelon recently announced that only 12% of NRG shares were tendered into its exchange offer as of June 16, 2009, as compared with 51% tendered on February 26, 2009. The inescapable conclusion derived from the hemorrhage of support for Exelon’s offer, in our opinion, is that Exelon’s exchange offer, as inadequate as it was when first proposed on October 19, 2008, is even more inadequate today because of NRG’s dramatic value creation over the past eight months.
Whatever Exelon has said to date, we think they clearly recognize the vast erosion of support for their current proposal. Exelon has indicated it intends to make a decision at its June 30th Board meeting regarding its hostile offer for NRG. While uncertain, Exelon may decide to withdraw its offer or it may decide to increase the offer price. If Exelon increases its offer, we believe such a step would be intended to try to persuade you to replace some of the very directors who have overseen the significant value creation at NRG with directors handpicked by Exelon in the hope that the new directors nominated by Exelon would look favorably upon whatever Exelon’s offer is on the table at the time.
DON’T LET EXELON PUT ITS PEOPLE ON THE NRG BOARD
We urge you to use the WHITE proxy card to continue to send the message to Exelon that its proposal was and is inadequate, and the merit of any proposal made by Exelon is best and most impartially assessed by NRG’s highly experienced Board of Directors as presently constituted, by voting:
• “FOR” NRG’s four highly qualified INDEPENDENT directors; and
• “AGAINST” Exelon’s proposal to expand your Board and thereby reject the Exelon expansion slate of nominees.
YOU SHOULD ASSESS ANY OFFER FROM EXELON AGAINST THE VALUE OF NRG’S EXISTING PORTFOLIO, TAKING INTO ACCOUNT NRG’S CONTINUING TRACK RECORD OF ADDITIONAL VALUE CREATION BEGINNING WITH TEXAS. . .
Texas is the most attractive competitive energy market in the nation, with healthy prices for baseload power in addition to higher than national average demand growth prospects. When the current economic recession begins to subside in Texas, which has historically rebounded faster and more strongly than Exelon’s areas of concentration in the Midwest and PJM, we expect NRG stockholders will realize greater benefit from the Company’s strong position there than they would if their Texas position was severely diluted—a natural consequence of the Exelon proposal. Moreover, the strong correlation that exists between natural gas and wholesale electricity prices in Texas is a critical element of NRG’s highly successful forward contracting program which has proven instrumental in insulating NRG’s current financial performance from the effects of the economic downturn.
NRG’s low-cost baseload assets in Texas, totaling 5,340 megawatts (MW) of generating capacity, consist of: NRG’s existing nuclear plant, South Texas Project 1&2 (STP 1&2), and two modern and environmentally compliant coal plants. Additionally, NRG maintains a well–positioned 5,475MW natural gas fleet in the greater Houston area.
In June 2006, NRG launched its “RepoweringNRG” initiative to develop new, highly efficient and principally low and no carbon, generating facilities across our fleet. The centerpiece of RepoweringNRG is South Texas Project (STP 3&4,) two new advanced nuclear units, totaling 2,700MW of nameplate capacity, in Matagorda Country, Texas. NRG’s STP 3&4 project was recently chosen as one of only four nuclear development projects advanced by the Department of Energy in its loan guarantee program (out of 18 total applications, one of which was Exelon’s), positioning NRG at the forefront of US nuclear development. In addition, this week, NRG is bringing on line (on time and under budget) Cedar Bayou 4, a state-of-the-art gas-fired combined cycle plant (550MW gross). Finally, we finished our second Texas wind project (Elbow Creek) in December and began construction of our third wind farm (Langford) in the first quarter of 2009.
On top of NRG’s demonstrated value creation in its Texas generation business, on May 1, 2009, NRG acquired Reliant Energy, the leading retail electricity provider in the ERCOT market. Reliant’s retail business, which is highly complementary to NRG’s wholesale generation business in Texas, was acquired by NRG at a very attractive price: NRG paid $287.5 million plus working capital for a business which we now project to be a $250 million EBITDA/year (midcycle) business over the next several years.
What value does Exelon, in its original offer, propose to award to NRG stockholders for all of these assets and businesses in Texas?
| TEXAS | SIZE | VALUE (BEING OFFERED BY EXC) |
COMMENT | |||||||
| Baseload | 5340MW | (1) | 73% of Replacement Cost based on Exelon’s own estimates | |||||||
| Gas Plants | 5475MW | Zero | $50-100mm EBITDA/year | |||||||
| Cedar Bayou 4 & Wind | 620MW | Zero | New, state-of-the-art facilities with total equity invested ~$850mm | |||||||
| Reliant retail | 1.7M customers | Zero | $250mm EBITDA/year | |||||||
| STP 3&4 Nuclear Development | 2700MW (gross) | Zero | One of four leading projects in nuclear renaissance |
(1) In a February 2, 2009 investor presentation, Exelon assigned to NRG’s existing Texas baseload assets (which only include STP 1&2 and our two coal plants) a replacement value of $3,000 per kilowatt (KW). NRG’s 5,340MW of baseload generation in Texas, based on Exelon’s $3,000/KW replacement cost, are worth approximately $16 billion enterprise value. Subtracting out NRG’s approximate $7 billion of net corporate debt, that leaves an equity value for our baseload assets of approximate $9 billion or $33/NRG share. Compare that with the $24/NRG share Exelon is offering for all of NRG (the 0.485 exchange at closing price of Exelon on June 22 of $48.99/ps).
. . .BUT IN OUR VIEW THE “REST OF TEXAS” IS ONLY THE BEGINNING OF WHAT EXELON SEEKS TO TAKE FROM NRG STOCKHOLDERS
NRG’s non-Texas assets include:
• NRG Northeast: 7,020MW of generating capacity located close to load centers throughout the Northeast.
• NRG South Central: 2,845MW of natural gas and coal plants in Louisiana, featuring long term off-take contracts with local rural cooperatives.
• NRG West: 2,130MW of natural gas sites in California and Nevada with exceptional repowering opportunities and site value.
• NRG’s International Assets: 1,005MW including the Gladstone coal plant in Australia, as well as the Schkopau coal plant in Germany.
• NRG’s Thermal Assets: The Company’s thermal and chilled water businesses generate approximately 1,020MW thermal equivalents in five American cities.
To give you an idea of the value of NRG’s asset portfolio excluding Texas, in August 2005, a month before NRG announced its acquisition of Texas Genco, the stock market ascribed a firm value to NRG of approximately $6.4 billion, based on an asset portfolio that has not changed materially from the one described above. As mentioned earlier, Exelon’s original offer does not even adequately compensate you for the full value of our three baseload plants in Texas, much less the rest of our valuable business in Texas. On top of that, Exelon’s proposal seeks to take for Exelon’s stockholders 100% of the value of NRG’s entire non-Texas business, more than 13,000MW of generating facilities.
AS NRG HAS DEMONSTRATED EVEN DURING THIS RECESSION AND WITH THE EXELON HOSTILE TAKEOVER ATTEMPT PENDING, NRG NEVER STOPS LAYING THE FOUNDATION FOR FUTURE VALUE CREATION. . .
During the eight months since Exelon first announced its hostile takeover attempt, NRG:
- Completed the acquisition of the retail electricity business of Reliant Energy;
- Sold the MIBRAG lignite business in Germany;
- Acquired the principal advanced development assets of eSolar;
- Completed the Elbow Creek wind project and the Cedar Bayou 4 CCGT project;
- Began construction of the 150MW Langford Wind Project and the 400MW GenConn peakers in Connecticut;
- Advanced to the final due diligence phase for the DOE nuclear loan guarantee for STP 3&4 while advancing other stimulus project applications as well;
- Secured a $534 million nonrecourse debt financing for the GenConn projects;
- Arranged $700 million of debt financing in anticipation of collapsing the ring fence credit arrangements around the Reliant retail business;
- Received a credit rating upgrade from Standard & Poor’s; and
- Achieved record full-year EBITDA and free cash flow performance for 2008.
During that same time, it is not apparent what if any comparable value creating measures Exelon has engaged in.
The NRG Board strongly believes that the value of the strategic initiatives that the Company has engaged in so successfully belong to you, not to the shareholders of Exelon. The Board also believes future value creation by NRG should belong to you unless Exelon is willing to pay appropriate value for all of NRG’s assets and opportunities.
AS THE OWNERS OF NRG, YOU NEED AND DESERVE AN EXPERIENCED AND INDEPENDENT BOARD OF DIRECTORS, BEHOLDEN TO NO THIRD PARTY, TO SUPERVISE AND ASSIST US AS WE MOVE FORWARD WHILE PROTECTING THE VALUE OF YOUR INVESTMENT IN NRG
NRG’s Board of Directors, working with and through NRG’s management team, has positioned the Company not only to survive, but to flourish in economic down cycles as well as in up cycles. Over the past several months, under difficult economic and financial market conditions, the Company has shown not only resilience and steadfastness but—through the Reliant and other transactions—a nimbleness to capture substantial value in the external market whenever and in whichever direction the opportunity presents itself.
You should give careful consideration to what the Board candidates nominated by Exelon will focus on and how they are likely to act should you elect them on to the NRG Board. We recommend you vote against any such outcome and in favor of the current directors of NRG who have overseen significant value creation at NRG and are in the best position to assess the reasonableness of any current or future Exelon offer against the other opportunities available to optimize NRG value at the time.
VOTE “FOR” YOUR BOARD’S NOMINEES ON THE WHITE PROXY CARD TODAY AND AGAINST THE BOARD EXPANSION PROPOSAL SPONSORED BY EXELON
We believe that Exelon’s proposals for the Annual Meeting are merely a means to force through an inadequate and highly conditional exchange offer that would not properly compensate NRG stockholders.
To vote against that potential outcome, please sign, date and return the enclosed WHITE proxy card promptly after you receive it. You may also vote by phone or Internet by following the instructions on your WHITE proxy card. Do not vote the Exelon proxy card at all as it may cancel your previous vote for NRG.
Your vote is important, no matter how many shares you own. If you have any questions or need any assistance voting your shares, please contact MacKenzie Partners, Inc., which is assisting NRG in this matter, at 800.322.2885.
On behalf of NRG’s Board of Directors, we thank you for your continued support.
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Sincerely, |
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| David Crane President and Chief Executive Officer |
Howard Cosgrove Chairman of the Board |