NRG Energy, Inc. Calls upon Exelon to Withdraw Its Proposal to Expand the NRG Board; Proposal Creates Unnecessary Risks for NRG Stockholders
– By Jack Bryar –
NRG Energy, Inc.’s Board of Directors and management team, in a letter sent earlier today to Exelon, called on Exelon to withdraw its proposal to expand the NRG Board. In its preliminary proxy materials filed on March 17, 2009, Exelon again proposed to expand the size of the NRG Board to up to 19 directors seeking to elect a total of nine nominees. Exelon has proposed electing four of its nominees to replace four of NRG’s incumbent Board members currently up for re-election, including NRG’s Chairman, and is also proposing to enlarge the NRG Board and to pack it with five more of its nominees at NRG’s annual meeting.
If NRG’s stockholders approve Exelon’s proposal to expand the size of NRG’s Board—and all of Exelon’s nominees were elected to the Board—under the current circumstances, Exelon’s nominees would hold 50% of the directors on the expanded NRG Board. Under the terms of NRG’s debt facilities, such an outcome could trigger an acceleration of NRG’s approximately $8 billion of outstanding corporate-level debt which would have serious negative consequences for NRG and all of its stockholders. Refinancing such a substantial amount of debt, whether done by NRG or Exelon, in the current capital market environment would, at best, be prohibitively expensive and, at worst, impossible to achieve.
Even an outcome which causes current NRG directors to hold a one vote majority poses a threat to NRG stockholders in that the debt acceleration provision could also be triggered by future events, such as the departure of even one current NRG director, for whatever reason.
Given that Exelon’s Board expansion proposal could trigger an acceleration of NRG’s debt and would create a Board that is unnecessarily large, unwieldy, ineffective and not consistent with best corporate practices, NRG believes that it is incumbent upon Exelon to rectify this situation by withdrawing its proposal to expand the Board.
“NRG believes that the Board expansion element of Exelon’s proposal is imprudent and carries with it the risk of occurrence of an unintended event with serious value destructive consequences that would not be in the interest of NRG stockholders; nor is it clear what is gained for Exelon stockholders by Exelon management risking such an outcome,” said Howard Cosgrove, NRG’s Board Chairman. “Exelon should withdraw its expanded slate. If it does not, the Board of Directors of NRG will act to add an additional director to reduce the risk of an unintended triggering of NRG’s debt facilities, which would put NRG and its stockholders at further risk. Consistent with NRG’s normal standards, any such director would have the appropriate qualifications and substantial experience in the power industry.”
While NRG anticipates its stockholders will examine the risks and dynamics of this proposed expansion prudently, the Company feels compelled to highlight these issues early on in this proxy contest.
NRG Energy, Inc., a Fortune 500 company, owns and operates one of the country’s largest and most diverse power generation portfolios. NRG’s 48 plants provide approximately 24,000 megawatts of generation capacity—enough to power nearly 20 million homes. In November 2007, NRG won two of the industry’s highest honors—Platts Industry Leadership and Energy Company of the Year awards. Headquartered in Princeton, NJ, NRG is a member of the U.S. Climate Action Partnership (USCAP), a group of business and environmental organizations calling for mandatory legislation to reduce greenhouse gas emissions.