Open letter expresses position of CEO and Chairman
– Edited by Jack Bryar –
NRG Energy, Inc. (NRG) has issued the following open letter to NRG stockholders:
Dear Fellow NRG stockholders:
As there are two sides to every coin, there are two sides to every fixed exchange ratio offer. Over the past two weeks, we have communicated with you about the economic value NRG has demonstrated, for its part, through the pending Reliant Retail acquisition and MIBRAG sale, and eSolar development deal. It is equally important, in light of Exelon’s announcements this week, that NRG stockholders be aware of the significant erosion in Exelon’s financial outlook. Please keep in mind that the Exelon offer, not only is a fixed exchange ratio offer, it contains no floor or collar. As such, the Exelon offer, which Exelon has repeatedly claimed represents a 37% premium or $26.43 per NRG share to you is, as of the close of business yesterday, now worth $20.07 per NRG share, or a 4% premium per share to our price on October 17.
As you know, the primary objection of NRG’s management and Board of Directors to the Exelon offer has been and continues to be the price. The exchange ratio of 0.485x does not come close to compensating you for the value of your interest in your Company. NRG’s substantial liquidity, ample cash balances, extensively hedged baseload position combined with our proven ability to be nimble put us in a strong position to capitalize on the opportunities in the marketplace as we have so recently demonstrated. In contrast, Exelon has made disclosures this week that heighten our previously stated concerns about Exelon’s lack of a financing plan or a cogent management and hedging strategy for the combined company.
Relative Value: Accretion/Dilution—During its March 10th Analyst Conference, Exelon acknowledged substantial projected weakness in its 2011 earnings and cash flow. This sudden and severe change of viewpoint is notable given that Exelon has been touting its “significant uplift in 2011” as one of the primary benefits of its offer for NRG stockholders. Given that Exelon’s hedging levels are dramatically lower than was previously understood, we are concerned about the uncertain impact on earnings and cash flow stability. Our view is that the Exelon exchange offer not only needs to be improved, but also that a dollar-based floor value needs to be added to protect NRG’s stockholders against the recent and potentially future deterioration in Exelon’s stock price.
Financing Plan—NRG also has significant issues with the finance plan for their proposed offer. In addition to the lack of committed financing, Exelon has now disclosed that additional equity financing and/or asset sales will be required to maintain investment grade credit ratings. Given the severely depressed state of the current market for asset sales, we are concerned that Exelon will be required to issue a very substantial amount of new equity in this severely challenged equity market. This is indeed troubling, as it will dilute your interest in addition to the decline in their 2011 cash flow.
Management Plan—Given the events of Exelon’s Analyst Day, it is essential that Exelon demonstrate how they intend to operate, manage, hedge and collateralize a 48GW, 200 million megawatt-hour/year power generation portfolio. This is of the utmost importance to NRG and its stockholders, but it should be equally important to Exelon’s Board of Directors and stockholders.
We want to assure you that we will continue to pursue our path of creating value within NRG and through the opportunities open to us in the market, including the opportunity to sell NRG to Exelon or another entity at the right price with reasonable terms to NRG stockholders. In that regard, we will remain focused on how much is being offered by Exelon but also—in light of Exelon’s recent disclosures—on what is being offered.
Sincerely,
David Crane
President and Chief Executive Officer