NRG's Winning Strategy Against a Hostile Bid

Power plant operator NRG says that a hostile bid made by Exelon, a larger rival, to acquire the company significantly undervalues it. To prove it, NRG has been going gangbusters for months at racking up deals and partnerships. It’s going out of its way to secure a place in the new, renewable energy-based economy, and doing so in a very public way.

Is the strategy working? The answer, of course, depends on who you ask. Exelon yesterday extended the deadline on an offer it made to buy shares from existing shareholders. When it did so, only 12 percent had accepted the offer.

NRG might tell you that the majority stayed away because they see the future value of their stake; Exelon said in a statement that the number of people accepting didn’t come near the 51 percent who were on board in February, when a previous offer expired, simply because they were waiting for a new deadline to approach.

There’s probably truth to both statements. Yes, this world is full of procrastinators, and there are good reasons to wait until an offer is about to expire before taking it up. But NRG is getting attention for its projects in a way it never did before Exelon’s offer. On Wednesday, for example, the Department of Energy finalized a loan guarantee offer to four companies it thinks are most qualified to re-start the nuclear power industry. NRG was one of them.

In February, I covered NRG’s tie-up with solar thermal plant designer eSolar, a deal that just yielded a 92 megawatt solar farm that the two companies will build in New Mexico for El Paso Electric. And to round it all out, NRG also works in the wind market, and just acquired a Texas company called Reliant Electricity, helping secure its foothold in that state.

All of these activities have been amply covered by the press, giving NRG, once known as a coal-only company, a nice reputational lift, helped along by Warren Buffet’s ownership of some shares. More importantly for the management, they’re also giving off good vibes for growth. That makes it particularly hard for Exelon to argue that its offer, only barely higher than NRG’s current stock price, is worth any attention.

The last stratagem for Exelon, and the reason it extended its deadline, is to get NRG’s shareholders to vote in a new, larger board of directors, who would presumably be a bit nicer about the bid (in NRG’s press releases lurk an almost visible sneer at Exelon).

But even if that happens, Exelon will likely have to bump up its offer — a potentially problematic plan, with credit expensive and no method sorted out to even pay for the current bid of over $6 billion. In August, when the tender offer expires again, it may just be time for Exelon to join in the pool of failed suitors with Mirant, whose $8 billion offer for NRG in 2006 was similarly rebuffed. Tough bride.