Nrg Energy, Inc. · NYSE:NRG
Nrg Energy — Merger or Acquisition (July 2009)
48 slides from Nrg Energy's merger presentation, Jul 2, 2009
Slide 1: Filed by Exelon Corporation – Important Information
Filed by Exelon Corporation Reg. No. 333-155278 Pursuant to Rule 425 under the Securities Act of 1933, as amended Subject Company: NRG Energy, Inc. Important Information This communication relates, in part, to the offer (Offer) by Exelon through its direct wholly-owned subsidiary, Exelon Xchange Cor
Slide 2: Exelon began using the following presentation on July 2, 2009
On July 2, 2009, Exelon Corporation began using the following presentation in discussions with investors:
Slide 3: Exelon's Offer Is About Value Today – and Tomorrow
Exelon’s Offer Is About Value Today – and Tomorrow Are EXC and NRG Together, or Is NRG Stand Alone, Better Built Add to Value in a Complex and Carbon-Constrained World? Investor Presentation July 2009
Slide 4: Important Information
Important Information This presentation relates, in part, to the offer (the “Offer”) by Exelon Corporation (“Exelon”) through its direct wholly-owned subsidiary, Exelon Xchange Corporation (“Xchange”), to exchange each issued and outstanding share of common stock (the “NRG shares”) of NRG Energy, In
Slide 5: Forward-Looking Statements
Forward-Looking Statements This presentation includes forward-looking statements. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements made herein. The factors that could cause actual results to differ materially from
Slide 6: For NRG and Exelon Shareholders, a Combination Means
For NRG and Exelon Shareholders, a Combination Means: Scope, scale and strength to build on Exelon’s proven capacity to… • Execute strategic objectives from a solid financial foundation, with ready access to low-cost capital • Realize significant value creation through operational and financial syne
Slide 7: For NRG Shareholders, Exelon Means Participation in a Company with
For NRG Shareholders, Exelon Means Participation in a Company with: • The largest, best run, lowest cost nuclear fleet in the U.S. • A plan to build 1,300-1,500 MW of new nuclear through upratesat a fraction of the cost and risk of NRG’s partial ownership of STP 3&4 • The largest carbon upside in th
Slide 8: An EXC/NRG Combination Is Compelling
An EXC/NRG Combination Is Compelling… • For NRG shareholders • Higher exchange ratio = 0.545 • Greater growth opportunities than NRG stand-alone, at lower risk and relative cost • ~$3.1 billion transaction value • For Exelon shareholders • $0.6-$2.5 billion transaction value • 2% -7% accretion to EP
Slide 9: The Transaction Offers Greater Value to Shareholders of Both Companies
The Transaction Offers Greater Value to Shareholders of Both Companies 7
Slide 10: The Value of the Offer to NRG Shareholders Has Increased
The Value of the Offer to NRG Shareholders Has Increased Vote the BLUE Proxy to decide the THEN NOW outcome of this offer Exchange Ratio 0.485 0.545 (12.4% increase) Implied Ownership 16.8% 18.2%1 Transaction Value to NRG $2.3 B2 $3.1 B3 Est. NPV of Synergies $1.5 –$3.0 B $3.6 –$4.0 B 1. Implied own
Slide 11: Current Exelon Offer Represents an Implied Premium of 44%
Best Indicators Suggest Current Exelon Offer Represents an Implied Premium of 44% • Exelon’s offer has increased NRG’s stock price and decreased Exelon’s stock price relative to each company’s peer indices The world has • Assuming that each company’s stand-alone stock price is halfway between the ch
Slide 12: Transaction Provides NRG Shareholders Immediate Value of $3.1 Billion
Based on These Indicators, Transaction Provides NRG Shareholders Immediate Value of $3.1 Billion Plus: EXC Upside - Carbon - Uprates th Even at June 26 - PECO PPA roll- closing prices, NRG off shareholders will Share of realize immediate Synergies transaction value of $0.6B2 $1.7 billion Implied If
Slide 13: Exelon Has Identified Greater Synergies
Upon Detailed Investigation, Exelon Has Identified Greater Synergies • Assumed a traditional “integrate” model Est. Annual Cost Savings: • Reflectedpreliminary“top-down” internalestimate $180 -$300 M1 rd without assistance from 3parties % of Combined Expenses: Then • Notable assumptions included: ~3
Slide 14: Key Sources of Synergies
Key Sources of Synergies Category Amount ($M) Commentary • Includesenhancedcorporatesynergiesfrom initialcasebasedon detailed Corporate / IT $225 -$245 assessment and prior transaction experience, minimizing duplicative corporate support • Based on ~350 employee reduction from Exelon/NRG fleet optim
Slide 15: Exelon Has a Proven Track Record of Delivering Targeted Synergies
Exelon Has a Proven Track Record of Delivering Targeted Synergies Cost Savings Actual Post Merger % Realized of Year Estimate ($M) Integration Savings ($M) Estimate • Targeted headcount reduction of ~1,200; actual ~1,600 2001 $ 100 117 117% • Disciplined integration planning process 2002 $ 160 170 1
Slide 16: The Value Of The Offer To Exelon Shareholders Is Substantial
The Value Of The Offer To Exelon Shareholders Is Substantial 1 2 THEN NOW Transaction Value to EXC $1.0 –$3.0 B3 $0.6 –$2.5 B4 Operating EPS Accretion 2% –10%5 2% –7%5 to EXC Est. NPV of Synergies $1.5 –$3.0 B $3.6 –$4.0 B 1. Assumes total asset sale proceeds of ~$1.0B. 2. Assumes total asset sale p
Slide 17: Transaction Will Create Significant Value under Multiple Scenarios
Transaction Will Create Significant Value under Multiple Scenarios $2.5 Value $1.2 1 ($B) $1.1 $1.1 $0.6 2 Gas Prices $7.00 $6.90 $7.90 $6.00 $6.80 3 Carbon Year:Price 2014:$25 2014:$25 2012:$25 2014:$17 2020:$29 4 Merchant Allocation? Yes Yes Yes No Yes 5 Federal RES No Yes No No No Post-Recession
Slide 18: Transaction Is Accretive for Exelon Shareholders
Transaction Is Accretive for Exelon Shareholders 1 Operating Earnings Original Offer (Then) New Offer (Now) 10% 7% 7% 4% 5% 2% 2% 2010 2011 2012 2010 2011 2012 2013 1. Does not include effects of purchase accounting, which may be dilutive to GAAP earnings following transaction closing, depending on
Slide 19: The Transaction Would Create Value For All Stakeholders
The Transaction Would Create Value For All Stakeholders • NRG Shareholders – 12.4% increase in exchange ratio from 0.485 to 0.545 increases transaction value to $3.1 billion – Share in greater total synergies from combined company – Greater long-term value creation from Exelon • Exelon Shareholders
Slide 20: Exelon Offers Greater Growth at Lower Risk
Exelon Offers Greater Growth at Lower Risk 18
Slide 21: Exelon Is Built to Last and Consistently Creates Value
Exelon Is Built to Last and Consistently Creates Value 100% Operational Prowess $20.00 Nuclear Annual Avg. Production Cost ($/MWh) 95% $18.00 90% 85% $16.00 80% $14.00 75% Range 5-Year Average $12.00 Exelon Industry 70% 65% $10.00 2003 2004 2005 2006 2007 2008 Operator (# of Reactors) Solid Balance
Slide 22: Exelon's Long-Term Value Drivers Generate Post-Transaction Value
Exelon’s Long-Term Value Drivers Generate Post- Transaction Value for All Shareholders Carbon - $1.1billion1 and growingannualupsideto ExelonEBITDAfrom Waxman-Markey legislation - 1,300 MW -1,500 MW in Exelon nuclear uprates by 2017 increases the value of the existing fleet Nuclear Uprates - $2,200-
Slide 23: Carbon Legislation Is Coming – Who Can Better Navigate?
CarbonLegislationIsComing– WhoCanBetter Navigate a Carbon-Constrained World? Year 1 EBITDA Impact of $15/tonne Carbon With Waxman-Markey Merchant Coal Allocations $1,100 There is no case where carbon OnJune26th ,the U.S. legislation is ($M) House passed the better for NRG Waxman-Markey Bill than for
Slide 24: Exelon's Nuclear Uprate Plan Delivers More MWs Than NRG New Build
Exelon’s Nuclear Uprate Plan Delivers More MWs Than NRG New BuildWith - Less Risk At Half The Cost • Incremental1,300– 1,500MWsof Exelonupratesover2009-2017exceedsNRG’sexpectedownershipof STP 3&4 • Exelonhassubstantialexperiencemanaging1,100MWsof uprateprojectsoverthe past10years • LessRisk:lessrisk
Slide 25: Pennsylvania Procurement Provides Evidence of Value of Mid-Atlantic Fleet
Pennsylvania Procurement Provides Strong Evidence of the Value of Exelon’s Mid-Atlantic Fleet 1 NRG’s “prediction” What Actually Happened $100-102/MWh3 ? $60/MWh2 Current ExGen Contract 2011+ Current ExGen Contract 2011 PECO Price “Well, they recently– anotherneighboringutility, FirstEnergy, • Exelo
Slide 26: NRG Faces Significant Risks and Overvalues its Stand-Alone Business Prospects
NRG Faces Significant Risks and Overvalues its Stand-Alone Business Prospects 24
Slide 27: NRG Touts Numerous Growth Opportunities, But Minimal Value
NRG Touts Numerous “Growth” Opportunities, But A Closer Look Reveals Minimal Value New Nuclear • NRG significantly underestimates both costs and risks (NINA) • Any value estimate is speculative at this point Reliant • Purchase appears accretive, but NRG’s EBITDA projections are extremely aggressive
Slide 28: STP 3&4 Subject To Execution And Cost Escalation Risks
STP 3&4 Is Subject To Project Execution And Cost Escalation Risks That NRG Shareholders Cannot Ignore Historical projected and actual costs of NRGUnderestimates the Risks of Being a First Mover nuclear construction ($/kW) • U.S.Supplychainandlaborforcemustbe /kW) re-established Overnight Cost Growth
Slide 29: NRG Is Overvaluing Reliant Retail's Financial Impact
NRG Is Overvaluing Reliant Retail’s Financial Impact • Exelonfully supportsthe retail businessmodel,and the Reliantacquisitionappearsvalue-accretive • However,the suggestionthat over $1 billion in equity value(or ~$4.50per share)hasbeen createdis an overstatement Valuation Considerations Potential P
Slide 30: Environmental Capital Expenditures Could Limit NRG's Future Growth
Environmental Capital Expenditures Could Severely Limit NRG’s Future Growth • Under the new administration, we anticipate there will be more stringent environmental rules and regulations,includingNOXandSO2andparticulatereductionsundera revisedCleanAir InterstateRule (CAIR), an aggressive EPA/DOJ New
Slide 31: ~$700 Million in NRG Revenue Deterioration From 2009-2011
At Current Forward Prices, ~$700 Million in NRG Revenue Deterioration From 2009-2011 • NRG claimsthat its hedge program insulates it from the current commodity down-cycle…looking closer: • NRG has sold about 2/3 of its baseload energy forward for 2011, but at much lower prices than for 2009 sales •
Slide 32: Regulatory Approval and Financing Plan Are On Course
Regulatory Approval and Financing Plan Are On Course 30
Slide 33: Regulatory Approvals Are Advancing As Expected
Regulatory Approvals Are Advancing As Expected Jurisdiction Status1 FERC Acquisition approved on May 21, 2009 Hart-Scott-Rodino Statutory waiting period expired April 30, 2009 Application under review without further information NRC requests Commissionruled applicationis sufficient - hearingto Texas
Slide 34: Exelon Has an Executable Financing Plan
Exelon Has a Financing Plan That Is Executable, Provides Investment Grade Metrics and Creates Long-Term Value • We have modeled varying combinations of debt refinancing, asset divestitures, equity or equity-linkedissuanceandaccelerateddebt paydownto maintainour “I think Exelon has the investmentgrad
Slide 35: We Have A Plan To Meet Our Financing Needs
We Have A Plan To Meet Our Financing Needs – The Plan is Flexible and Executable • Exelon has many options to Summary Financing Needs ($ M) Principal address its financing needs 1 Bank Debt (Includes TLB and Synthetic LOCs) $3,114 • Capital markets Senior Notes due '14, '16, and '17 (in aggregate) 4
Slide 36: It's Time to Act – Vote the BLUE Proxy Card
It’s Time to Act to Capture This ValueVote – the BLUE Proxy Card to Make the Offer Successful NRG Shareholders can secure the best transaction possible by taking the following actions: This will notresult • Electeachof the fourindependentcandidatesnominatedto run in in Exelon’s slate opposition to t
Slide 37: This Transaction Is Unique
This Transaction Is Unique • Substantialsynergies- fairly shared • Compelling value • Catalyst for consolidation The time is now…the parties are NRG and Exelon… the price is fair 35
Slide 38: Appendix
Appendix 36
Slide 39: Exelon is Committed to the Combination
Exelon is Committed to the Combination Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 10/19: Announce Offer 2/25: Over 8/21: Discussing regulatory 51% of NRG concerns of an 11/12: Exchange NRG/Exelon tie-up, Shares Offer Expires Exchange Tendered Crane said he did not Offer Filed expect the bidder to Share
Slide 40: Additional Upside To Our Synergy Estimates
We Also Identified Numerous Sources Of Additional Upside To Our Synergy Estimates Comments • Aggressive approach to sourcing, standardization and service Supply Chain contracting could increase savings opportunity • Further rationalizationof the acquired and legacy businesses combined Retail busines
Slide 41: Track Record of Operational Synergies - PSEG Nuclear Contract
Exelon’s Track Record of Operational Synergies - Nuclear Operating Service Contract for PSEG Exelon Nuclear Operating Service Contract – Operation of PSEG Salem and Hope Salem/Hope Creek Exelon Fleet Creek Units # Employees Per Unit Capacity Factor 100% 800 90% 600 80% 400 70% 200 60% 0 50% 2004 200
Slide 42: Pennsylvania Procurement Provides Strong Evidence of Value
Pennsylvania Procurement Provides Strong Evidence of the Value of Exelon’s Mid-Atlantic Fleet • Exelon Generation’s full requirements power purchase agreement with PECO Energy expires on December 31, 2010 • Recent PJM prices for full requirements products: Procurement Delivery Period $/MWh Date PSE&
Slide 43: RPM Capacity Auctions in PJM
RPM Capacity Auctions in PJM • The RTO clearing price for 2012/2013 was $16.46 MW-day. The clearing price for MAAC and Eastern MAAC resources was $133.37 MW-day and $139.73 MW-day respectively. - Exelon offered12,200MWsof capacityin the RTOregion;1,500MWsin the MAAC region; and 9,600 MWsof capacity
Slide 44: Nuclear New Build Introduces Unique Challenges for NRG
Scale and Complexity of Nuclear New Build Introduces a Unique Set of Challenges for NRG Totalnuclearnew buildequityfinancingasa percentageof marketcapitalization 40% 35% 31% 30% 28% 25% 25% 22% NRG 19% 20% 16% EXC/NRG 15% 12% 10% 5% 3% 3% 4% 4% 5% 2% 2% 0% 2 $ 4,142 / kW $ 5,178 / kW $ 6,213 / kW $
Slide 45: Federal RES Will Reduce Prices More in ERCOT
Federal RES Will Reduce Prices More in ERCOT than in Midwest or Mid-Atlantic Mid-Atlantic Wind: Limited Wind Resources, So Will Purchase RECsFrom Other Areas Upper Midwest Wind: Dependent on Not-Yet-Approved Multi-State Transmission Buildoutand Price Depression Will be Spread Over A Broad Area ERCOT
Slide 46: Exelon's Balance Sheet Can Weather Volatile Commodity Markets
Exelon’s Balance Sheet Can Weather Volatile Commodity Markets Financial • Lower margin and collateral needs and • Ability to bid competitively on PPAs and long-term deals since counterparties prefer Business investment grade companies • Reduced working capital requirements, no prepayments on long-te
Slide 47: Risks Inherent In A Non-investment Grade Balance Sheet
Risks Inherent In A Non-investment Grade Balance Sheet Though currently re-opened, the non-investment grade market has closed on several occasions in recent memory, while the high-grade market has been consistently accessible regardless of economic cycles 20% $35,000 19% 18% 30,000 17% 16% 25,000 15
Slide 48: Geographically Diverse EBITDA Contribution
The Transaction Offers Both Companies Geographically Diverse EBITDA Contribution Exelon Mid-Atlantic 45% 1 Pro Forma Other 5% Midwest 55% Mid-Atlantic 35% Midwest 45% NRG Other 30% ERCOT 15% 1. Represents 2010 EBITDA contribution by region before divestitures. ERCOT Mid- 65% Atlantic 5% 46