Exelon Corporation · NASDAQ:EXC
Exelon — NRG Energy — Merger or Acquisition (December 2008)
35 slides from Exelon's merger presentation, Dec 15, 2008
Slide 1: Filed by Exelon Corporation Pursuant to Rule 425
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. On December 15, 2008, Exelon began using the following presentation in discussions with investors:
Slide 2: Exelon + NRG: A Compelling Opportunity for Value Creation
Exelon + NRG: A Compelling Opportunity for Value Creation Investor Meetings December 2008
Slide 3: Forward-Looking Statements
Forward-Looking Statements This presentation includes forward-looking statements. These forward-looking statements include, for example, statements regarding benefits of the proposed merger, integration plans and expected synergies. There are a number of risks and uncertainties that could cause actu
Slide 4: Important Additional Information
Important Additional Information This communication relates, in part, to the offer (the “Offer”) by Exelon Corporation (“Exelon”) through its direct wholly-owned subsidiary, Exelon XchangeCorporation (“Xchange”), to exchange each issued and outstanding share of common (the stock“NRG shares”) of NRG
Slide 5: Agenda for Today's Discussion
Agenda for Today’s Discussion • Our Exchange Offer • Compelling Value for NRG Shareholders • Timeline • Why Tender Your Shares Appendix • Overview of Exelon Corporation 4
Slide 6: The Exchange Offer
The Exchange Offer • OnNovember12th, Exelonlaunchedan exchangeoffer for all of the outstanding shares of NRG • Filed Form S-4 with the SEC • Fixed exchange ratio of 0.485 Exelon share for each NRG common share th • Representsa 37%premiumto the October17 NRGclosingprice • Initial exchange offer perio
Slide 7: Financing Is Not an Obstacle
Financing Is Not an Obstacle • Exelon believes it can secure committed financing for the transaction at the appropriate time • We believe a negotiated combination can be structured in a way to reduce refinancing requirements to $4B or less • We believe that the contemplated structure would not trigg
Slide 8: Compelling Value for NRG Shareholders
Compelling Value for NRG Shareholders • Full and generous price upfront – premium of 37% • Tax-free opportunity to participate in the future growth of the largest and most diversified US power company, with a substantially improved credit profile and access to liquidity • Requisite scope, scale and
Slide 9: Exelon Unlocks NRG Value
Exelon Unlocks NRG Value Price per Kilowatt Comparison for Texas Baseload Generation Even with premium, purchase 3,000 price is 66% of conservative 3,000+ long-term DCF value Less than 45% of Price 2,000 replacement value ($/kilowatt) 2,050 1,000 1,350 975 0 Without With Conservative Replacement Pre
Slide 10: Combination Expected to Create Substantial Synergies
Combination Expected to Create Substantial Synergies ($ in Millions) Exelon Operations & Maintenance: $4,2891 NRG1 Maintenance & Other Opex: $950 General & Admin Expenses: $309 Other COGS: $454 Pro Forma Combined Non-fuel Expenses: $6,002 Estimated Annual Cost Savings:$180 -$3002 % of Combined Expen
Slide 11: NRG Shareholders Capture Value
NRG Shareholders Capture Value Creates compelling value for NRG shareholders today and allows them to share in growth of Exelon stock. $12.8 billion $12.8 billion = $46.50 per NRG share > NRG’s 52-week high $5.1 Value Creation $0.4 $7.7 billion to NRG Value to NRG Shareholders Shareholders $2.0 $2.4
Slide 12: Percent Contribution of Free Cash Flow
Percent Contribution of Free Cash Flow • NRG states they contribute 30% of the free cash flow while getting 17% ownership of the pro-forma company basedon offer 1 • NRG’s position is only a 2008 calculation • Ignores PECO PPA roll-off in 2011 and Exelon carbon uplift • Factoring in these two omitted
Slide 13: Combination Will Result in Scope, Scale and Financial Strength
Combination Will Result in Scope, Scale and Financial Strength Combined company expected to have requisite scope, scale and Pro Forma Quick Stats ($s in millions) financial strength to succeed in an increasingly volatile energy market Combined assets 1 $68,900 $70 LTM EBITDA 2 $9,400 Market cap (as
Slide 14: Credit Ratings Are a Valuation Differentiator
Credit Ratings Are a Valuation Differentiator Investment grade 1-yearForwardEV/EBITDA credit ratings 14.0 Investment Grade Non-Investment Grade provide access to capital markets for 12.0 growth capital and 10.0 minimize collateral requirements 8.0 which maximizes liquidity and 6.0 contributes to sup
Slide 15: Stable, Predictable Cash Flow Is Awarded Premium Valuation
Stable, Predictable Cash Flow Is Awarded Premium Valuation Enterprise Value / LTM EBITDA Exelon’s strong, 12.0 diversified cash 10.0 flow streams have provided for a 8.0 7.5x more stable 6.0 Current Average EV / LTM EBITDA for last: 1 month 6 months 1 year valuation during NRG 4.6 5.8 8.2 8.3 Exelon
Slide 16: Strong Balance Sheet and Credit Metrics
Strong Balance Sheet and Credit Metrics • NRG shareholders and bondholders expected to benefit from an investment grade balance sheet • Targeting strong credit metrics for the combined entity— 25 -30% 1 FFO/debt • Pay down debt plan expected to include: NRG balance sheet cash, asset sale proceeds, f
Slide 17: World Class Nuclear & Fossil Operations
World Class Nuclear & Fossil Operations Combined Company: • Largest U.S. power company in terms of generating capacity: ~51,000 MW fleet (18,000 MW nuclear) • Best-in-class nuclear and fossil operations • Second lowest carbon emitting intensity in the industry • Geographic and fuel diversification w
Slide 18: Operating in Most Attractive Markets
Operating in Most Attractive Markets • Geographically complementary generation asset base • Predominantly located in competitive markets • Strong presence in PJM (Mid-Atlantic and Midwest) and ERCOT By RTO Combined1 PJM 22,812 ERCOT 13,027 MISO 1,065 ISO NE 2,174 NYISO 3,960 CAL ISO 2,085 Contracted
Slide 19: Combined Entity Will Continue to Benefit from Low Cost, Low Volatility Fuel Sources
Combined Entity Will Continue to Benefit from Low Cost, Low Volatility Fuel Sources 2009 Historical Forward Coal Prices <1% <1% Exelon 6.00 1 Powder River Basin ~150,000 GWh 5.00 Northern Appalachian 4.00 Central Appalachian $/mmbtu 3.00 2.00 1.00 0.00 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008
Slide 20: Largest Fleet, 2nd Lowest Carbon Intensity
Largest Fleet,nd2 Lowest Carbon Intensity CO2 Emissions of Largest US Electricity Generators Bubble size represents carbon Top Generators by CO2 Intensity intensity, expressed in terms of metric 150 tons of CO2 per MWh generated 10 AEP 0.83 AEP 2006 CO2 Emissions Southern NRG 0.80 from Electricity 9
Slide 21: Exelon 2020 and NRG
Exelon 2020 and NRG Options to Evaluate: • Expand internal energy efficiency, SF6, Reduce or offset our footprint by greening vehicle, and supply chain initiatives to NRG our operations portfolio • Offset a portion of NRG’s GHG emissions Help our customers Adapt Elements of and the communities Exelo
Slide 22: Exelon Offers Lower Risk Growth Opportunities
Exelon Offers Lower Risk Growth Opportunities We believe 1 I/B/E/S’09-’11EBITDA 10.0% (0.1%) Exelon’s near- I/B/E/S’09-’11EPS1 16.8% 1.7% term growth drivers are more predictable and • Nuclear uprates have dramatically • Utility rate base growth • STP nuclear expansion less capital at risk Growth Dr
Slide 23: Clear Value under Multiple Scenarios
Clear Value under Multiple Scenarios We look at fundamental value creation under a wide range of future commodity price scenarios and our analysis suggests $1-3 billion of value, possibly more. Value Gas Prices $6.50 $7.30 $7.10 $7.30 $8.60 Coal Prices $11.00 $20.00 $20.00 $20.00 $11.00 New Build Co
Slide 24: Principal Regulatory Approvals and Expected Divestitures
Principal Regulatory Approvals and Expected Divestitures • Principal regulatory approvals: • Texas, New York, Pennsylvania, California state regulatory commissions and various state siting commissions • Hart-Scott-Rodino (DOJ/FTC) • FERC • NRC • Notice filing in Illinois • Limited market power issue
Slide 25: Transaction Timeline
Transaction Timeline Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 10/19: Announce Offer 11/12: 1/6: Initial Exchange Offer Exchange Offer Filed Expires Proxy Solicitation NRG and Exelon Shareholder Meetings Make Filings and Work to Secure Regulatory Approvals (FERC, NRC, DOJ/FTC, PUCT, NYPSC, PAPUC, CPUC
Slide 26: Exelon More Than Meets the Five Imperatives Outlined by NRG
Exelon More Than Meets the “Five Imperatives”Outlined by NRG on May 28, 2008 Exelon Combination More NRG’s Stated Imperatives than Meets These Imperatives 1. MUSTaccumulate generation at competitive cost Deal expected to provide NRG stakeholders with significant value and upside and a share of the l
Slide 27: Why Tender Your NRG Shares?
Why Tender Your NRG Shares? • Tenderingyour NRGsharesprior to the January6th expiration will provide a strong signal of your support for a negotiated deal • Exelon believes its proposal represents the best immediate and long-term value for your investment, providing: • Increased scale and generation
Slide 28: Appendix
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Slide 29: The Exelon Companies
The Exelon Companies ‘07 Operating Earnings: $2.9B ‘07 EPS: $4.32 Assets(1) : $45.2B Exelon Corporation Total Debt(1) : $13.0B Credit Rating (2) : BBB- Exelon Generation ComEd PECO Nuclear, Fossil, Hydro & Renewable Generation Illinois Pennsylvania Power Marketing Utility Utility ’07 Earnings: $2,33
Slide 30: Stable Cash Flows and Commitment to Value Return
Stable Cash Flows and Commitment to Value Return $6,000 $2.50 $5,000 Sustainable Value $2.00 • Strong and consistent $4,000 cash flows from $1.50 operations(1) $3,000 • Over 12% compound $1.00 annual dividend $2,000 growth rate since 2001 $0.50 $1,000 $0 $0.00 2001 2002 2003 2004 2005 2006 2007 2008
Slide 31: Exelon Generation
Exelon Generation Protect Value • Continue to focus on operating excellence, cost management, and market discipline • Execute on power and fuel hedging programs Value Proposition • Support competitive markets • Large, low-cost, low-emissions, exceptionally well-run nuclear fleet • Pursue nuclear & h
Slide 32: Lowest Cost Nuclear Fleet Operator
Lowest Cost Nuclear Fleet Operator 2006-2007 Average Production Cost for MajorNuclearOperators(1) Average 1st Quartile 2 nd Quartile 3rd Quartile 4th Quartile Among major nuclear plant fleet operators, Exelon is consistently the lowest-cost producer of electricity in the nation 1.Source:2007 Electri
Slide 33: World-Class Nuclear Operator
World-Class Nuclear Operator Average Capacity Factor RangeofFleet2-YrAvgCapacityFactor(2003-2007) 100% 100 EXC 93.5% 95 90% 90 80% 85 70% 80 60% 75 50% 70 Range 5-Year Average 40% 65 Exelon Industry Operator (# of Reactors) Sustained production excellence Note: Exelon data prior to 2000 represent Co
Slide 34: GAAP Earnings Reconciliation Year Ended December 31, 2007
GAAP Earnings Reconciliation Year Ended December 31, 2007 (in millions) ExGen ComEd PECO Other Exelon 2007 GAAP Reported Earnings $2,029 $165 $507 $35 $2,736 Mark-to-market adjustments from economic hedging 104 (3) - - 101 activities Investments in synthetic fuel-producing facilities - - - (87) (87)
Slide 35: GAAP EPS Reconciliation Year Ended December 31, 2007
GAAP EPS Reconciliation Year Ended December 31, 2007 ExGen(1) ComEd(1) PECO(1) Other(1) Exelon 2007 GAAP Earnings Per Share $3.01 $0.25 $0.75 $0.04 $4.05 Mark-to-market adjustments from economic hedging activities0.15 - - - 0.15 2007 Illinois electric rate settlement 0.38 0.03 - - 0.41 Investments i