Nrg Energy, Inc. · NYSE:NRG
Nrg Energy — Merger or Acquisition (December 2008)
37 slides from Nrg Energy's merger presentation, Dec 1, 2008
Slide 1: NRG's Path to Shareholder Value
NRG's Path to Shareholder Value December 1, 2008
Slide 2: Safe Harbor Statement
Safe Harbor Statement Important Information This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of proxy of any stockholder of NRG Energy, Inc. ("NRG"). NRG plans to file with the Securities and Exchange Commission (the "SEC
Slide 3: The proposed buyout does not fairly compensate NRG shareholders
The proposed buyout does not fairly compensate NRG shareholders for value contributed or risk assumed Summary of Reasons NRG Shareholders Should Reject EXC's Buyout Offer RISK NRG VALUE CREATION Sharply dilutive on a free cash flow basis for NRG shareholders Exelon's projected net synergies primaril
Slide 4: Exelon's proposed combined company is bigger, but not less risky
Exelon's proposed combined company is bigger, but not less risky Highly conditional offer amounts to a one-way call option on NRG... for free Unanswered questions remain about execution and integration Successful history of acquisitions and dispositions at value to shareholders Best opportunity for
Slide 5: NRG is All About Cash
NRG is All About Cash In these times, cash IS the critical financial metric 5/21/2008 11/21/2008 NRG 0.1 0.227 EXC 0.047 0.086 FCF Yield NRG vs. EXC Given the recent relative decline in NRG's share price, NRG is significantly undervalued on a free cash flow basis, on an absolute basis, and compared
Slide 6: The Exelon Proposal Dilutes Cash to NRG Shareholders
The Exelon Proposal Dilutes Cash to NRG Shareholders Under the Exelon acquisition, NRG shareholders would see FCF dilution totaling in excess of $500 million Source: Exelon 11/10/08 EEI Presentation page 6 EXC Shareholder Perspective 2010E FCF Per Share $4.03 $3.04 $0.99 EXC Standalone EXC Combinati
Slide 7: If There Is An Upside, NRG Shareholders would not get their fair share
If There Is An Upside... .... NRG Shareholders would not get their fair share (1) Source: Exelon 11/10/08 EEI Presentation, page 7 NRG EXC East 510 2490 Exelon View of Synergies and Distribution NPV of Expected Synergies (excluding financing and other costs of transaction) $ millions net present val
Slide 8: Exelon's Hostile Tactics Do Not Alter Facts
Exelon's Hostile Tactics Do Not Alter... Exelon's announced tender offer and proxy contest are nothing more than tactics to coerce negotiations Exchange offer is highly conditional Board packing has practical limitations Lawsuit has no basis Without a negotiated deal, value is destroyed for all part
Slide 9: Exelon's proposed combined company is bigger, but not less risky
Exelon's proposed combined company is bigger, but not less risky Highly conditional offer amounts to a one-way call option on NRG... for free Unanswered questions remain about execution and integration Successful history of acquisitions and dispositions at value to shareholders Best opportunity for
Slide 10: NRG Has Ample Liquidity
Cash Lines of Credit Total NRG 1515 1515 3049 EXC 0 1534 0 $6,788 $258 $7,046 NRG Has Ample Liquidity NRG Liquidity $ thousands Not all liquidity is created equally; in this environment, Cash is King Note: Liquidity as of 9/30/08; Enterprise value using market cap as of 11/17/08, Debt, Preferred, an
Slide 11: NRG's Unique Approach to Forward Contracting and Collateralizing of Hedges
NRG has a Unique Approach to Forward Contracting and (Non-Cash) Collateralizing of Hedges NRG's highly diversified set of counterparties, combined with strong liquidity... Open Energy 2007 Hedged Energy Hedged Fuel 26% 44% 68% 78% 95% 2009 2010 2011 2012 2013 75% 62% 57% 104% 25% 1 Includes Northeas
Slide 12: A Presence in the Best Competitive Markets
....And a Presence in the Best Competitive Markets... .... Means that NRG will not only survive... TX LA NY Other East 0.64 0.14 0.1 0.12 IL PA NJ Other East 0.63 0.3 0.07 0.01 TX LA 2006-2007 GDP Growth 0.041 0.026 US Average: 2.0% 2006 - 2007 Real GDP Growth, by State NRG Generation by State 2007
Slide 13: NRG is Positioned to Thrive
....NRG is Positioned to Thrive! Employment Growth TX, IL, and PA Percent of Time Fuel Type on Margin Five thoughts about Texas Texas has a history of bouncing back strong after recessions - evidenced by employment growth rates emerging from last downturn Texas reserve margins are tighter than other
Slide 14: Exelon's proposed combined company is bigger, but not less risky
Exelon's proposed combined company is bigger, but not less risky Highly conditional offer amounts to a one-way call option on NRG... for free Unanswered questions remain about execution and integration Successful history of acquisitions and dispositions at value to shareholders Best opportunity for
Slide 15: Minimize Cash Outlays & Accelerate Returns
Minimize Cash Outlays & Accelerate Returns NRG's Development Model Captures Brownfield Value Limit upfront cash outlays through development discipline Equity sell-down at or before start of construction to improve ROI Accelerate and improve cash returns as we monetize existing asset site value throu
Slide 16: Partnerships are the Cornerstone of Value Creation at NRG
Partnerships on key individual projects creates more value, sooner for NRG shareholders, than giving NRG development program to Exelon by accepting Exelon's low ball offer Accelerated cash returns Mitigated risk Complementary skills Additional opportunities Proprietary technologies Not credit rating
Slide 17: Unique Value Proposition of NRG's Nuclear Development Program (NINA)
The Unique Value Proposition of NRG's Nuclear Development Program (NINA) Short-Term Medium-Term Long-Term Sell Down Value Sell smaller ownership percentages at a premium Additional Development Opportunities As others follow our ABWR path Quark to Spark Spread Enormous quantity of low marginal cost b
Slide 18: Nuclear Development: The NRG Way Versus the Exelon Way
Nuclear Development: The NRG Way Versus the Exelon Way... (Until Last Week) Risk STP 3&4 Victoria Comments EPC Contract u u STP has negotiated and signed a fixed price EPC contract that is substantially similar or better than traditional high quality fossil EPC contracts Previous Construction Histor
Slide 19: Owner of 50% of STP 3&4
Owner of 50% of STP 3&4; first COLA in 29 years The flagship ABWR application at NRC Sold 12% in 2008 to Toshiba for $300 million contribution over 6 years 2008 Nuclear Innovation North America (NINA) Applicant for federal loan guaranty Likely beneficiary of other "first mover" benefits under Energy
Slide 20: Our FORNRG Program Continually Frees Up Cash
Our FORNRG Program Continually Frees Up Cash... FORNRG drives continuous improvement in how we operate our assets and efficiently leverages our scale FORNRG 1.0 $250 million in pre-tax earnings improvement since Q1 2005 Improvement goal achieved Q4 2008 .... That we can redeploy elsewhere FORNRG 1.0
Slide 21: Robust Cash Flow and Liquidity Enables Growth and Shareholder Return
Debt Management Growth Capital Business Reinvestment Shareholder Return Pfd Div. East 0.36 0.08 0.34 0.2 0.03 NRG's Robust Cash Flow and Cash Liquidity Enables Investment in Growth as well as Return to Shareholders... With NRG, recurring free cash flow is the platform for both the return of capital
Slide 22: Exelon's proposed combined company is bigger, but not less risky
Exelon's proposed combined company is bigger, but not less risky Highly conditional offer amounts to a one-way call option on NRG... for free Unanswered questions remain about execution and integration RISK NRG VALUE CREATION $3bn liquidity exceeds operating needs allowing for return of capital Hedg
Slide 23: Global Warming is a Transformative Dynamic
Global Warming is a Transformative Dynamic which will Define our Industry U.S. Leadership for the World 2343 U.S. Power 1990 U.S. Transport U.S. Clean electricity technology can substantially displace fossil fuel used by U.S. industry & transport Numbers equal millions metric tons CO2 Total U.S. GHG
Slide 24: Global Warming, Sustainability and Enabling Technologies
Global Warming...Taken Together with its Alter Ego, Sustainability and the Technologies they Beget... ....Provide significant value enhancing opportunities to NRG Sustainability Global Warming Constraining Issues: Transmission / Storage Enabling Technologies CCS Batteries Pumped Air Molten Salt Soli
Slide 25: NRG Expects to Thrive Acting Like Three Companies in One
NRG Expects to Thrive in this New Energy Environment by Acting Like: Three Companies in One Operating Assets Operating Personnel Trading Market Maintenance & Environmental CAPEX Sites Opportunities Origination Growth CAPEX New Technology New processes Different types of investment Venture Capital Op
Slide 26: We Have Charted a Clear Path to Future Growth
We Have Charted a Clear Path to Future Growth Future Growth Current Portfolio M&A Consolidation Low Carbon Technologies And in pursuing this growth, NRG management knows who we work for... NRG shareholders Operating excellence Bullish long term natural gas outlook Tightening reserve margins Repoweri
Slide 27: Not for Ratings Agencies and Not for Rate-based Utility Regulators
....Not for Ratings Agencies and Not for Rate-based Utility Regulators Under an EXC combination, debt holders would be prioritized and cash would be subject to regulatory reach-through Ratings Agencies Regulators (2) EXC/NRG Pro Forma based on 2009 estimate on management guidance and Wall street res
Slide 28: Exelon's proposed combined company is bigger, but not less risky
Exelon's proposed combined company is bigger, but not less risky Highly conditional offer amounts to a one-way call option on NRG... for free Unanswered questions remain about execution and integration RISK NRG VALUE CREATION $3bn liquidity exceeds operating needs allowing for return of capital Hedg
Slide 29: The Exelon Combination Increases Risk
The Exelon Combination Increases Risk 2009 - 2010 2010 - 2011 Distraction Retention and recruiting Economic waste Opportunity cost of missed partnerships and acquisitions Financing Rating Agencies Regulatory Approvals Integration Management Experience Ratings Downgrade Risk "Claw back" risk Normal B
Slide 30: Exelon's Highly Conditional Offer Gives Exelon a Call Option for Free
Exelon's Highly Conditional Offer Gives Exelon a Call Option... for Free Exelon proposal, if it succeeds at all, could take 12-18 months to consummate During that time, Exelon reserves unto itself the unilateral right to withdraw from the transaction without consequences In mid 2010, NRG shareholder
Slide 31: Cost of Synergies May Outweigh Benefits
Cost of Synergies May Outweigh Benefits Pre-Tax Run Rate Synergies Year 2 + Annual Cash Impact to Combined Company $ millions Negative synergies could easily destroy any value from the combination Note: Estimated synergies are midpoint of Exelon's range of $180 - $300 per year; with one half of syne
Slide 32: Exelon's Offer is about Empire Building, Not Value Creation
Exelon's Offer is about Empire Building, Not Value Creation Key Structural Issues with Exelon Proposal Issue to NRG Shareholders Hybrid Model GenCo Separation Regulatory Reach Through - Illinois - Pennsylvania Illinois and Pennsylvania regulators would take their bite of ExGen profits through the T&
Slide 33: What About Exelon 2020? How Does NRG Fit?
Million tons CO2/year Exelon + NRG 2008 Exelon 2008 ? What About "Exelon 2020"? How Does NRG Fit? Despite promising to do so, Exelon to date has put forward no credible plan for dealing with NRG's carbon emissions within Exelon 2020 2008 2020 The Carbon Gap Assist customers, reduce GHG 3.5mm metric
Slide 34: Exelon Regulatory Driven Growth: Bad Timing
2008 2009 2010 2011 2012 2013 2008 0 17 50 100 125 150 Exelon Regulatory Driven Growth: Bad Timing Prolonged economic recession Democratic majority looks to use tax rebate to protect consumers from carbon costs during election cycle Hard-hit Illinois & Pennsylvania have another crack at Exelon Exelo
Slide 35: Significant Other Outstanding Questions Remain
Significant Other Outstanding Questions Remain Deal Structure How would the companies be combined? Financing: $7.3 billion (excluding $1.3 billion synthetic LC facility) of NRG debt contains change of control provisions. How will it be refinanced? First Lien Structure: Will NRG's first lien structur
Slide 36: Conclusion
Conclusion The price does not fairly compensate NRG Shareholders A Standalone NRG is protected from near term recessionary risk... The risks embedded in the transaction are too high .... and has greater potential for value creation from market opportunities now and in the future RISK NRG VALUE CREAT
Slide 37: DAK
DAK NRG )