Sheila McNulty Exelon moves a step closer to buying NRG Energy

Exelon has moved a step closer to acquiring NRG Energy in a hostile takeover to become the largest US power producer.

The Federal Regularly Energy Commission (FERC) unanimously approved Exelon’s application to acquire NRG. And Exelon’s Elizabeth Moler, executive vice president for government and environmental affairs and public policy, took the approval as proof that its bid would be successful:

The combination with NRG remains on track for closing in the fourth quarter of 2009.

NRG has been struggling to fend off the takeover attempt, even using precious cash in March of this year to make an acquisition of its own to bulk up.

Yet analysts have dismissed such efforts in the face of a possible Exelon tie-up, which would give the company real strength at a time when those in the US power sector needs it most. The sector is expected to be hit by carbon legislation, which is going to make it more difficult to operate in the industry even as alternatives are sought to the power these companies produce.

Indeed, George Given, head of global power for Wood Mackenzie, believes the already low price environment hitting the sector is only going to get worse.

The power industry is headed into the ‘Perfect Storm’, low-price operating environment, which will likely get worse before it gets better.

He noted that the market is experiencing unexpectedly strong, negative load growth and weak recovery, along with very low fuel prices, which are compressing margins. At the same time, significant amounts of new capacity is coming on line now through 2013 to sustain the overbuild and delay the rebound.

To survive the downturn, it makes sense for companies to work – and join – together.

Karl Miller, an energy consultant with years of experience in the power sector, believes the approval by regulators signals this is a done deal.

The regulators want it done, and the NRG board is just wasting shareholder money by trying to delay the inevitable.

Related link:

NRG Energy desperate to stave off Exelon bid (FT, 06/03/09)