CORRECT: UPDATE: NRG Board Expansion Rejected, Ends Exelon Bid

Exelon Corp. (EXC) ended its $7.5 billion hostile bid for NRG Energy Inc. (NRG) Tuesday after NRG shareholders soundly rejected Exelon's board nominees.

In the end, the nine-month push by Exelon to create the country's largest power producer came down to price. Although Exelon raised its offer weeks before the meeting, NRG shareholders still felt they weren't being compensated enough for the Princeton, N.J., power-plant operator.

The collapse of the deal highlights the continued difficulty of consolidation in the U.S. power industry. Even before the current proxy battle, Exelon and NRG Energy had failed separately in recent years to acquire rivals. After not being able to force NRG's board to the negotiating table, Exelon went directly to NRG shareholders, proposing a slate of directors and an expansion of the board to 19 directors from 14. Of the 87% of shareholder votes that had been tallied at NRG's annual meeting Tuesday, 75% backed NRG's board members, while also rejecting the proposed expansion.

Shortly after the announcement, Exelon terminated its takeover offer of 0.545 of an Exelon share for each NRG share.

"The NRG shareholders have spoken, and Exelon will move on," said John Rowe, Exelon's chairman and chief executive, in a press release.

The termination ends what Exelon Executive Vice President William Von Hoene described as a "roller-coaster process." Exelon made its bid for NRG amid the global financial crisis. NRG's board swiftly rejected it, saying it grossly undervalued the power producer, which has most of its operations in the eastern U.S. and Texas.

NRG shareholders initially showed support for the deal at the original exchange offer of 0.485, with more than 51% tendering of them tendering their shares by a February deadline. That, however, represented the high point for Exelon. Several factors, including NRG's acquisition of Reliant Energy Inc.'s (RRI) Texas retail-power business and advancements in its plan for new nuclear reactors, also in Texas, would sway shareholders away from Exelon's offer as the rise in NRG's share price wiped out any premium. An overall rebound in the stock market and improved credit market also helped.

At the shareholder meeting, NRG Chief Executive David Crane said that, at first, investors favored Exelon's bid because of the upheaval across the economy, but as markets improved, a deal became less attractive to them. Crane added that about 10 to 15 companies took a look at NRG, including foreign utilities, large U.S. power companies and firms looking to take NRG private. All of the scenarios, however, faced problems.

"Deals have to be done in a cooperative fashion," Crane said.

Shares of NRG were recently up 72 cents, or 3.1%, at $24.27, while Exelon shares were up 1.8% at $52.97.

- By Mark Peters, Dow Jones Newswires; [phone]; [e-mail]