Time to pull the plug on Exelon's bid for NRG?

Will merger talks between energy producers Exelon (EXC) and NRG (NRG) ever produce more light than heat? Exelon, the biggest utility company in the country by market value, raised its bid for NRG last week, only to have it rebuffed today as "a step in the right direction," but still not enough to get the deal done.

Exelon increased it offer to $6.9 billion last week. The all-stock deal had been worth some $6.2 billion when it was first proposed last October, a 37 percent premium for NRG shareholders. But since then, Exelon shares have fallen while NRG has seen its stock rise, making the offer less appetizing.
NRG now wants to see a higher bid. "If you wish to pursue a possible combination with NRG in a more cooperative fashion, you should increase your . . . offer," CEO David Crane and Chairman Howard Cosgrove wrote in a letter to Exelon.

Meanwhile, Exelon will take the fight to NRG's annual meeting, where it hopes shareholders will approve a slate of pro-deal directors it's backing. CEO John Rowe called the increased bid his company's "best and final offer" in a statement last week.

Is this deal doomed? In what could be a sign that investors are satisfied with the status quo, both stocks are rising in morning trading. Exelon is up 2 percent and NRG has climbed 4.2 percent as of 11:20 a.m. in New York, compared with a gain of just 0.4 percent for S&P 500 energy stocks.

That suggests that NRG shareholders agree with Crane and Howard's assertion that Exelon's offer doesn't represent fair value for the company. And Exelon shareholders evidently back Rowe's stated commitment not to raise his bid again.

Of course, NRG also boosted its earnings outlook. That undoubtedly contributed to its outperformance.

Nonetheless, unless some serious sparks fly at NRG's annual meeting next week, this deal may go dark before much longer.
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