Exelon bid seen as too low; IPC mulls rival offer; no antitrust issues expected for FCStone

By Cristal Cody

Tupelo, Miss., July 2 - Exelon Corp. raised its bid for NRG Energy Inc. shares on Thursday by 12.4% to offer about $8 billion in stock for the utility, but it's still not enough, an analyst told Prospect News.

In other situations, Validus Holdings, Ltd. reaffirmed its commitment to its offer for IPC Holdings, Ltd. after a rival bid was made for the Bermuda reinsurance company. But, the new bid by Flagstone Reinsurance Holdings Ltd. hits closer to IPC's book value, an analyst said in an interview on Thursday.

Also, International Assets Holding Corp.'s $130 million stock acquisition of FCStone Group, Inc. announced on Thursday faces few competition concerns, an analyst told Prospect News.

Meanwhile, investors soured on the markets ahead of the holiday.

The Dow Jones Industrial Average dropped 223.32 points, or 2.63%, to close at 8,280.74.

The Standard & Poor's 500 index fell 26.91, or 2.91%, to 896.42, and the Nasdaq Composite index closed down 49.20 points, or 2.67%, at 1,796.52.

Markets will be closed on Friday in observance of the Independence Day holiday.

Exelon fails to hit ballpark in NRG bid

Exelon on Thursday offered a fixed exchange ratio of 0.545 of a share of Exelon stock for each NRG share, about $1 billion more in value than its original exchange offer of 0.485 of a share.

Exelon said it sweetened its offer after it found an additional $1.5 billion in synergies and to reflect the additional value from NRG's acquisition of Reliant Energy's retail business.

The bid increase adds more than $3 billion in additional value to NRG shareholders, Exelon said in a statement.

John Rowe, chairman and chief executive officer of Exelon, said this is the company's "best and final offer" for NRG.

"This is all about the long-term value that can be created by consolidation," Rowe said on a conference call held with analysts Thursday. "I have beaten this drum for many years now. Consolidation is very hard to get in our industry. NRG brings unique assets and geography that balances Exelon."

Chicago-based Exelon, the nation's largest nuclear power company, also is waging a proxy fight to elect nine new directors to NRG's board at the annual shareholders meeting on July 21.

Princeton, N.J.-based NRG said in a statement that it will review the revised proposal.

Brandon Blossman, an analyst with Tudor Pickering & Co., told Prospect News on Thursday that the new bid is still too low.

"I don't think that 12.4% is enough of a premium to get NRG to the table," he said. "My call a couple of days ago was for more than 15% - and a 20%-25% [premium] would be something that would get the deal done fairly quickly. We're probably not in a much different place than we were last week as far as this deal goes."

Exelon is "moving closer to the ballpark," Blossman said. "If they would've come up with 15% today, that would've been a show of good faith."

However, Exelon likely may only be able to bid about 3% more on top of its latest bid, Blossman said.

NRG's stock slid $1.25, or 4.80%, to close Thursday at $24.80.

Exelon shares dropped $2.19, or 4.25%, to close at $49.37.

Validus gets competition for IPC

Flagstone Reinsurance offered late Wednesday to acquire IPC for $5.50 per share in cash plus 2.638 new Flagstone shares for each IPC share.

The new bid values IPC at $33.62 a share.

IPC said in a statement on Thursday that it is reviewing Flagstone's offer.

Under Validus' offer, IPC shareholders would receive $3.75 in cash and 1.1234 Validus shares for each IPC share for a deal valued at $28.86 a share, based on the closing price of Validus shares at $22.35 on Wednesday.

Validus stayed committed to its offer and said in a statement Thursday that the company has "made a number of changes to be responsive to concerns expressed by the IPC board."

Flagstone plans to discuss additional details of its proposal on Monday.

"Our offer is not subject to financing and is made on a friendly basis, with a plan to work with the existing board and management of IPC to preserve the business and franchise value of IPC in the combined entity," Flagstone chairman Mark Byrne said in a release.

"On its face, it seems better," Doug Mewhirter, an analyst with RBC Capital Markets Corp., said in an interview with Prospect News on Thursday.

The counter bid is "about 95% of [IPC's] book value, and that's roughly where the other insurance companies are trading at right now," he said.

IPC's review of Flagstone's offer "implies they want to take another look at it and they're waiting to see if someone else would top it," Mewhirter said.

Any potential counter offers likely would not be "too much higher than book value, but there's probably a little bit of room," he said. "If Flagstone's stock comes down more, then it gives someone else a little bit more room."

Bermuda-based Flagstone's stock dropped 13.6% in early trading Thursday before shares ended down 48 cents, or 4.5%, at $10.18.

IPC's stock closed up 50 cents, or 1.8%, at $28.27 on Thursday.

Shares of Validus fell 20 cents, or 0.89%, to $22.15.

Financial services firms consolidate

International Assets apparently has wanted to do a deal with FCStone Group for several years.

"We have watched FCStone's business for a long time," Sean O'Connor, chief executive officer of International Assets, said on a conference call with analysts Thursday. "We started reading and listening to some of the conference calls. Just market circumstances led to the opportunity to do this. FCStone had a rough time recently."

FCStone Group, which provides consulting and transaction services for commodities that include agriculture and energy, came under scrutiny this year after it warned of major energy-trading losses.

International Assets plans to buy the firm in an all-stock deal valued at $130 million.

Under the terms, FCStone's investors will receive 0.2950 of a share of International Assets for each share of FCStone. The transaction values FCStone shares at $4.64, based on the $15.74 closing price of International Assets' stock on Wednesday.

Pete Anderson, FCStone's president and chief executive officer, said on the conference call that International Assets is a "perfect partner for FCStone. The combined company will serve over 10,000 customers in Latin America, Europe and Asia."

International Assets focuses on segments that include foreign equities, debt capital markets and commodities trading.

Richard Repetto, an analyst with Sandler O'Neill & Partners LP, told Prospect News on Thursday that the two companies seem to fit well together.

"There appears to be some good strong revenue synergies between the two firms," he said. "We're not aware of any regulatory concerns."

The deal must be approved by shareholders of both companies and receive clearance under the Hart-Scott-Rodino Act.

The merger agreement includes a termination fee of up to $4.90 million.

The companies expect the merger to close in the fourth quarter.

After the companies combine, International Assets, currently based in Altamonte Springs, Fla., will be based in New York City, while FCStone will continue to operate independently from its Kansas City, Mo., headquarters.

Shares of International Assets sank by $1.81, or 11.50%, to close Thursday at $13.93.

FCStone shares fell 15 cents, or 3.61%, to end at $4.00. The stock has traded from $1.23 to $32.25 over the past year.

Mentioned in this article:

Exelon Corp. NYSE: EXC

FCStone Group, Inc. Nasdaq: FCSX

Flagstone Reinsurance Holdings Ltd. NYSE: FSR

International Assets Holding Corp. Nasdaq: IAAC

IPC Holdings, Ltd. Nasdaq: IPCR

NRG Energy, Inc. NYSE: NRG

Validus Holdings, Ltd. NYSE: VR

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.