Exelon electrifies NRG; Fertitta orders up new price; HLTH, WebMD take merger off life support

By Aaron Hochman-Zimmerman

New York, Oct. 20 - Stocks mounted another rally to open the week on Monday as nerves eased slightly over the question of financing.

"Libor rates are going down and the TED spread is narrowing," a market source said. "There's a little bit of a thaw in credit markets."

Exelon Corp. jumped at the chance to take advantage of the slightly better environment, as it arrived in deal-land with the expectation that it would be able to finance NRG Energy, Inc.'s debt after the completion of their proposed $6.2 billion deal.

Also, Tilman Fertitta agreed with Landry's Restaurants, Inc. to have the full entrée at early-bird prices.

Due to what are still difficult market conditions, the 39% owner of Landry's negotiated the price down to $13.50 per share from his previous offer of $21.00 per share.

Elsewhere, Adrenalina took a shot at Pacific Sunwear of California, Inc., while the deal between HLTH Corp. and WebMD Health Corp. crumbled.

Meanwhile, the galloping Dow Jones Industrial Average ended higher by 413.21, or 4.67%, at 9,265.43, while the Nasdaq Composite Index added 58.74 or 3.43%, to finish at 1,770.03.

The S&P 500 took on 44.85, or 4.77%, to close at 985.40.

Exelon energizes NRG

On Sunday, Exelon put up 0.485 shares of itself for each share of NRG Energy in an unsolicited $6.2 billion bid.

The price amounts to $26.43 per share, or a premium of 37% to Friday's close.

"This combination would not only diversify Exelon's generation portfolio geographically, it would also create immediate earnings and cash flow accretion," John Rowe, chairman and chief executive officer of Exelon, said in a statement. "We believe a combination of Exelon and NRG would represent an exceptional value for shareholders of both companies."

A market source noted that the regulatory process may be streamlined as NRG does own a regulated utility; however, Exelon has planned for divestiture.

"Exelon has developed a divestiture strategy that will address the concerns of regulatory authorities, and we are confident that our proposed combination will receive all necessary regulatory approvals," Rowe wrote to NRG president and CEO David Crane.

NRG acknowledged the offer on Monday, adding that its board of directors will review the offer and respond "in due coarse."

Right now the ball rests with NRG, who should know "this is the best offer they're going to get," said Macquarie Capital analyst Angie Storozynski, although the offer "doesn't look that high."

Still, "Exelon is the best power generation company in this country" and Exelon "brings a pile of cash, liquidity to the transaction," she said, which will be necessary to repay NRG's debt.

The change of control will trigger nearly $8 billion in NRG bonds that will have to be refinanced, likely within the next six months, she said.

Whether or not NRG's leadership sees the deal in the same positive light as Storozynski is a question of the "ambition of management or the best outcome for shareholders," she said.

Likely the market will see "a week or two" of "back and forth" before NRG accepts a price, she said, adding that "they don't have much time."

Shares of NRG Energy (NYSE: NRG) lit up the wire by $5.67, or 29.33%, to close at $25.00.

Shares of Exelon (NYSE: EXC) added $0.09, or 0.17%, to end at $54.59.

Fertitta takes manager's discount

On Oct. 7, Tilman Fertitta via his Fertitta Holdings Inc. told Landry's Restaurants that his previous offer of $21.00 per share for Landry's was too high in light of recent events.

To Fertitta, who already owns 39% of Landry's, "recent events" meant both the unraveling of the credit markets as well as the physical unraveling of many Landry's properties as a result of Hurricane Ike.

After renegotiations, Fertitta announced that an agreement and $500 million in financing has been secured at the price of $13.50 per share.

The price represents a 49% premium over Friday's close.

Shares of Landry's Restaurants (NYSE: LNY) spiked by $2.58, or 28.41%, to finish at $11.66.

HTLH, WebMD pull plug on deal

HLTH and WebMD informed those concerned that there was nothing more they could do to save their merger.

The two cited complications due to clogged credit lines and recent turmoil in financial markets, a joint press release said.

"The boards of directors of HLTH and WebMD believe that, in the current economic environment, it is important for a growth company like WebMD not to be encumbered by $650 million in long-term debt that would be coming due in 18 to 36 months," wrote Martin Wygod, chairman of both companies.

Wygod claimed that separately, the two companies will remain more nimble in order to deal with the specific challenges that face each firm in the current environment.

Rather than proceed with the merger, HLTH said it will hold a tender offer for 50 million, or 27%, of its shares outstanding at $9.20 per share.

HLTH shares traded at $9.10 Friday.

HLTH noted in a release that it has $1.3 billion in cash and investments in order to fund the nearly $460 million tender.

Shares of HLTH (Nasdaq: HLTH) sank by $1.14, or 12.53%, to $7.96.

Shares of WebMD (Nasdaq: WBMD) launched by $3.92, or 25.82%, to $19.10.

Adrenalina chases PacSun

Extreme sporting goods retailer Adrenalina went out on a limb with a $4.50-per-share offer for Pacific Sunwear of California on Monday.

The cash and stock offer represents a 24% premium to PacSun's Friday close.

"Not only does the proposed acquisition price represent a premium to the current price of PacSun's shares, but the cash/stock structure of the transaction would allow shareholders to participate in the future growth and performance of the re-energized combined company," Ilia Lekach, chairman and CEO of Adrenalina, wrote to PacSun.

Shares of PacSun (Nasdaq: PSUN) tacked on $0.18, or 4.97%, to finish at $3.80.

Shares of Adrenalina (OTCBB: AENA) rose $0.25, or 20.83%, to close at $1.45.

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