Merger Monday: New M & A Activity Today

Excelon makes a stock swap bid for NRG
Two major deals were announced today. The first was Excelon (symbol: EXC), the largest nuclear power operator in the U.S., announcing a take-over bid for NRG Energy Inc. (symbol: NRG). If the merger goes through, the combined company would be the largest energy provider in the country.

The proposed deal is a $6.2 billion stock swap: 0.485 shares of Excelon for one share of NRG. Based on Friday’s closing price, that translates in $26.43 for one share of NRG–a 37% premium over Friday’s closing price of $19.33. I’m not buying NRG for the MANDA Fund right now for several reasons.

Fundamentally, NRG is groaning under $8.1 billion in long-term debt which could lower Excelon’s credit rating. The deal is subject to regulatory approval which Excelon believes can be achieved by “modest divestitures of some assets.” The unsolicited offer is currently being reviewed by the NRG suits. If it they reject the offer, a hostile takeover is likely; if they accept it, the deal will then require approval of both companies’ shareholders, and most importantly, will be subject to due diligence. [Aside: It was this due diligence process that effectively tanked the BXG takeover recently forcing me to sell it in MANDA, although the deal is not completely dead.] If the energy and utility sectors keep dropping, Excelon can use the due diligence excuse as a way to worm out of the deal.

Technically, I’m not a fan of stock swap deals, especially in a declining market. Even if the deal is approved by both companies, it probably won’t close until at least the first quarter of 2009 and who knows what will be the price of the market and Excelon stock? Adding to that, our new commander-in-chief may have his own ideas on energy policy and corporate taxation, as if we need to throw another factor into this already loaded equation. So, no thank you for now. But I’m keeping this one on my radar screen.

CEO of Landry’s Restaurants seeks to buy outstanding shares
The CEO of Landry’s Restaurants (symbol: LNY) lowered his bid to purchase the outstanding shares of his company for yet a third time this year. The first time was in January when he offered $23.50 a share. The second time was April when the price was lowered to $21 a share. Today, the offer was lowered to $13.50 a share. Sound like a bad deal? Not when you consider that $13.50 is a 49% premium over Friday’s closing price. Will the deal go through this time? I don’t know, but people are staying away from restaurants in droves, and if this situation continues, the prospects for financing grow dim. The deal is expected to close before February 15, 2009 which is the expiration date of the lenders’ financing commitment.

At least this is a relatively “clean” deal, that is, no regulatory issues need to be addressed, there’s no due diligence, and there’s no stock swap—just clean, cold cash per share. I like all of that. But I’m not in this one, either. Before I make another MANDA purchase I’ll need to see the credit market stabilize first…and that could take a while.

Upcoming blogs
I know I keep promising high dividend plays and hopefully tomorrow I’ll be able to provide you with some good candidates for your income portfolio and/or retirement accounts. The VIX is coming down and I do also want to give you some solid covered call candidates so that you can profit from inflated options premiums. Maybe I’ll tackle that one first…

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