Calpine rejects NRG offer, but leaves wiggle room

Calpine said its board, in consultation with financial and legal advisers, unanimously determined that NRG's offer is "inadequate and materially undervalues (Calpine's) unique asset portfolio and future prospects."

However, the company is examining whether "there is a basis for discussions between the two companies to explore a business combination." No deal is sure to come from any talks between the companies, Calpine said.

Calpine added that it does not plan to disclose developments related to any discussions with Princeton, N.J.-based NRG.

The all-stock bid was initially valued at $11.5 billion, but its value has fallen since the deal was made earlier this month.

NRG President and Chief Executive David Crane said in a brief statement that he respected the Calpine board's decision but was "disappointed that they have decided not to move quickly to deliver the benefits of our proposal to Calpine's shareholders."

"We continue to believe that our proposal offers significant strategic and financial benefits and we remain interested in a combination with Calpine on the terms we have proposed," Crane added.

NRG spokesman David Knox declined to comment when asked whether the company had yet been approached by Calpine representatives or if it would be open to further negotiations.

NRG made its offer May 14, but the bid only became public last week. The company is offering to swap 0.534 shares of its stock for each of about 500 million Calpine shares it has estimated it will need to acquire. That makes the deal now worth $10.9 billion, or $21.79 per share, based on Thursday's closing price.

Citi Investment Research analyst Brian Chin said he believes NRG will likely raise its offer, noting that a sale price of more than $24 per share would still benefit shareholders. Competing offers from other suitors are possible but not likely, he added in a research note.