Independent power producer NRG Energy Inc rejected Exelon Corp's sweetened hostile bid on Wednesday, saying the $7 billion stock offer was still too low.

But the company left the door open for talks if Exelon improves its bid, even though the power company has said its current bid is its best and final offer. Shares of NRG rose 4.5 percent in morning trading on the New York Stock Exchange.

NRG said its board had unanimously rejected the Exelon bid, arguing that it continues to substantially undervalue NRG.

Their increase very clearly was a welcome step in the right direction, but there still is a lot of distance to cover both in terms of the price and the terms of the offer, NRG Chief Executive David Crane said on a conference call.

Exelon raised its all-stock offer for NRG more than 12 percent last week, citing increased cost savings and NRG's May acquisition of Reliant Energy's Texas retail power business for the higher value.

It is offering NRG shareholders 0.545 of its shares for every NRG share, representing a current premium of around 15 percent.

What NRG is doing is leaving itself open to continue to negotiate, said Lasan Johong

Crane wants to see Exelon step up to the plate one more time, preferably closer to 0.6 (Exelon shares for every NRG share), before he makes any move toward a final conciliatory gesture, Johong said.

Still, Johong pointed out that Exelon has said that its previous bid was as high as it will go, so there is quite a bit of uncertainty regarding whether it will consider another raised bid.


This latest rejection should raise concerns for NRG shareholders, Exelon said in a statement. In the absence of Exelon's offer, it is likely that NRG's stock would trade closer to the stock prices of its Independent Power Producer peers, which is substantially below its current share price.

Exelon again encouraged investors to back its slate of directors for NRG's board at the annual meeting on July 21.

Both parties have argued that the election will be a referendum on the bid, and Exelon is meeting with NRG shareholders this week in an effort to build support.

If you vote Exelon's slate onto the NRG Board on July 21, my personal prediction is that Exelon's movement in the right direction toward a full, fair and reasonable offer for NRG will end on that day, NRG's Crane said on the conference call.

NRG argued that Exelon underestimated the value created by its recent acquisition of the Texas retail business, which it says is worth more than four times as much as Exelon believes.

The independent power producer raised its full-year forecast for adjusted EBITDA by $325 million to $2.5 billion, primarily due to the Reliant acquisition, which it says will generate $400 million of EBITDA in 2009.

It also boosted its 2009 estimate for cash flow from operations by $200 million to $1.675 billion, and increased the authorization for its share buyback plan to $500 million from $330 million.

NRG said the Exelon bid also ignores value created by its nuclear program, its development program for low-carbon power generation and its own cost reduction program.

Shares of NRG rose $0.77, or 3.5 percent, to $22.85 in morning trading, while Exelon shares rose $1, or 2.1 percent to $48.75.

(Reporting by Michael Erman; Editing by Lisa Von Ahn, Maureen Bavdek and Matt Daily)