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Calpine Rejects Marriage Proposal; NRG Undaunted

San Jose, CA-based Calpine Corp. Friday spurned the $11 billion marriage proposal from Princeton, NJ-based NRG Energy Inc., but the eastern independent power plant operator indicated it would not give up trying to link up with its western-based equivalent. Calpine said NRG's offer is "inadequate and materially undervalues" its asset portfolio of late-model natural gas-fired plants and the nation's largest geothermal power fleet.

Calpine's board of directors Friday announced its unanimous decision to reject the offer after "thoroughly" reviewing the proposal, which had been sent in a letter May 14. The offer does not adequately reflect Calpine's "future prospects," said the board. Nevertheless, the board left the door open to a revised proposal.

Calpine said its board "has authorized its advisors to contact NRG and its advisors to ascertain whether there is a basis for discussions between the two companies to explore a business combination," although it added the caveat that "there can be no assurance that a transaction will result" from additional discussions. Calpine said it would not make public developments with respect to any discussions that develop.

In reaction to Calpine's rejection, NRG indicated it will continue to pursue a combination that would create an independent generator with 129 facilities, totaling nearly 48,000 MW. NRG currently has 47 plants totaling 23,951 MW, and Calpine has 82 plants totaling about 24,000 MW.

"We respect the Calpine board's decision but are disappointed that they have decided not to move quickly to deliver the benefits of our proposal to Calpine's shareholders," said NRG CEO David Crane. "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."

A Houston-based NRG spokesperson told NGI the company would make no further comment.

There have been recent reports that NRG could face some competition from unlikely sources, including possible back-door suitors Dynegy Corp. and Reliant Energy, in its bid to take over Calpine (see NGI, May 26).

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