A merger that would have united the two largest U.S. independent power producers has hit a roadblock.Calpine Corp. (CPN) has rejected NRG Energy Inc.’s (NRG) initial offer, saying the 0.534 shares for each share of Calpine’s approximately 500 million shares outstanding is inadequate.

“I don’t think anyone should be surprised by Calpine’s announcement,” Gordon Howald, an analyst with Calyon Securities USA Inc. in New York, told Bloomberg News. Howald has a “buy” rating on NRG shares, but doesn’t own any. “If they were to accept the first bid as laid out, they would probably be doing their shareholders a disservice.”

Calpine has 60 power plants capable of producing 23,000 megawatts of electricity, while NRG maintains 49 plants with a total capacity of 24,120 megawatts. A successful takeover would double NRG’s capacity in the United States to about 45,000 megawatts, enough to power 36 million homes.

Despite rejecting the initial bid, Calpine stated it is examining whether “there is a basis for discussions between the two companies to explore a business combination,” The Associated Press reported. However, the company stressed that it’s possible no deal would ultimately result from the talks.

“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,” David Crane, NRG’s chief executive officer, said in a statement, Bloomberg reported.

The company remains interested in the deal, Crane added.

NRG would benefit from Calpine’s strong presence in California and its focus on cleaner burning natural gas. But there could be other interested suitors.

Other power companies that could throw their hat into the ring for consideration include Constellation Energy Group Inc. (CEG), Reliant Energy Inc. (RRI) and Mirant Corp. (MIR), James Halloran of National City Corp.’s (NCC) Private Client Group in Cleveland, an analyst who helps oversee $38 billion in assets, including about 13,500 NRG shares, told Bloomberg. A less likely possibility is Dynegy Inc. (DYN), Halloran added.

“There’s going to be a lot of negotiations in this,” Halloran said. “I think you’ll get at least one or two other possible bidders on it.”

Calpine shares closed up 25 cents on Friday, an increase of 1.10%, to close at $22.94. NRG shares also gained, closing up 87 cents for the day, an increase of 2.13%, at $41.68.

Source: Calpine Rejects NRG Takeover Bid