NRG Energy Inc. on Sunday rejected Exelon Corp.’s $6.08 billion acquisition offer—a merger deal that would have created the single largest power company in the U.S.—saying that the “opportunistically timed proposal grossly undervalues” the company.

Stressing that the offer was unsolicited, the company’s board of directors unanimously agreed that Exelon’s Oct. 19 proposal significantly undervalued NRG and that it was not in the best interests of the company’s shareholders, both on an absolute basis and relative to Exelon’s own share value.

“One critical example of the inequity of your proposed 0.485 fixed exchange ratio is that, under your proposal, NRG shareholders would own only 17% of the combined company while contributing over 30% of a combined NRG-Exelon free cash flow in 2008,” David Crane, NRG president and CEO wrote Exelon’s John Rowe in a Nov. 9 letter (PDF).

The board also took into consideration that Exelon’s corporate credit rating was downgraded and placed on credit watch with negative outlook on Oct. 21. NRG said that, from a letter Exelon sent on Nov. 3, it had inferred that Exelon would only fully finance NRG if that company made its financial resources available to Exelon.

“Your obvious difficulties on both the debt financing and credit rating front since your public bid supports our conclusion that, even apart from your proposal’s substantial undervaluation of NRG, your proposal is so highly conditional that it has severe implementation risk for which NRG shareholders are in no way compensated,” Crane wrote.

Exelon had made public an all-stock $6.2 billion offer on Oct. 12—following NRG’s loss of half its market value in two months. Exelon’s share price has fallen to $53.82 since then, making the bid worth about $6.08 billion.

A combination of NRG and Exelon, the largest nuclear operator in the U.S., would create a company with a market value of about $40 billion and 47,000 MW of generating capacity. NRG owns 44 power plants with the capacity to produce 23,000 MW.

NRG is not a company that shuns industry consolidation. Crane stressed in his letter, it “has and always will be a willing seller or buyer when genuine value can be created for both parties.”

Earlier this year, NRG offered $11 billion to take over Calpine Corp. Calpine ended discussions on the possible merger after rejecting the offer as inadequate this August.

In 2006, Mirant Corp. had offered NRG $7.86 billion in a hostile takeover, but that deal was withdrawn a month later.

The Princeton, N.J., company had been forced into bankruptcy after Enron Corp. collapsed in December 2001.

Sources: NRG Energy, POWERnews