NEW YORK (Dow Jones) -- Calpine Corp. on Friday shot down NRG Energy Inc.'s (NYSE:NRG) proposed all-stock merger, valued at $9.56 billion, as "inadequate," while holding out the possibility of a deal down the road between the two power- generating giants.

Shares of Calpine (NYSE:CPN) (CPN) rose 31 cents to $23 in morning trading, while NRG ( NRG) rose 29 cents to $41.10.

Houston-based Calpine said its board unanimously determined that NRG Energy's (NYSE:NRG) May 14 offer from "materially undervalues the company's unique asset portfolio and future prospects."

Calpine also said its board has authorized the company's advisors to contact NRG and its advisors in an effort to "ascertain whether there is a basis for discussions between the two companies to explore a business combination."

NRG CEO David Crane said the company respects the Calpine decision, but added that the power firm is "disappointed that they have decided not to move quickly" to deliver the benefits of its proposal.

"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 said.

The companies confirmed on May 21 that they had corresponded about combining their two businesses.

At the time, Calpine said Goldman Sachs was serving as financial advisor to the company, with Skadden Arps Slate Meagher & Flom LLP its legal counsel.

The combined company's market capitalization would be about $20 billion, and the deal would mean quickly delivering $100 million of annual savings on general and administrative expenses, Princeton, N.J.-based NRG said on May 21.

Calpine emerged from Chapter 11 bankruptcy in January, about the time that the company again became publicly traded on the New York Stock Exchange. It had sought federal bankruptcy protection from creditors late in 2005.

    (END) Dow Jones Newswires   05-30-08 1221   Copyright (c) 2008 Dow Jones & Company, Inc.