July 2 (Bloomberg) -- Exelon Corp., the largest U.S. utility owner by market value, raised its hostile takeover bid for NRG Energy Inc. 12 percent to $7.45 billion after a drop in its share price whittled away the premium it was offering.

The revised proposal is to swap 0.545 share of Exelon for each NRG share, Chicago-based Exelon said today in a statement. Princeton, New Jersey-based NRG, the second-biggest power producer in Texas, has repeatedly rejected an offer of 0.485 Exelon share for each share since the bid was made in October.

Exelon said it boosted the price, “its best and final offer,” after identifying more cost savings and accounting for NRG’s purchase this year of RRI Energy Inc.’s retail power business in Texas. After NRG’s board rejected the original bid, Exelon took its offer directly to NRG shareholders and last month nominated nine independent directors for board seats.

“The higher offer does reflect some things NRG has highlighted and one of the good acquisitions they made was the Reliant retail business,” said Nathan Judge, an analyst at Atlantic Equities LLP in London who rates Exelon shares “overweight” and owns none. “We’re uncertain at this point whether it is enough to continue to attract NRG shareholders.”

Exelon last month extended the deadline for NRG owners to tender their stock in support of the bid to Aug. 21. As of June 16, the day before the extension and 10 days before the deadline at the time, about 12 percent of NRG shares were offered. When Exelon extended the proposal in February, it said 51 percent or NRG shares were tendered as of the deadline.

Premium Eliminated

The initial bid valued NRG 37 percent higher than the stock had last traded when it was announced Oct. 19. NRG rose in New York stock trading as Exelon fell in the months that followed. By June 29, NRG’s market price was higher than the value of 0.485 share of Exelon. The revised bid is 7.9 percent higher than NRG’s closing price yesterday.

NRG fell $1.25, or 4.8 percent, to $24.80 in New York Stock Exchange composite trading. Exelon, which has dropped 11 percent this year, slid $2.19, or 4.2 percent, to $49.37.

All electric utility owners and power producers in the Standard & Poor’s 500 fell after the Labor Department reported that the U.S. jobless rate jumped to the highest since 1983. NRG also was pulled lower by disappointment over Exelon’s insistence that the offer won’t be raised again, said Brandon Blossman, an analyst at Tudor Pickering Holt & Co. in Houston.

NRG Chief Executive Officer David Crane said June 9 that he expected Exelon to increase its bid. The company issued a statement today advising shareholders to take no action pending its board’s review of the revised proposal.

Bid May Fall Short

The sweetened offer “may be a case of too little, too late,” analysts at Tudor Pickering Holt & Co. said in a note to clients. “We don’t think the small premium gets the deal to the finish line.”

A 10 percent to 15 percent increase in Exelon’s offer was expected, said Angie Storozynski, an analyst at Macquarie Capital USA Inc. in New York. The bid needed to go to at least 0.58 to win enough support, said Storozynski, who rates shares of both companies “outperform” and owns none.

“Optimal” financing of the deal would include spending $1.7 billion in cash and selling $1.6 billion of assets, $1.1 billion of stock and $4.2 billion of debt, Exelon said. The company said it expects to retain investment-grade debt ratings.

The acquisition would increase earnings per share by as much as 7 percent in 2012 and beyond, Exelon said today. The utility owner said it expects as much as $475 million of cost savings, including $20 million at the Texas retail unit and a 30 percent reduction in operations and maintenance costs at NRG.

Texas Expansion

NRG added more than 1.7 million customers in Texas after it bought RRI’s retail business in May. The company also was selected as one of the four applicants that the U.S. Energy Department is considering for government loan guarantees to back new nuclear plants. Exelon said June 30 it had indefinitely postponed its plan for a new nuclear plant in Texas.

Exelon Chief Executive Officer John Rowe wants to expand sales and gather economies of scale after failed efforts to acquire Public Service Enterprise Group Inc., owner of New Jersey’s largest utility, in 2006, and the Illinois Power unit of Dynegy Inc. in 2003. He also has sought expansion in Texas, the largest power-consuming state.

For NRG, the proposed acquisition would create as much as $3 billion in shareholder value, Rowe told investors today on a conference call.

Improving debt markets helped embolden Exelon to raise its offer because there was less risk of having to refinance NRG’s debt at a high cost, said James Halloran, a consultant at Financial Americas Securities in Cleveland. Exelon said it expects to refinance at rates of about 8 percent.

“There’s a decent chance now that the deal gets done,” Halloran said. “It’s going to be difficult for NRG to make the case that its worth so much more money that there’s no reason to even talk to Exelon.”

To contact the reporters on this story: Jim Polson in New York at jpolson@bloomberg.net; To contact the reporter on this story: Katarzyna Klimasinska in Houston at kklimasinska@bloomberg.net.

Last Updated: July 2, 2009 16:31 EDT