Oct. 20 (Bloomberg) -- Exelon Corp., the biggest U.S. utility company, offered $6.2 billion for NRG Energy Inc., following Warren Buffett in bidding for cheapened power assets after the credit freeze dragged down stock prices.

Exelon's unsolicited, all-stock bid comes after Princeton, New Jersey-based NRG lost half of its market value in two months. The offer, valued at 37 percent more than NRG's Oct. 17 closing price, would create the biggest U.S. power producer.

Buying NRG, the second-biggest power producer in Texas, would expand Chicago-based Exelon's sales outside its Illinois and Pennsylvania operating bases, including a nuclear plant stake southwest of Houston. NRG, Exelon and other power producers have proposed 24 new reactors to help add needed generation capacity without increasing greenhouse-gas emissions.

``Exelon couldn't build the plants for the same price it would buy NRG for,'' said Nathan Judge, an analyst at Atlantic Equities in London who rates Exelon shares ``underweight'' and owns none. ``It also gives them access to a bigger balance sheet to fund things like new nuclear plants.''

Exelon, already the largest U.S. producer of nuclear power, benefits from a cost advantage because according to an estimate by Natixis Bleichroeder Inc., reactors generate electricity for about 70 percent less than the most efficient gas-fueled plants. Two new reactors of the size NRG has proposed may cost $21.6 billion, according to the Federal Energy Regulatory Commission.

Exelon's Offer

NRG's owners would get 0.485 share of Exelon for each of their shares, valuing the company at $26.43 a share, Exelon said in a statement late yesterday. NRG traded above $39 as recently as Aug. 28.

Exelon rose 9 cents to $54.59 in New York Stock Exchange composite trading. The stock has dropped 39 percent since the end of June. NRG jumped 29 percent to $25.

NRG's power plants alone are worth $63 a share, more than double Exelon's offer, based on transactions over the past two years, said Gordon Howald, an analyst at Calyon Securities USA Inc. in New York.

Buffett's MidAmerican Energy Holdings Co. agreed Sept. 18 to buy Constellation Energy Group Inc. for $4.7 billion, less than half the company's market value a week earlier. Buffett's Berkshire Hathaway Inc. acquired its NRG stake in the second quarter, when the stock averaged $42.55.

`Substantial Discount'

``Exelon is offering a pretty substantial discount to what Berkshire Hathaway paid,'' said Howald, who rates NRG shares at ``buy'' and owns none. ``The upside potential for NRG as a standalone company is much higher, assuming they can get through this credit crisis. I think they have enough strength to say, `This is not good enough.'''

The transaction will add to profit in the first full calendar year after its completion, excluding merger-related costs, Exelon said in its statement. NRG said it will review the bid and urged shareholders to take no action.

NRG spokeswomen Meredith Moore and Lori Neumann didn't immediately return telephone calls seeking comment on the offer.

Exelon Chief Executive Officer John Rowe, 63, said he met with NRG's CEO, David Crane, 49, on Sept. 30 to discuss a possible merger. ``In view of the general state of the turbulence of the markets, we were not close enough to negotiate an agreement,'' Rowe told investors today on a conference call.

NRG Rejected Mirant

Exelon ``will do what it takes to consummate this deal,'' Rowe added, turning aside questions on whether he would offer a higher price or appeal directly to shareholders should the original bid be rebuffed.

NRG rejected a $7.86 billion takeover offer from Atlanta- based Mirant Corp. in 2006. NRG was spurned itself in May on an $11 billion, unsolicited offer for power producer Calpine Corp.

For Exelon, buying NRG would increase generation capacity to 47,000 megawatts. Exelon would have 18,000 megawatts of nuclear capacity. That's enough power for about 14.4 million average U.S. homes, based on an Energy Department estimate.

Exelon said it would bring a superior credit rating to the table and would reduce NRG's debt leverage.

NRG, which emerged from bankruptcy protection in December 2003, has a rating of Ba3, three levels below investment quality, from Moody's Investors Service. Exelon is rated Baa1, three levels above junk status.

`Refinancing Risk'

Judge, the Atlantic Equities analyst, said Exelon's proposed takeover is predicated on expectations of reducing debt costs by financing much of NRG's $8 billion in debt.

``There's refinancing risk, and this is the biggest credit crunch since the Great Depression,'' Judge said. ``This is going to be a real nervous spot for investors.''

Exelon hired Barclays Plc and UBS AG for advice on the refinancing and is in discussions with four banks, Rowe said.

NRG said in a statement that it's being advised by Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC. Kirkland & Ellis LLP is legal counsel.

The value of takeovers and asset deals announced by U.S. power companies is down 67 percent in 2008 from a year earlier, when buyers led by KKR & Co. bought the biggest Texas power producer, the former TXU Corp., in a record leveraged buyout, according to Bloomberg data. This year's data excludes the Exelon offer and NRG's unsuccessful bid for Calpine.

Power Deals

Among other transactions this year, National Grid Plc sold its Ravenswood power plant in New York City to TransCanada Corp. for $2.9 billion after the U.K. company bought U.S. utility KeySpan Corp. last year for $7.3 billion. Reliant Energy Inc., owner of power plants in nine U.S. states, made a deal this month on preferred stock deal that leaves it open to a takeover.

Exelon is delaying a $1.5 billion share buyback announced Sept. 4, Rowe said. The cash would be used instead to improve Exelon and NRG plants and to reduce debt taken on in the transaction, he said.

The buyback may not benefit shareholders, given the chaos in financial markets, Rowe said. Purchasing NRG is ``worth the candle'' because it would make Exelon a major power supplier in Texas and expand output in California and New England, he said.

The combined company would need to sell generating capacity of 3,000 megawatts to eliminate its potential to manipulate prices, Rowe said. Some plants in Texas and PJM Interconnection LLC, the largest U.S. power market, would be sold.

Berkshire Hathaway, based in Omaha, Nebraska, had 3.24 million NRG shares as of June 30, according to a public filing. Ranked the world's richest man by Forbes magazine, Buffett built Berkshire by investing in out-of-favor securities and buying businesses whose prospects and management he deemed superior.

To contact the reporters on this story: Jim Polson in New York at jpolson@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net.

Last Updated: October 20, 2008 16:10 EDT