“The board believes that the merger ratio based on current market prices is not an appropriate basis to effect a merger,” Origin chairman Kevin McCann said.

"A merger based on current market prices does not properly reflect the relative fundamental value that each company would contribute to the merger."

McCann said a merger offered potentially significant operational benefits and synergies, but AGL had acquired several assets in recent years, such as Southern Hydro and Powerdirect, at prices significantly higher than Origin would value them in either its own business or in a merged entity.

For the merger to proceed, a significant divestment of natural gas, electricity and LPG retail customers, gas and electricity supply contracts and possibly some generation assets would be required, according to McCann.

"Our analysis has identified that this will result in significant value leakage,” he said.

"This is evidenced by the value that underbidders attributed to recent acquisitions, including Powerdirect."

McCann said Origin was entering a period of significant growth, as earnings began flowing from recent capital investment in upstream projects and from the acquisition of Sun Retail.

"We believe that our strategy remains appropriate and that the proposed merger would not enhance it in a compelling way," he said.

"Based on our comprehensive assessment as outlined above, the board has come to the decision to reject a nil premium merger of equals with AGL."

In its response, AGL said it was disappointed with Origin's decision.

"AGL notes that in rejecting our proposal, Origin has reached a number of conclusions, which we strongly disagree with," it said.

"AGL believes the merger proposal and presentation put to the Origin board continues to be compelling and will deliver material and sustainable benefits to shareholders of both companies."