Tags: Carl | Icahn | Threatens | Upset | Dynegy | Deal

Icahn Threatens to Upset Dynegy Deal

Wednesday, 13 Oct 2010 11:00 AM

Billionaire investor Carl Icahn revealed Tuesday that he built a 10 percent stake in Dynegy Inc. and said the Blackstone Group's $4.7 billion buyout of the struggling power company was too low, threatening the deal's chances of succeeding in its current form.

Icahn, who has agitated for change at companies including Yahoo Inc. and Genzyme Corp., said in a filing with U.S. regulators that he does not believe "that the consideration agreed to in the proposed merger is adequate."

He paid on average of $4.79 a share for his Dynegy stake — about 6.5 percent higher than Blackstone's $4.50-a-share deal.

New York-based private equity firm Blackstone announced its $4.7 billion to buy Dynegy on Aug. 13, offering a 62 percent premium over its closing price the previous day. Shareholders are scheduled to vote on the deal in mid-November.

Dynegy held a "go-shop" period — where rival bidders could have expressed interest — that ended on Sept. 22.

However, despite no other bid materializing, the company's shares have been trading higher than the offer price, indicating that some expect Blackstone to raise its bid.

"It remains to be seen if Blackstone chooses to appease the shareholders by raising their bid or if they choose to take the chance of a rejection of the proposed $4.50 outcome," Knight Capital analyst Terran Miller said in a research note.

"If the merger is ultimately rejected by the shareholders then Dynegy will need to find another source of liquidity to fund the anticipated negative free cash flow over the next several years."

Blackstone itself has indicated there was no higher offer coming and cautioned that Dynegy's future as a public company looked bleak without a deal.

The power company also said in a recent letter to shareholders that conditions have deteriorated since Blackstone's offer, citing low and declining commodity prices, continued economic weakness and a challenging financial position.

Dynegy said then that "the risks of continuing to operate as a stand-alone public company significantly outweigh the potential upside of doing so," forecasting $1.1 billion of negative cash flow through 2014.

Dynegy's shares closed up about 2.5 percent at $4.87 Tuesday.

SHARES 'UNDERVALUED'

Icahn bought 12 million Dynegy shares for $57.5 million, saying they were undervalued. The filing also said that Icahn might pursue conversations with Dynegy to discuss the deal.

The previous top shareholder in Dynegy, with a 9.3 percent stake, was hedge fund manager Seneca Capital, which has indicated it could oppose the Blackstone bid, according to a Wall Street Journal article.

In a recent filing Seneca said it reserved the right to "implement plans or proposals with respect to the issuer (Dynegy) as a means of enhancing shareholder value, whether alone or with third parties."

Blackstone's deal for Dynegy was unusually structured. It includes a $1.36 billion deal signed at the same time to sell four of Dynegy's natural gas-fired power plants to NRG Energy Inc.

Most of the price of the deal is made up of debt, with $543 million equity.

Shareholder approval requires just over 50 percent in favor to go through and a vote is scheduled for Nov. 17.

Icahn is also involved with Hollywood studios Lions Gate Entertainment and Metro-Goldwyn-Mayer, and has supported a proposal by Lions Gate to combine the two studios.

© 2017 Thomson/Reuters. All rights reserved.

 
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Billionaire investor Carl Icahn revealed Tuesday that he built a 10 percent stake in Dynegy Inc. and said the Blackstone Group's $4.7 billion buyout of the struggling power company was too low, threatening the deal's chances of succeeding in its current form. Icahn, who...
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2010-00-13
Wednesday, 13 Oct 2010 11:00 AM
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