The battle for Dynegy took a number of twists on the eve of the special shareholder’s meeting (Wednesday, November 17: 10am Central, 11am Eastern).
Blackstone Group upped its offer for the power producer to $5 per share from $4.50 after the dissidents opposing the deal aggressively turned up the heat in recent days.
Last Thursday, November 11, hedge fund Seneca Capital, which owns 9.3 percent of Dynegy’s stock and has aggressively campaigned against the merger as well, announced it will launch a proxy fight to get two of its nominees onto Dynegy’s board of directors.
On Tuesday, November 16, Seneca said in a regulatory filing that two additional nominees are prepared if other current directors step down from the Dynegy board. It also filed a number of other proposals for the meeting, including one directing the Dynegy board to explore the possibility of the selling the company and/or its assets.
It also called on the power producer’s board to consider strategies to optimize its debt structure, carefully evaluate all cost-cutting opportunities, review senior management and the compensation plan, and undertake an in-depth review of director and officer compensation policies.
Meanwhile, Carl Icahn continues to apply pressure on Dynegy. On Tuesday, he boosted his ownership stake in Dynegy for the second time in less than a week, to 14.51 percent.
Last week he also shrewdly offered Dynegy a $2 billion line of credit. He is mindful that Dynegy claims Seneca does not address what it calls “very real and near-term risks to Dynegy,” such as its liquidity, high leverage and refinancing risks.
Well, thanks to Icahn, there are potentially no longer liquidity problems.
“We are skeptical that those risks exist, but more importantly we do not want to see shareholders railroaded into a financially ill-conceived transaction because of what we consider to be unfounded fears,” Icahn wrote in a letter fired off Friday to Bruce A. Williamson, Chairman, President and CEO of Dynegy. “To put the concerns raised by management to rest once and for all, we would be willing to provide a credit facility on the same terms as the existing Dynegy credit facility.”
On Monday, Icahn excitedly pointed out in another filing that JPMorgan came out with an analyst report that introduced a December 2011 price target of $7, up from its prior December 2010 price target of $5.
“We believe Dynegy shares are worth fundamentally more than $7; however, we derive our $7 price target by starting with our prior $5 price target (which we based on the Blackstone bid for Dynegy) and adding a $1.15 per share upside based on the potential to sell $1.5 billion of assets under the Carl Icahn revolver ... and then adding a premium on top of that for additional potential value creation driven by new board and company leadership,” the report states.
Icahn also warned that he intends to investigate any potential voting irregularities that might take place on Wednesday. He asserted that since the record date for the special meeting, “a tremendous amount” of Dynegy’s stock has traded hands. “This high volume of trading activity has resulted in a large number of record date holders who continue to have voting power over the stock with respect to the merger, but no longer have any economic interest in the stock.”
He asserts that in light of these significant changes in shareholders he asked that the record date for voting on the transaction be changed. If the record date is not changed and there is voting in the transaction by individuals that have no economic interest in the transaction and the merger is approved, Icahn said he would “diligently investigate and challenge by all legal means” any improprieties in those votes.
Icahn added that given that Dynegy’s stock is currently trading above the $4.50 merger price he would be suspicious if the proposed transaction is approved, particularly if those votes are provided by persons with no economic interest in the transaction.
Dynegy is aggressively urging shareholders to approve the merger and pointed out that Institutional Shareholder Services, the influential proxy advisory firm, recommended that Dynegy stockholders vote for the proposal.
In response to Icahn, Dynegy asserted in a press release that Blackstone is the only one to submit a proposal that has ever been presented to the company and its stockholders.
It added that Icahn’s non-binding credit facility proposal does not address Dynegy’s critical post-2012 liquidity issues or the fundamental effect on stockholder value of adding more debt on an already highly leveraged company.
“Throughout the Dynegy board’s extensive strategic review process, we have found only one potential transaction, the current one with Blackstone, which provides certain value to our common stockholders,” Dynegy stated. “Failure to complete the Blackstone transaction would present stockholders with substantial continuing risk to commodity prices that have actually fallen significantly since the Blackstone transaction was approved and, therefore, to significant financial uncertainty.
Blackstone’s deal is also shrewd. It is valued at $4.7 billion, including the assumption of debt. But Blackstone is only putting up $543 million in cash.
When Blackstone announced its deal with Dynegy, it also said it worked out a deal whereby NRG Energy will acquire four natural gas-fired assets currently owned by Dynegy for $1.36 billion in cash. The completion of the merger between Dynegy and Blackstone is contingent upon the closing of the deal between Blackstone and NRG Energy.
This should be one exciting meeting.
