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Mirant May Sue Southern for $1.95 Billion in Damages

April 4, 2005
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Bankrupt power company Mirant Corp. informed the U.S. Bankruptcy Court last week in an amended reorganization plan and disclosure statement that its board has authorized the filing of litigation against former parent company Southern Co., seeking about $1.945 billion in damages related to payments made in connection with Mirant's initial public offering (IPO) and spin-off in 2001.

Southern Company spokesman Mike Tyndall said the litigation has not yet been filed.

The disclosure says that Mirant's board formed a special committee last year to investigate potential claims arising from several fund transfers to Southern from Mirant in connection with the Mirant IPO. As part of the investigation, the committee examined the following transfers: a $165 million dividend paid to Southern in the fourth quarter of 1999; $503 million in dividend paid to Southern in May and June 2000; the dividend distribution to Southern of one share of Series B preferred stock on Aug. 30, 2000 and it redemption on March 5, 2001 in exchange for Mirant's 80% interest in a holding company that owned SE Finance and Capital Funding valued at $242 million; and loan repayments to Southern of $927 million with interest of $108 million.

The committee then made its recommendations to the Mirant board to take legal action against Southern.

In addition to details about the proposed Southern litigation, the amended disclosure statement and reorganization plan also contain new information on the valuation of the company both before an after emergence from bankruptcy. Based on an analysis by the Blackstone Group, Mirant's value was estimated at about $7.6 billion, Mirant Americas Generation's value was estimated at $3.4 billion and the New Mirant Americas Generation Holding Company post bankruptcy was estimated at about $2.2 billion.

The company said that the values placed on these entities don't necessarily reflect the values expected to be received if the assets were sold. Mirant said they are "hypothetical reorganized enterprise values assuming the implementation of the business plan..." as well as other financial results and assumptions.

Mirant said that it still expects to emerge from bankruptcy by mid-year 2005. A hearing on the amended disclosure statement and reorganization plan is scheduled for April 20.

Mirant produces and sells power in North America, the Caribbean and the Philippines. It owns or leases more than 18,000 MW of electric generation capacity.

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