After looking for better deals and getting no offers, Houston-based Dynegy Inc. urged its shareholders Tuesday to approve the pending merger with an affiliate of private equity firm The Blackstone Group LP and its $4.50/share offer at an upcoming special shareholders meeting Nov. 17.
CEO Bruce Williamson sent a letter to shareholders noting that the company's financial position has worsened since the $4.7 billion deal ($542.7 million cash and the rest acquired debt) was announced in August (Daily GPI, Aug. 16). Williamson said the company and its financial advisers conducted a 40-day "go-shop" process, soliciting 42 potentially interested parties and received no proposals.
"The [competing solicitation] was a broad public process that the financial and industry communities at large were aware of, and any interested party had every opportunity to submit what it felt constituted a superior offer to the Blackstone offer," Williamson said.
Also on Tuesday, Dynegy posted a presentation, "Setting the Record Straight: The Truth About Asset Sales, Dividends and Debt Facilities," on the investor relations page at www.dynegy.com. It underscores that a dividend or individual sales of assets are not viable options for Dynegy, insisting that the Blackstone offer provides "certainty and fair value" to the company's stockholders.
"Under current market conditions, any assets sold today would add significant risk and worsen Dynegy's financial position." That is why, Williamson reiterated, that its sale of plants to NRG Energy Inc. will take place through the Blackstone affiliate buying Dynegy, rather than the independent power operator.
The presentation goes on to say that in the short term leaving Dynegy as a stand-alone company could worsen its already troubled financial condition considering "current depressed wholesale gas prices, coal and rail transportation pricing, and supply/demand factors."
Williamson and the website presentation bluntly state that if the Blackstone deal doesn't close, Dynegy stockholders are facing the prospect of significant further loss of value below the pre-merger announcement stock price level ($2.78/share). The stock in recent weeks has been trading above the Blackstone offer level of $4.50/share.
The company told shareholders the Blackstone share price "appears to be reasonable," and in the current economic landscape Dynegy's financial condition as a stand-alone company appears to be quite "fragile."
As a related transaction to the proposed merge, Princeton, NJ-based NRG Energy said it would buy four Dynegy plants from Blackstone plus another plant from an additional party.
The parties are hoping that assuming shareholder approval, the merger transaction will be able to close by the end of this year and is not subject to any financing conditions; a fund managed by Blackstone has committed to contribute all of the equity necessary.
The deal opens a new life for a company whose roots date to 1985 when it started as a natural gas trading firm known as Natural Gas Clearinghouse. Power marketing was added later, and the company's star shone almost as brightly as that of Enron Corp.'s during the gas and power marketing heyday of the mid-1990s. In fact, when Enron first acknowledged publicly its financial distress in the fall of 2001, Dynegy briefly considered buying the crippled company (see Daily GPI, Nov. 28, 2001).
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