Main Street AC Inc., a publicly tradable shell corporation that acquired 15 failing oil and gas partnerships and then reorganized under Chapter 11 of the Bankruptcy Code in January 2000, has tendered a cash offer for up to 4.9% of Aquila Inc., Dynegy Inc., Mirant Corp. and Reliant Resources Inc. at a 25% premium to their closing price Aug. 27.

Main Street’s offer was detailed as follows:

The stock market closed down across the board on Tuesday, including the energy merchants. Aquila closed down 15 cents to end at $3.78; Dynegy was off 4 cents to close at $2.04; Mirant was off 30 cents to close at $3.48; and Reliant Resources closed down 32 cents to close at $4.68 (see related stories).

In 2001, the newly reorganized Main Street, based in San Diego, said it approached “a number of Fortune 500 companies that were in critical need of capital,” but “unfortunately” had no success. It had been looking for “one large transaction well into 2002 before looking to some of the many smaller transactions that the company could complete more easily and build up over time.”

As a side note, Main Street’s web site links to Berkshire Hathaway Inc.’s “owner’s manual” and “acquisition criteria.” Berkshire Hathaway, run by Warren Buffett, has been picking off prime assets in the energy field, including Northern Natural Gas from Dynegy, as well as Kern River Gas Transmission from Williams Cos. It also has invested money in Williams and provided a loan (with Lehman Brothers) to Williams with 30% interest and a collateral requirement that gives it the mainly Rocky Mountain oil and gas reserves and assets of Barrett Resources, a Williams’ acquisition, if Williams defaults.

In looking for companies, Main Street explains on its web site that “the ideal candidate for merger…would be a still private roll-up in a stable industry that may be slightly out of favor with the public markets. To keep dilution to less than 10%, the ideal size for combined merger partners that seeks $150 million in cash and to quickly become a public company, is approximately $1 billion or more in revenues with reasonable profitability and growth following that of the overall economy.”

A roll-up is ideal, it said, because Main Street “has to obtain court approval to complete a regular reverse merger with a single entity before February 2003. However, there is generally no prohibition on a merger if three or more entities are involved. In any of these large mergers Main Street effectively disappears, and the merger partner moves forward in the public markets under their own name, under their own financials and with a new trading symbol.”

Main Street said that a “similar” merger approach for “three or more related or unrelated entities could simultaneously merge with the company to go public and gain funds for operation or for partial buyout of one or more of their parties.”

Instead of spreading the merger over a few entities, the merger can also be spread over time. Today, some fraction less than 30% of a large private firm could be purchased for a combination of cash and stock, perhaps buying some major stockholders or family members but keeping control with current owners. In an optional second step, say two or five years hence, the remainder of the firm is merged into Main Street with a name change and complete move of the larger firm into the public arena. Also, “spin-offs with management in place as a result of anti-trust constraints following an unrelated merger or to concentrate on core businesses are welcome transactions.”

Main Street was formed by Chester Billingsley, who had formed Tech Start in the Silicon Valley in 1985. As the focus of that firm changed to investment banking from start-ups and turnarounds, the partnership evolved into Mentor Capital in 1991. Then, in 1995, the public corporation now named Main Street AC Inc. was formed by the contribution and combination of Mentor Capital and its holdings along with the minority positions in the various portfolio companies held by other partners.

Oil and gas acquisitions include Sierra West Unit Investment Trust; Pac West Unit Investment Trust; Golden West Unit Investment Trust; Sun West Unit Investment Trust Option; California West Unit Investment Trust Option; Louisiana Investment Trust; Golden Trend Joint Venture; Waynette Joint Ventures 1, II, III and IV; and South Prairie Joint Venture.

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