Only a month after dropping its bid for U.S. independent power producer NRG Energy, Mirant Corp. announced a new strategic plan Tuesday to buy back shares and sell its international operations, including 2,203 MW of power generation in the Philippines and 1,050 MW of generation and several utility businesses in the Caribbean. The company will launch a $1.25 billion modified “Dutch Auction” tender offer on Wednesday for up to 43 million shares of common stock. After the plan is executed, Mirant will retain about 14,161 MW of U.S. power generation.
Mirant’s shareholders will be given the opportunity, subject to certain conditions, to sell all or a portion of their Mirant shares to the company at a price not less than $25.75 and not more than $29/share. The tender offer will be funded through a combination of cash on hand and cash distributed to Mirant upon completion of a term loan to be entered into by Mirant’s Philippines business.
Mirant plans to sell its international asset through an auction processes. It has ownership interests in three generating facilities in the Philippines: Sual, Pagbilao and Ilijan. The Philippines business contributed $370 million in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in 2005. As part of the plan, Mirant will recapitalize the business with a $700 million term loan from Credit Suisse, which will free up cash for the share repurchase. The term loan will be prepayable at par.
Mirant’s net ownership interest in the Caribbean businesses includes two vertically integrated utilities: an 80% interest in Jamaica Public Service Co. and a 55% interest in Grand Bahama Power Co. Mirant also owns a 39% interest in the Power Generation Co. of Trinidad and Tobago and a 25.5% interest in Curacao Utilities Co. In 2005, the Caribbean businesses contributed $156 million in adjusted EBITDA. The international asset sales are expected to close by mid-2007.
“Our strategic plan reflects our continued commitment to enhance shareholder value, both through the return of cash to our shareholders and through our continuing U.S. business,” said CEO Edward R. Muller.
Mirant estimates that available cash and cash from the recapitalization of the Philippine assets, less restricted cash, will total $1.261 billion.
The new strategic plan comes only a month after Mirant dropped its $7.8 billion hostile takeover bid for NRG Energy. The deal was canceled following opposition from NRG and from a major shareholder, hedge fund Pirate Capital LLC (see Power Market Today, June 13).
“We do not believe that entering into a hostile bidding war for NRG is in the best interest of Mirant shareholders,” wrote Thomas Hudson Jr., Pirate Capital’s manager in a letter to Muller that was also sent to the company’s board of directors and filed with the Securities and Exchange Commission (SEC). “While we believe that consolidation in the power sector is necessary, we question whether Mirant should be a consolidator.”
Funds managed by Pirate Capital collectively hold almost five million shares of Mirant stock, or 1.6% of the company, the firm’s SEC filing indicated.
Noting Mirant’s strong first quarter 2006 financial results ($467 million net income versus $11 million for the same period in 2005), Hudson said his investors believe “shareholders would be substantially rewarded if Mirant put itself up for sale.” He went on to “strongly urge” Mirant to retain a financial advisor to begin a process of selling itself, and Pirate Capital requested a meeting with the company’s board to discuss the matter further. This latest strategic plan appears to be designed to appease shareholders and put the company in position to grow its U.S. power business.
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