One of Mirant Corp.’s largest shareholders and a creditor in its three-year Chapter 11 bankruptcy process on Thursday asked the company to drop its attempt at a hostile takeover of NRG Energy and instead put the company up for sale. Connecticut-based Pirate Capital LLC, the portfolio manager of the investment fund, wrote to Mirant’s CEO and directors, saying investors are “concerned” about the offer to buy NRG.
Separately, Goldman Sachs Group Inc. resigned from the role it was supposed to play in advising Mirant in the unsolicited $7.8 billion bid for NRG, after NRG accused Goldman of providing Mirant with confidential information on the Princeton, NJ-based merchant generator’s Texas power plant hedging programs.
“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 Edward Muller, Mirant’s CEO that was also sent to the company’s board of director 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.
In reporting on Goldman Sachs leaving Mirant, the Wall Street Journal said that the dispute between Mirant and NRG, two merchant electric power producers, “highlights the uncertain ethical boundaries” that Wall Street deal-makers must attempt to tiptoe around.
“For Goldman, these issues are especially sensitive, given that it is working so many angles in today’s deal-making environment,” the Journal report said.
The accusations between NRG and Mirant surfaced as part of the lawsuit Mirant filed in the wake of the rejection of its unsolicited offer. The legal action asked a Delaware court to order NRG not to try to block Mirant’s acquisition attempt, alleging that NRG is using a “transaction ploy” to reject the offer, claiming confidential information has been used from a former NRG financial adviser.
Mirant told news media it had not received any confidential information, and NRG responded that the lawsuit is “a desperate attempt to compensate for the fact that Mirant’s proposal significantly undervalues NRG,” a claim the latter company made in a rejection letter to Mirant earlier in May.
The lawsuit was brought in the Chancery Court of Delaware, but did not name the alleged financial adviser, although NRG’s May 23 rejection letter clearly mentioned Goldman Sachs, which AP reported was involved in Mirant’s three-year Chapter 11 bankruptcy that ended last January. The legal action follows by a day Mirant making public its bid for NRG.
With $11.5 billion of financing in hand, Mirant late Tuesday made public the fact that it was offering what it considered a 33% premium for NRG Energy Inc. The cash and stock offer , which is the equivalent to $57.16/share, was quickly rejected by NRG, which called it the “wrong deal, at the wrong time” (see Power Market Today, June 1).
The Wall Street Journal‘s report Thursday cited “people familiar with the matter” as verifying that some of the same Goldman Sachs people advising Mirant had worked for NRG or its subsidiaries, and that last year Goldman had been involved in the $5.8 billion sale of the Texas Genco power plant group to NRG, and Goldman later played a “junior underwriting role” in NRG’s financing of the deal.
Part of the information in the deal that could have been advantageous to prospective bidders for NRG was the amount and detail of financial hedges Texas Genco had in place, according to the Journal report.
A combination of Mirant and NRG would form one of the largest power producers in the United States. NRG promotes itself as a truly diversified merchant power generator in terms of fuel and geography with the bulk of its 59 power plants, totaling about 25,000 MW, concentrated in four major areas of the United States — Northeast, South, Texas and the West. The company also has assets in Australia, Europe and South America. Mirant has 24 U.S. power plants and a related commercial business to support the plants with risk management, marketing and trading. It also has power generation and related activities overseas in the Caribbean and the Philippines. Worldwide, the company’s portfolio totals 17,300 MW.
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