Longtime corporate raider Carl Icahn beat out Blackstone's bid for Dynegy, but it's not clear how he can make a return on his investment.
By Cyrus Sanati, contributor
Carl Icahn may be biting off a bit more than he can chew with his latest deal.
The billionaire activist investor jumped head first into the volatile energy industry yesterday, agreeing to buy wounded Houston-based power giant Dynegy for $660 million, plus the assumption of $4.8 billion in debt. At that price, Icahn has two options: he can be very patient, waiting for asset prices to rebound, or very aggressive, declaring war on the company's bondholders, to recoup his investment. Neither one is promising.
Dynegy (DYN) had been on the block for nearly two years. Its bankers at Goldman Sachs (GS) and Greenhill (GNH) pitched the company to anyone who would listen, but failed to seal a deal as investors were concerned about the company's crushing debt load. Then in August, private equity giant Blackstone Group (BX) came along and offered $4.50 a share for the company, or $550 million.
Dynegy was in bad shape at that point. It had been burning cash for a while as weak natural gas prices helped to drag down power prices. Blackstone looked at Dynegy as a long-term play with an investment time horizon of at least five years to around 10 years, a person with knowledge of the firm's thinking told Fortune. It had already sealed a deal to sell some of the company's best power plants in California and Maine to rival NRG (NRG) for $1.36 billion. Blackstone was planning to use that cash to keep the company afloat until power prices rebounded for a sustained period of time. It would then either take the company public or sell it off in pieces.
But Icahn and Seneca Capital, a hedge fund, fought to block the deal on grounds that it undervalued the company. Blackstone later upped its offer to $5 a share, but shareholders rejected the deal last month, threatening to put the company into bankruptcy. More
The Blackstone Group's pursuit of Dynegy (DYN) has come to an end.
The troubled power company just sent out a statement that said, in part:
At this time, Dynegy anticipates that the proposal will not receive the necessary votes to be adopted. Blackstone and Dynegy therefore intend to terminate the merger agreement.
It adds that it "intends to immediately commence an open strategic alternatives process to solicit proposals from potentially interested parties and carefully MOREDan Primack - Nov 23, 2010 7:29 AM ET
Dynegy (DYN) shareholders today were expected to vote on the hotly-contested buyout offer from The Blackstone Group (BX), which yesterday was raised from $4.50 per share to $5 per share. Now, the power company has postponed the referendum until next Tuesday.
In a statement, the company said:
Dynegy's Board of Directors believes that this 11% increase in the merger consideration, to $5.00 in cash per share, is a very important development that Dynegy MOREDan Primack - Nov 17, 2010 11:30 AM ET
The Blackstone Group has raised its buyout offer for Dynegy (DYN) from $4.50 per share to $5 per share, less than 24 hours before shareholders are scheduled to vote on the deal.
The move comes amid strong challenges from activist investors Carl Icahn and Seneca Partners, who have argued that the original price was insufficient.
In a press release, Blackstone said that $5 per share offer represents the firm's "best and final MOREDan Primack - Nov 16, 2010 2:49 PM ET
The Blackstone Group today defended its proposed buyout of power company Dynegy (DYN), which has come under attack by activist investors Carl Icahn and Seneca Partners.
In a statement, Blackstone (BX) suggested that Icahn's $2 billion credit lifeline is really a Trojan Horse that "will present a day of reckoning" at maturity. Moreover, Blackstone claims Icahn was being disingenuous when he "implicitly suggested he could be a bidder for Dynegy if MOREDan Primack - Nov 15, 2010 2:07 PM ET
Carl Icahn is back in the headlines today, after announcing that he will oppose The Blackstone Group's proposed $4.7 billion acquisition of troubled power company Dynegy (DYN).
Actually, Icahn did more than just tip his ballot box strategy. He also promised the company a $2 billion line of credit (sans terms), to counter management claims that Blackstone is all that stands between Dynegy and a massive liquidity crisis. And if that wasn't enough, he MOREDan Primack - Nov 12, 2010 3:26 PM ET
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