DYNEGY yesterday defended its bid to sell itself for $665m (£413m) to billionaire Carl Icahn, arguing weak market conditions could force the power company into a liquidity crisis unless the deal goes through.
The $5.50-a-share deal has come under fire from hedge fund Seneca Capital, which led a similar effort to oppose the company’s previous deal to sell itself to private equity firm Blackstone Group. Shareholders voted that deal down in November.
“Given Dynegy’s cash flow position, we believe there are serious questions as to whether Dynegy will have sufficient liquidity available to reach eventual market recovery,” the special committee of Dynegy’s board of directors said in a letter to the company’s shareholders.
Dynegy, which sells power at competitive rates into the open market, is trying to sell itself in the face of weak natural gas prices, which often dictate power prices.
But Seneca has said that management has consistently undervalued the company, and is arguing that Dynegy is worth $7.50 to $8.50 a share. Dynegy shares closed at $5.74 on the New York Stock Exchange yesterday
The Dynegy directors argued in the letter that accepting the Icahn bid was superior to the risks of remaining an independent company.
They also asserted that Seneca had made various errors in its presentation materials and called some of the assumptions behind Seneca's valuation “exceedingly wishful”.
Icahn extended his tender offer yesterday, saying he needed more time to receive approval from the Federal Energy Regulatory Commission. Only about 4.4 per cent of Dynegy’s shares have been tendered into the bid.
City A.M. Reporter