The sale of the Morro Bay Power Plant as part of the parent company, Dynegy, has been delayed at least until February 9 after Dynegy's second largest stockholder refused to accept the $665 million purchase offer of Dynegy by Icahn Enterprises, which had been scheduled to close on January 25.
Icahn Enterprises is Dynegy's largest stockholder. It is a diversified holding company engaged in investment management, automotive, railcar, food packaging, metals, real estate, and home fashion fields, but not in energy production. Icahn Enterprises had made its offer on December 15 following the collapse of a previous offer by the Blackstone Group last August. Icahn increased its offer over what Blackstone had bid.
But Seneca Capital, the second-largest shareholder of Dynegy, rejected Icahn's $5.50 a share offer and said that it would even oppose a $6 a share offer, should such a bid materialize. Icahn extended its $5.50 offer for Dynegy by two weeks. Other Dynegy investors also showed little interest in Icahn's offer, even though the Dynegy board supported it.
Its $5.50 offer will now expire on February 9, unless Dynegy receives better bids in the interim. (The sale information is mainly from the New York Times.)
The battle seems to be over varying estimates of the profit from acquiring Dynegy, the third-largest U.S. independent power producer, and then selling its assets on an individual basis. Dynegy owns and operates 17 power plants across the nation, including those in Morro Bay, Moss Landing, and Oakland in California. The Morro Bay and Oakland plants operate very little, but Moss Landing has two new units and generates 2,500 megawatts of electrical power.
Dynegy may fetch a higher overall value if broken apart because a private company like Icahn Enterprises may have the flexibility that Dynegy's board lacks, said Charles Fishman, an analysis with Capital Partners, an investment banking firm. "The maximum value you would get for this company would be in breaking it apart. That would be what Carl Icahn, assuming hes successful, is likely to do," he said. (Bloomberg News) Icahn is chairman of the board and primary investor in Icahn Enterprises.
Icahn, a billionaire investor, ranked Number 20 earlier last year on the Forbes list of the richest Americans and the 59th richest man in the world. He has been widely known as a "corporate raider" who "zeroes in on a company and tries to acquire it or gain control so the fund can sell off assets or the company itself." (Businessweek.com)
Dynegy has asked the city of Morro Bay for a two-year extension of its outfall lease to discharge water used for cooling by the power plant into Estero Bay. The lease expires in 2012, and the extension would run through 2014. The cooling water is drawn from the Morro Bay National Estuary, killing fish and crab larvae taken into the plant with the water.
A new state policy adopted last year calls for the Morro Bay plant to discontinue withdrawing water from the Estuary in 2015, even though state agencies have said the plant is not needed to provide the state with electricity right now. However, the policy has loopholes that could allow the plant owner to continue using Estuary water for cooling past 2015.
Whether a new owner will seek the lease extension sought by Dynegy remains to be seen.
