Mirant Up on Activist Agitation

Mirant(MIR - Cramer's Take - Stockpickr) shares rallied Wednesday after activist hedge fund Pirate Capital sent a letter to chairman and CEO Edward Muller requesting a $4.7 billion share buyback and recommending the company put itself up for sale if the effort fails to move the power generator's stock by year-end.

The Norwalk, Conn.-based hedge fund only owns 1.6% of Mirant stock but has lately played a pivotal role in influencing management of the company. At current prices, a $4.7 billion buyback would total approximately 182 million shares, or about 60% of the company's outstanding shares.

The buyback proposal, expressed through a 13D regulatory filing, comes a week after Pirate successfully convinced Mirant management to withdraw its $8 billion unsolicited bid for NRG Energy Inc.(NRG - Cramer's Take - Stockpickr).

Pirate was not alone in its rebellion against the company's planned purchase, but was perhaps the most vocal dissident stockholder. Two other hedge funds, Omega Advisors and Jana Partners, also urged the company to drop its bid, considered less advantageous than an outright sale of the company. On June 12, the company under pressure appeased its activist shareholders and gave up its plan to buy NRG

A spokesman at Mirant declined to comment. Calls to Thomas Hudson, Pirate's founder and to Barry Rosenstein, managing partner at Jana, were not returned. Leon Cooperman, founder of Omega, declined to comment.

Since the decision to drop the NRG bid, Mirant shares were up 5% heading into the Wednesday session; the stock was recently up 1.6% to $25.75.

Hudson included a detailed financial analysis in his filing, giving recommendations on how to "maximize long-term stockholder value." In his view, Mirant is "undervalued" and "underleveraged" and has "valuable domestic and international assets," the filing states.

Hudson values the company at $32 a share. Upon completion of his suggested buyback plan, he sees the stock moving up to $40. The plan, he adds, would allow the company to trade at the peer-group forward price-to-earnings ratio of 18.3 vs. its current PE of 13.7. Mirant's main competitors are NRG Energy, Reliant Energy(RRI - Cramer's Take - Stockpickr) and Dynergy(DYN - Cramer's Take - Stockpickr).