(Dynegy article updated with statement from Seneca Capital)
NEW YORK (
is rising close to 4% in trading on Wednesday, a day after its deal with the
fell apart. More than half of Dynegy's average daily volume had been traded in the first half hour after the opening bell. Dynegy shares had been up as much as 7% in the morning, but declined for the remainder of the day.
The failed deal leaves Dynegy with a mountain of debt and operating in a power market where pricing remains weak and earnings potential for all companies is deteriorating.
As the deal postmortem ensues, a variety of scenarios are being offered for a Dynegy rescue, from a hedge fund acquisition bid, to a loan restructuring and a break-up of Dynegy assets, piece by piece.
Barclays Capital analyst Gregg Orrill raised his price target on Dynegy to $6 on Wednesday, arguing that Dynegy will find $50 million in additional cost cuts next year and earn as much as $150 million on the plants Blackstone had planned to sell, according to a research note quoted by
The Dynegy-Blackstone proposal pitted the leveraged buyout specialists against activist investor
and hedge fund Seneca Capital, both shareholders of Dynegy who stated that Blackstone wasn't offering enough for Dynegy, leading to a raised bid from the leveraged buyout group, from $4.50 per share to $5 per Dynegy share.
Seneca Capital has said during the battle it would offer as much as $6 per Dynegy share.
On Wednesday morning, the
Wall Street Journal
reported that Seneca and another investor were going to make an offer of $6 per share, citing anonymous sources.
In a statement on Tuesday morning, Dynegy had said, "We will immediately engage interested parties, including Seneca Capital and Icahn Associates, who may have an interest in making an offer to acquire Dynegy."
Seneca Capital put out a statement on Wednesday afternoon saying that it was "extremely thankful to Dynegy shareholders and other stakeholders for their support in the resounding defeat of the merger proposals."
There was no formal offer from Seneca for Dynegy in the Wednesday statement, but a reiteration of its argument about wrong-headed management at the power company needing to be replaced.
"Seneca continues to have grave concerns regarding the misalignment between the existing Board/management and shareholders, making this the WRONG BOARD, the WRONG LEADERSHIP and the WRONG INCENTIVES. Seneca believes those directors who employed a scorched-earth campaign and liquidity-scare tactics in order to pressure shareholders into selling the company at two insufficient prices have lost the necessary credibility to effectively steward the company."
The hedge fund investor noted that the decision by Dynegy management to change bylaws to prevent larger shareholders from adding to Dynegy ownership "in excess of both prices where the Board until yesterday desperately sought to sell the entire company," and the decision to grant a "last-minute" incremental $16.3 million break-fee, highlight the misalignment of interests of the management with that of Dynegy shareholders.
Without being more specific, Seneca stated that it remains "fully committed to its objective of enhancing value for Dynegy shareholders and continues to evaluate all options available to achieve this objective."
In a hyperbolic shot across the bow, Seneca titled its Wednesday statement, "Saving Dynegy: the Day After."
Icahn has offered to refinance Dynegy's debt as an option throughout the acquisition battle.
Meanwhile, NRG Energy released revised 2011 guidance, removing the earnings from the acquisition of Dynegy assets that it expected. NRG Energy had previously forecast between $175 million to $225 million of additional EBITDA from the Dynegy assets. NRG now forecasts 2011 EBITDA in a range of $1.75 billion to $1.95 billion. The NRG Energy EBITDA guidance is lower year over year, though EBITDA guidance would have still been lower year over year including the Dynegy deal.
"While we are disappointed in this outcome, NRG has a wealth of opportunities to deploy its available capital in ways that enhance value to our stakeholders," said Christian Schade, NRG Energy CFO.
Some of those options include additional share repurchase activity, paying down debt, making another bid for Dynegy assets -- though the NRG Energy CEO has said a new bid would be at a lower price -- or waiting out the markets and redeploying capital in other combined cycle power plant asset acquisitions at a later date.
Not all analysts were predicting a positive outcome for Dynegy. S&P cut its rating on Dynegy to a sell after the deal fell apart, citing lack of market interest in the company, and lowered its price target on Dynegy shares to $4.50. Maquarie Securities also downgraded Dynegy, while Fitch Ratings downgraded Dynegy debt issues.
-- Written by Eric Rosenbaum from New York.
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