Icahn strikes deal to buy Dynegy for $665 million

By Matt Daily and Michael Erman

NEW YORK (BestGrowthStock) – Billionaire investor Carl Icahn struck a deal to buy power producer Dynegy Inc (DYN.N: ) for $665 million in cash, just three weeks after he helped block a bid by private equity firm Blackstone Group LP (BX.N: ) to buy the company.

Dynegy shares closed up 3.3 percent at $5.63 on Wednesday — above Icahn’s $5.50 a share offer — indicating investors are hoping for a higher bid for the Houston-based energy company.

The Icahn Enterprises LP (IEP.N: ) offer is 10 percent higher than Blackstone’s bid and calls for Dynegy to continue soliciting other buyers until January 24, the companies said in a press release.

Icahn is Dynegy’s largest shareholder, with about 9.9 percent of Dynegy’s outstanding shares, and options to buy another 5 percent. The billionaire and hedge fund Seneca Capital — the company’s second-largest shareholder — opposed the failed Blackstone bid for Dynegy, calling it too low.

It is not yet clear whether Seneca will support the Icahn bid. The hedge fund has said it believes that Dynegy is currently worth more than $6 a share and is working to have two directors, including CEO Bruce Williamson, removed from the board.

A Seneca spokeswoman could not be immediately reached for comment.

Dynegy sought other buyers earlier this year but failed to attract a price higher than the Blackstone bid.

Icahn Enterprises said it might support a superior all-cash offer for Dynegy if one emerged.

The deal would be the latest in an uncharacteristically active year for the U.S. power sector, which includes E.ON’s $6.7 billion sale of its U.S. unit to PPL Corp (PPL.N: ) and Mirant’s merger with RRI. (GEN.N: )

Dynegy has struggled amid soft power prices and high debt, which stands at about $3.95 billion, and has long been considered a merger candidate.

Blackstone’s original $4.50 a share bid came as the company’s shares hovered near their lowest level since 2002, but its raised $5 a share offer was still soundly rejected by Dynegy shareholders.

The company owns about 12,100 megawatts of power capacity on the East Coast, Illinois and the West Coast.

It was once a rival to Enron Corp and even sought to buy the disgraced energy company shortly before its demise. Dynegy was forced to change its strategy significantly as power and gas trading businesses struggled after Enron’s failure.

The company is very sensitive to natural gas prices and has suffered as oversupply drove down the value of the fuel. It has forecast negative cash flow of $1.6 billion between 2011 and 2015.

Icahn will start a tender offer for Dynegy shares by December 22. In some situations, his firm would receive a termination fee of $16.3 million and up to $5 million in expenses if the deal fails.

Goldman Sachs Group Inc (GS.N: ) and Greenhill & Co LLC are the financial advisers to Dynegy on the deal.

(Reporting by Matt Daily and Ernest Scheyder, additional reporting by Arup Roychoudhury in Bangalore; Editing by S. John Tilak, John Wallace and Matthew Lewis)

Icahn strikes deal to buy Dynegy for $665 million