A tender offer for Dynegy Inc. (NYSE: DYN) from an affiliate of Icahn Enterprise L.P. (NYSE: IEP) was supposed to have closed two days ago. Unfortunately, only 4.4% of Dynegy shares had been offered, so Dynegy and Icahn extended the offer for five days, until Monday, February 14th.

Icahn’s offer of $5.50/share, for a total of $665 million, is 10% higher than the $5/share bid from The Blackstone Group L.P. (NYSE: BX) that was rejected by Icahn and Seneca Capital late last year. Icahn would also assume more than $4.5 billion in Dynegy debt. Seneca is also trying to torpedo Icahn’s bid, claiming that Dynegy is worth at least $7.50/share. Dynegy’s board does not agree, and it sure looks like they’ve got a point.

In a letter to shareholders, the board recommends that shareholders accept Icahn’s bid because “accepting known premium value today is superior to the risks of continuing as an independent company.” Dynegy shares were trading at about $2.75/share before Blackstone’s offer last fall.

Dynegy’s board also notes that it has completed two “go-shop” periods lasting more than 100 days, and even two private equity firms who performed extensive due diligence passed on making an offer.

Dynegy is apparently the first victim of the very low prices for natural gas in the the US. Higher natural gas production has driven down the cost of natural gas and a knock-on effect has been to cause power prices to fall. Dynegy expects those power prices to remain low far longer than Dynegy could remain solvent.

The board also took a few shots at Seneca Capital, saying that the firm did take advantage of the go-shop period even to investigate the Icahn offer. Seneca also sought a waiver of Dynegy’s poison pill provisions, and sent out materials that “contained factual errors, inaccuracies, and exceedingly wishful assumptions about power markets and environmental enforcement.”

Dynegy holds nearly 12,000 megawatts of generation, about 3,500 megawatts of which is coal-fired or coal/oil dual-generation. The rest is either gas-fired, gas/oil-fired, or oil-fired only.

From all appearances, Dynegy looks like it will bleed to death slowly if the Icahn deal is rejected. If another 46% of shares are tendered by Monday, though, the company is only likely to bleed to death more quickly as Icahn sells of the pieces.

Paul Ausick

 

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