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Dynegy Bargained With Blackstone for Higher Bid Price

Dynegy Inc. squeezed more money from Blackstone Group LP and negotiated a lower breakup fee in the hours leading up to a scheduled shareholder vote on the private-equity firm’s $604.5 million takeover bid.

After persuading Blackstone to raise its bid, Dynegy postponed the vote yesterday until Nov. 23 to give shareholders time to consider the $5-a-share offer, the Houston-based power producer said in a filing today. The filing provides details of Dynegy’s negotiations with Blackstone before the revised offer was announced.

With its two largest shareholders opposing the transaction and saying it undervalued the power company, Dynegy told Blackstone on Nov. 15 that the initial offer of $540 million, or $4.50 a share, was at “material risk” of shareholder defeat, according to the filing. That evening, Blackstone agreed to raise its offer to $4.75 a share and proposed a $50 million breakup fee if shareholders still rejected the bid and Dynegy accepted another offer within 18 months. Dynegy said in the filing it continued to bargain for a better price. The night before the scheduled vote, Dynegy’s board accepted the terms now before shareholders: $5 a share with a $16.3 million breakup fee if shareholders reject the deal and the company is sold for more than $4.50 a share within 18 months.

Blackstone requested a delay in the vote to give shareholders more time to consider the new offer, according to the filing. The vote now closes at 4 p.m. Houston time on Nov. 23.

Shareholder Opposition

Blackstone’s revised offer values Dynegy at about $4.77 billion, including debt. Dynegy rose 9 cents, or 1.8 percent, to $5.15 at 4:02 p.m. in New York Stock Exchange composite trading.

Dynegy’s largest shareholders, billionaire investor Carl Icahn and hedge fund Seneca Capital, weren’t swayed by the higher price and reiterated their opposition. Seneca has said Dynegy is worth more than $6 a share now and as much as $18 once a better economy revives prices for power from its plants.

Delaying the vote “is a blatant effort to thwart the will of shareholders,” Seneca said yesterday in an e-mailed statement. Shareholders would’ve rejected the $5-a-share offer, Seneca said. Terms of the breakup fee are “virtually unprecedented” and a “violation of fiduciary duty,” the hedge fund said.

Blackstone’s demand for a breakup fee in exchange for a higher bid is “perfectly normal,” Elizabeth Nowicki, who teaches and researches breakup fees at Tulane University Law School in New Orleans, said yesterday in an interview.

Breakup Fee Strategy

The higher bid signals to potential rivals that Blackstone considered its first offer a bargain, and the breakup fee insulates it against a bidding war, she said.

Dynegy, worth almost $19 billion before it tried to swallow Enron Corp. in 2001, closed at an eight-year low of $2.78 a share the day before Blackstone’s original offer was announced on Aug. 13. Interest payments consumed about 12 percent of Dynegy’s third-quarter sales, contributing to its sixth quarterly loss in two years.

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