Dispute escalates over Mirant bid for rival

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Mirant’s $8bn bid for NRG Energy, a fellow US independent power company, escalated into public bitterness on Wednesday as NRG issued a strongly worded statement rejecting the offer and Mirant took legal action against its rival.

The dispute between the two electricity producers, both of which emerged from bankruptcy in recent years after collapsing in the wake of the implosion at Enron, had been simmering for weeks.

But tensions moved into the open on Wednesday after Mirant went public with a cash-and-stock offer for NRG pitched at a 33 per cent premium to the company’s share price, in an attempt to create the largest US non-utility power producer.

NRG responded by issuing an unusually strong rejection of the proposal. In a letter released on Wednesday, David Crane, NRG chief executive, and Howard Cosgrove, chairman, said it was “the wrong deal at the wrong time”.

Specifically, NRG said the bid undervalued the group, that Mirant’s shares suffered from a lack of liquidity and were therefore an “unacceptable currency”, and that industry trends meant this was the wrong time for the company to be sold.

Mirant fought back by launching legal action against NRG in Delaware Chancery Court. The complaint claims that NRG is unfairly seeking to block the bid on the grounds that Mirant made use of non-public information about NRG obtained through an unnamed financial adviser.

But Mirant said it only studied public information in making the bid for NRG – and in any case the financial adviser in question recently stopped working for the company. JPMorgan Chase is now Mirant’s only banker and has committed to providing an $11.5bn financing package for the bid.

The war of words between NRG and Mirant came as both companies studied investors’ reactions to the offer. NRG shares rose 16.8 per cent to $50.22 in morning trading, still significantly below the price of $57.16 per share being proposed by Mirant. This suggests some scepticism on Wall Street about Mirant’s chances of success.

Meanwhile, Mirant shares fell 5 per cent to $24 as investors and analysts worried about the ability of the company to digest such a large acquisition so soon after its January exit from Chapter 11.

One key constituency in the takeover battle will be the four private equity groups – Blackstone, Texas Pacific Group, Kohlberg Kravis Roberts, and Hellman & Friedman – that became investors in NRG after selling a large portfolio of assets in Texas to the company in a lucrative deal last year.

Mirant’s bid for NRG, which is being advised by Citigroup bankers and Skadden Arps lawyers, comes amid a flurry of deal activity in the US energy industry, helped by the surge in commodity prices. This week, Kinder Morgan, a US oil and gas pipeline group, received a takeover offer worth $13.5bn from its management and a consortium of private equity funds including Goldman Sachs and Carlyle.

Additional reporting by Sheila McNulty in Houston and Richard Beales in New York

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