Last week, power-plant operator Dynegy (DYN) agreed to be acquired by Icahn Enterprises (IEP) for $5.50 per share in cash, or approximately $665 million. But on Monday, Dynegy's second-largest shareholder, hedge fund Seneca Capital, rejected the bid, saying: "It is the wrong price at the wrong time for the wrong reasons." The right price, according to Seneca, is $6 to $7 per share.

In November, struggling with low power prices and a large debt load of $3.95 billion, Dynegy entered into acquisition talks with the Blackstone Group (BX). The latter made an initial offer of $4.50 per share, then raised it to $5 per share following pressure from Dynegy shareholders Carl Icahn and Seneca. But that raised offer was rejected.

Icahn Enterprises is already Dynegy's largest shareholder, holding about 9.9% of the company. Seneca, which owns 9.3% of voting shares, responded to Icahn's offer in a release titled: Saving Dynegy: The Travesty Continues.

Giving Away the Company?


In the sort of colorful language that is more often associated with Icahn than aimed at him, Seneca blamed the board for acting in "reckless disregard for their duties." Knowing that Seneca is aiming to remove Dynegy's CEO-chairman and another director, these officials have been trying to force shareholders to sell at any price in order to ensure management gets its $38 million change-of-control severance package, Seneca says. The hedge fund further accuses the board of failing to carefully review the company's strategic alternatives, as it had previously pledged to do.

The company has already agreed to pay a $16 million fee to Blackstone in the event of a higher bid, which it would have to pay if the Icahn offer is completed. That comes to 90 cents a share, but Icahn's offer is only 50 cents a share higher than Blackstone's, not even enough of a better deal to cover the fee. The board is giving away the company, Seneca writes. It adds that the board itself agreed to buy 30% of the company for $9.65 per share just 16 months ago, in August 2009.

Seneca, which calls Icahn's offer of $5.50 a Christmas auction, says it believes Dynegy is worth $6 to $7 per share today, with its value rising to $16 to $18 per share in an economic recovery. The fund urges shareholders to not tender their stock.

Dynegy shares climbed 0.3%, while Icahn Enterprises shares dropped more than 1% in afternoon trading.


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