Dynegy Incorporated’s (DYN) recent financial woes led to a $4.50 per share takeover offer from The Blackstone Group (BX).  It is because of this proposed acquisition that the company has been in the news recently. The initial purchase announcement was on August 13, 2010 and the total consideration amounts to $4.7 billion, including debt. A major component of the transaction was Blackstone selling four of Dynegy’s natural gas-fired assets to NRG Energy (NRG) for $1.36 billion, leaving Blackstone with two-thirds of Dynegy’s generation capacity.

The Federal Energy Regulatory Commission approved the deal, leaving shareholder approval as the lone material obstacle to the completion of the acquisition. The shareholder vote is set to take place today.  After the deal was announced, Seneca Capital and Carl Icahn purchased large stakes in Dynegy and expressed their dissatisfaction with the deal.  Icahn asserted that the Blackstone bid was too low and that Dynegy should push for a higher bid. Presumably Ichan’s agitation led to The Blackstone Group upping its offer to $5.00 per share. 

Since the Blackstone offer is the only proposal that Dynegy has received (no rival bids were made during the 40-day “go-shop” period offered by the original deal), the current shareholder drama appears to be a do or die event for Dynegy. Indeed, management expects significant negative free cash flow between 2011 and 2015 due to the company’s considerable leverage. Shareholders who have benefited from Seneca and Icahn’s involvement should probably sell their shares to lock in any gains, as the downside, if the deal falls through, could be considerable.  Indeed, much of the current stock recovery is driven by the news of the impending acquisition, and it is a very real possibility that the stock price could fall sharply to or below its pre-announcement price of $2.78 a share, if the deal is not completed.

At the time of this article's writing, the author did not have positions in any of the companies mentioned.