Blackstone barks back at Icahn

November 16, 2010, 12:07 AM UTC

The Blackstone Group today defended its proposed buyout of power company Dynegy (DYN), which has come under attack by activist investors Carl Icahn and Seneca Partners.

In a statement, Blackstone (BX) suggested that Icahn’s $2 billion credit lifeline is really a Trojan Horse that “will present a day of reckoning” at maturity. Moreover, Blackstone claims Icahn was being disingenuous when he “implicitly suggested he could be a bidder for Dynegy if the Dynegy/Blackstone transaction is voted down.” If the interest is legitimate, Blackstone asks rhetorically, then why didn’t Icahn enter into a nondisclosure agreement with Dynegy during the recent “go-shop” period?

Blackstone also lays into Seneca, which has launched a proxy fight against Dynegy:

“Seneca has no credibility in claiming that $4.50 per share is an inadequate price because it sold 700,000 Dynegy shares at $2.93 per share on the day before the proposed merger was announced. Blackstone’s offer represents a 54% premium to the price at which Seneca sold these shares. We fail to understand how any self-described successful investor in the power sector could have so significantly undervalued its investment.”

Seneca also gets dinged for its declining assets under management (86% between June 2007 and June 2010), and for blocking other buyouts in ways that arguably hurt shareholder value in the long-run (such as TransAlta).

All of this is exposition for Blackstone’s believe that $4.50 per share is a very fair price for Dynegy. I can’t say for sure whether or not Blackstone is correct — although shareholder services firm ISS concurs — but can say that Blackstone believes what it’s trying to sell.

A source close to the deal says that Blackstone has no interest in increasing its bid, even were it to lose the shareholder vote. Instead, it would simply let the deal go, and perhaps later try to buy Dynegy out of bankruptcy (if its predictions about Icahn’s stewardship prove accurate).