Drax Group, the UK coal-fired power station, has rejected a £2.23bn (US$3.87bn) offer from the Constellation Energy-led takeover consortium and is preparing instead for a stock market float.
US power company Constellation had teamed up with US hedge fund Perry Capital and had then been joined by buyout firms Blackstone and Hellman & Friedman to offer £1.9bn.
Drax said on November 11 that Constellation had increased this offer slightly but it was still below its estimated market value judged by the trading price of its A2 debt.
Late on November 15, Drax said it had rejected this revised offer, which it valued at £2.23bn based on a cash price of 377% of par value for the A2 debt. This week Drax said it had discontinued talks with the group.
Rejecting the revised offer, Drax said: “The board believes that a price of 377% undervalues Drax . . . [and] that a majority of shareholders would not accept an offer at this level.”
According to sources close to the deal, Drax’s current owners are looking for up to £3bn, while analysts at Morgan Stanley put a fair value at up to £2.6bn.
Drax said it consulted shareholders and Greenhill, the adviser to the shareholders’ committee whose members account for more than 80% of the A2 linked securities.
Drax said that Constellation’s offer, on which it was advised by Lazard, was based on whether the existing Drax shareholders would commit to take up at least 20% of the ordinary shares in the consortium’s bid vehicle.