Need To Know

Challenge For Dynegy

Activist investor Carl Icahn, who became the largest stakeholder in Dynegy Inc. after taking a 9.95 percent stake, believes a $4.7 billion bid for the power company by The Blackstone Group is inadequate, according to Reuters, publisher of Buyouts.

Blackstone Group, headed by Stephen A. Schwarzman, announced its offer for Dynegy, worth $4.50 a share—a 62 percent premium at the time—on Aug. 13.

Some of Icahn’s investment vehicles, such as High River, Icahn Partners Master Fund and Hopper Investments, also reported stakes in Houston-based Dynegy, according to a filing with the U.S. Securities and Exchange Commission.

“The reporting persons acquired the shares in the belief that the shares were undervalued,” the filing said. “The reporting persons do not believe that the consideration agreed to in the proposed merger is adequate.”

It noted the reporting persons hold an aggregate 12 million Dynegy shares, bought for $57.5 million.

Since then, the shares have risen above Blackstone Group’s bid, but the firm has said it has no plans to raise the offer.

Buffet, Kravis Clash

More icons at odds: Investor Warren Buffett is struggling with Henry Kravis over the future of Energy Future Holdings Corp., the New York Post reported.

The struggling energy giant, the target in 2007 of the largest buyout deal ever—a $44 billion buyout by led by Kohlberg Kravis Roberts & Co., TPG and Goldman Sachs—is trying to get Buffet’s Berkshire Hathaway Inc. and other bondholders to take a haircut on their unsecured holdings.

Energy Future persuaded an institutional investor this month to exchange $478 million in existing debt in a subsidiary, Texas Competitive Electric Holdings Co. LLC, for $336 million of new debt. Now it is pressing Berkshire, which holds $2 billion of TCEH bonds, and others in that $6 billion tranche, to swap out that debt for new debt worth $4 billion, a source told the Post.

Moody’s Investors Service downgraded Energy Future after the company said it would take a $4 billion impairment charge due to stagnant energy prices, and some marketwatchers speculate that the company could be forced into bankruptcy, which could be even worse for Buffet.

“You are in a prisoner’s dilemma,” one bond trader told the Post..