Energy Firms Agree to Merge for $950 Million : Acquisitions: Surprise announcement comes after California Energy sweetens bid for Magma Power to $39 a share.
In a surprising turnabout that cost a handful of overeager traders about $1 million, rival geothermal producers California Energy Co. and Magma Power Co. said Monday that they agreed to merge after California Energy raised its offer to $39 a share, or $950 million.
The deal, which would create the world’s largest independent geothermal producer, stunned several Wall Street observers. Many thought that San Diego-based Magma Power had successfully fought off California Energy’s hostile takeover effort.
Only Friday, Omaha-based California Energy said it was calling off its $38.50-a-share, $925-million hostile tender offer for Magma Power after failing to enlist the support of Dow Chemical Co., which owns 21% of Magma Power shares, and B.C. McCabe Trust, which owns 12%.
But Dow, Magma’s largest shareholder, took a decisive role over the weekend to persuade the two companies to forge a merger agreement, California Energy Chairman David Sokol said Monday.
Dow arranged a Saturday meeting in New York between Sokol and Magma Power Chairman Paul Pankratz and Chief Executive Ralph Boeker, Sokol said. After California Energy sweetened its offer, the two sides came up with an agreement that was unanimously approved early Monday by Magma Power’s board of directors.
Terms call for a new tender offer to commence Dec. 9 in which California Energy will pay $39 for each Magma Power share in a combination of $28.50 cash and $10.50 in California Energy stock. The acquirer will pay cash for the first 50.3% of Magma Power shares tendered. Sokol said California Energy will attempt to pay cash for the rest of Magma’s shares if financing can be arranged.
In a statement, Dow Chief Financial Officer Enrique C. Falla said he was delighted by the agreement. He was not available to comment further on Dow’s role in the pact. Pankratz and Boeker, both former Dow executives, were unavailable for comment Monday.
Analyst Daniele Seitz of UBS Securities said Magma Power was forced belatedly to accept the California Energy bid after failing to elicit “a big, fat premium or a white knight, which never showed up.”
While analysts generally viewed the offer as fair for Magma Power shareholders, some, including Michael Cha of J.P. Morgan Securities, lamented the fact that the two companies didn’t announce an agreement earlier Monday or over the weekend.
As it was, owners of about 100,000 Magma Power shares lost about $1 million by selling their stock in private transactions early Monday at about $28 a share--the price when the takeover bid was launched in September--figuring Friday’s news of the termination of tender offer would cause share prices to fall, Cha said.
Official trading of both companies’ stock was suspended at the market’s opening Monday and resumed after the merger was announced at 9:30 a.m. EST. Magma Power shares closed up $1.875 at $37.375 on the Nasdaq, while California Energy stock closed down 87.5 cents at $15.625 on the New York Stock Exchange.
