Court Orders Mirant to Revamp Calculation of Value of Company
By REBECCA SMITH Staff Reporter of THE WALL STREET JOURNAL June 30, 2005 8:22 p.m.
A federal bankruptcy judge ordered Mirant Corp. and its advisors to use new methodology to calculate the value of the Atlanta-based electricity generation company, responding to a complaint by shareholders that the company's estimate was flawed and designed to wipe out their equity interest.
Judge Michael Lynn, at the U.S. Bankruptcy Court in Fort Worth, Texas, set new criteria to be followed, including updating several sets of number, recognizing additional cash that's piled up and changes in fuel costs and power prices. Some changes ordered appeared to come in response to shareholder suggestions, such as that Mirant's presumed growth rate be set at 3% a year, in the U.S., rather than a 1% to 2% growth rate recommended by Mirant.
An attorney for shareholders, Ed Weisfelner, said his clients "not only are happy, we feel vindicated" by the ruling.
The ruling capped more than a month of detailed hearings in which different interests argued different methods for setting the value. Roughly speaking, the creditors' committee, led by Citigroup, had pegged Mirant's value at about $8 billion. The company pegged its value at about $9 billion, and the shareholder group said it was $13 billion or more.
In his ruling, the judge said if the value came in above $10.7 billion, "equity holders are likely to be entitled to some recovery" but not if it fell below that amount. Shareholders have argued that the company, spun off by big utility Southern Co. in October 2000, never should have filed for bankruptcy protection. Under the company's plan of reorganization, shareholders would be stripped of ownership and it would pass to creditors that would be issue new stock in the company which owns 18,000 megawatts of power-generating assets.
Mr. Weisfelner said he believes the enterprise value will come in "significantly above $11 billion giving us a seat at the table instead of having the chair pulled out from under us."
The new calculation is supposed to include an extra $450 million for possible litigation settlements. Mirant sued former parent Southern Co. earlier this month, accusing it of improperly siphoning $2 billion in funds from Mirant before it was spun off. Any recovery would become an asset of the new company.