Energy & Utilities
Main Street's Mini Tender Offers

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By andyz151
September 6, 2002

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I saw the news items [Related Story] that Main Street Acquisitions had made tender offers for several beaten up power traders such as ILA, MIR, RRI and DYN. Then I read that Mirant [which I own] and the others were encouraging their shareholders to NOT accept the offer and I was a bit puzzled.

Why should Mirant (or the other companies) recommend I NOT accept an offer that was almost $1.50 higher then the current price. This was not a tender offer that was below the market price, which is something that I have seen before. More over it was not a big chunk of stock, less then 5%, so it wouldn't affect Board members or control.

So I did some digging and let me add my recommendation that people think long and hard before they accept the tender offer and here is why.

If you accept the offer, you can not withdraw your acceptance - ever. Main street has never said exactly when they will pay the money for your shares only that at some point they will - I think it was 3 days AFTER they raise the money but they do not say when that will be. So in essence you are not able to sell your shares because you agreed to give them to Main Street and they are not bound to buy them until some trigger occurs - a trigger that they control.

My belief - and it is only a belief - is that Main Street truly believes that these stocks are undervalued. They expect them to go up and go up quite a bit. They have the ability to extend their tender offer - meaning extend the time they have to pay the people who tender their shares - and will keep extending it until such time as the price of the shares is greater then their offering price. Then they have next to no risk as they pay you the offering price which is below the current market price, then turn around and sell the shares at a profit. [Meanwhile], you can not sell your shares because you are locked into the offer you accepted.

This is a bad deal for anyone who accepts. If the share price goes up as Main Street believes, you have limited your upside to [their] offering price. But in the mean time you have frozen these assets and can not liquidate them if you want to. You must hold these shares until such time as Main Street raises the money to buy them, which won't be until the shares go over the offering price.

Anyway, seems like these companies are nominally looking out for their shareholders interests by recommending people not accept the tender offer.


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