Posted on 12/01/2004 9:22:43 PM PST by MeneMeneTekelUpharsin
Fearing shares will be worthless, they're playing hardball with management
Last month, when the formerly bankrupt Kmart bought Sears, one group of investors was paying particularly close attention. They are the stockholders of Atlanta merchant energy company Mirant, in Chapter 11 bankruptcy protection since July 2003. In Kmart's rags-to-riches, back-from-bankruptcy tale, Mirant's stockholders saw a hint of what might be lying in wait for them.
Nothing.
The retailer's story line goes like this: A hedge fund billionaire who bought large amounts of Kmart's debt becomes controlling owner of its new post-bankruptcy stock. He unloads stores and people, pumping billions into the reorganized company. Stock price soars. For its former shareholders, it happens too late. Kmart's pre-bankruptcy investors were wiped out long before the Sears deal and long before the stock's recent stratospheric climb. The Kmart-Sears news left Mirant's shareholders "ranting," as one stockholder put it. They fear the same thing is about to happen to them.
In the two weeks following the Kmart announcement, Mirant stockholders' Yahoo message board went nuts and their shareholder committee — assigned to represent their interests in the bankruptcy case — began playing serious hardball with the company's management for the first time in 15 months. The shareholders say they believe Mirant is lowballing its value in court, in an effort to sell them out to creditors. They fear creditors are poised to take control of Mirant and that current shareholders will lose everything, like Kmart's did. Last week, the stockholder committee took its harshest anti-management step to date in Mirant's bankruptcy, asking the court to force an annual meeting for the purpose of driving the board of directors out. The recrimination-laced request was a marked departure for that committee, which had been treating Mirant's management as its closest friend until last month.
'Little guys' gripe
Shareholders got a committee to represent them more than a year ago, after the court said there might be enough money in Mirant to give them something after creditors had been satisfied. In a bankruptcy, shareholders get paid last, if at all. They usually get wiped out. Mirant's shareholder committee includes both institutional investors and representation from small shareholders. A Houston businessman, Mike Willingham, represents those "little guys" after pooling millions of shares from investors using the Yahoo message board. Because of the confidential nature of much of the case, though, he's been prevented from telling his Yahoo supporters what's going on, leaving them to interpret events for themselves. According to case filings, the committee spent most of the past 15 months treating Mirant's management as an ally and the company's creditors as a foe. The alliance was formed even before Mirant filed for bankruptcy. Management proposed protecting shareholders' interests in a 2003 restructuring plan. Creditors vetoed it and forced the company into Chapter 11. Stockholders also believed Mirant was on their side because "we believed in the Mirant Mindset," said Washington state shareholder David Gordon, referring to Mirant's in-house code of behavior. "We thought management would do right by people." The trust wasn't universal. Some members of the stockholder committee wanted to push management to sell assets while the proceeds could do shareholders some good. Criticism sharpened when Mirant wrote down the value of many of those assets and cut the value of the pool that stockholders had hoped to share.
Change of heart
Among the panel members advocating hardball was Atlanta lawyer Matt Wilson. "Mirant owns wonderful power plants, which are well-located and extremely valuable, just like Kmart had some excellent store locations," Wilson says now, referring to the assets Kmart sold after its former shareholders' interests had been extinguished. Wilson was in the minority. His fellow members kicked him off the committee months ago, along with two other members who argued for more aggressive action. The committee's loyalty to management eroded, though, this fall. According to court filings, the committee didn't like the way Mirant was valuing its assets and business prospects in a new, confidential business plan, and began having difficulties getting management to talk to them about it. They complained in court filings, which were in turn read by stockholders like Wilson. "It now appears that management is not talking to the shareholders committee," he said. "And the reason management is not talking, a lot of people think, is because the shareholders are getting hosed. It's like, 'We don't have anything to talk to you about.' " Then, beginning in early November, some Mirant bonds — secured by the company's power plant assets in North America — began trading more often and at prices above par, or above their stated value. To shareholders, it suggested that those bondholders knew they would be taken care of, at shareholders' expense
Then came the Kmart announcement — the final straw.
Shareholders filed a motion demanding a Mirant annual meeting a week later. The company's last annual meeting was in May 2003, two months before Mirant filed for Chapter 11 protection. The company canceled this year's meeting, citing printing expenses. The filing alleged a failure of fiduciary duty by Mirant, as well as stonewalling and overspending. It said Mirant was attempting to "grossly understate" the company's value and future revenue in an effort to shut out shareholders and curry favor with creditors. Mirant spokesman James Peters said the company considered shareholders' allegations "without merit," and that Mirant "has and will continue to work with and involve the equity committee throughout our restructuring process." He also said that it was common for companies in Chapter 11 to hold off annual shareholder meetings while a reorganization plan is still pending.
Plan due Dec. 31
Barring another extension — which would be the third — that reorganization plan is due Dec. 31. Shareholders say they now believe only another extension will prevent them from being wiped out. Are Mirant's stockholders dreaming? Not necessarily, according to bankruptcy experts. The fact that they have a committee, capable of gumming up the works with motions and claims, is likely to deliver them something, said Georgia State University law professor Jack Williams. "A valuable commodity is time," he said. "An aggressive shareholders committee can make the company jump through all kinds of hoops. It takes time — lots of time — and it takes expense." And that gives companies an incentive to "gin up some kind of settlement, in exchange for shareholders dropping potential claims," he said. Another expert, University of California law professor Lynn LoPucki, put it succinctly: "If you get a committee, and the committee gets a lawyer, you're going to get something." Some shareholders, meanwhile, aren't waiting, according to Wilson, the former committee member. He said a group of shareholders independent of the official committee intends to force a full investigation of the value of Mirant's assets, by independently soliciting bids for them. The effort, he said, will show the court that Mirant has alternatives that would allow it to satisfy creditors and leave shareholder equity intact.
There's too much going on behind the scenes for outsiders to really form an opinion.
Well, I passed this info along to Rush Limbaugh and to Sean Hannity also. I asked if they could read your comments and the article and discuss it on their shows.I don't know if they will pick it up, but if not, it's not because they don't have the info in front of their beady eyes now. :^D
Crossing fingers and toes. :^)
Enron was trying to be "asset-free" whereas Mirant and others had hard assets to back them up.
Not to be picky or unsympathetic to your situation, but Mirant is not an electric utility. They are a merchant generator with no service territory who leveraged debt to buy up assets scattered across the country that Electric Utilities no longer wanted. The vast majority of their generating capacity is gas fired and with high natural gas prices, their costs have risen dramatically while demand has remained relatively flat.
Glad to send the info along to them.After I sent them, I recalled that Rush is off today and tomorrow, too, I think.
No problem. If Rush is truly for the working conservative, he'll probably end up at least reading it. What is that saying? "...for evil to come, it only requires that good men do nothing."
Excuse me...Mirant owns significant coal-fired generation in Maryland I believe AND in the Philippines which is making good money and coal is much cheaper than any other fuel. Just ask LCRA in Texas.
Mene
And now we find out that three parties (probably more) have made overtures about buying some of Mirant's assets and Mirant has failed to notify the shareholders' committee. Interesting little tidbit filed in court today. I don't think the Honorable Judge Michael Lynn is going to be very happy with Mirant management...just an idea I had. If only the financial news outfits would finally pick up on this story. Why the Wall Street Journal, Forbes, etc. have not written an investigative piece on this attempted ripoff of the common shareholders is beyond me.
This Mirant story brings to light the underpinning reality that will ultimately destroy the American way of life. We as a nation will not survive when the linchpin of capital markets is destroyed. What am I talking about: The right of the people to decide their own fate.
When corporate managers and lawmakers allow financial institutions to dictate the upflow of investor dollars to the coffers of the elite few, they circumvent the orginal cornerstone of American financial truth: the people have control of their own investments.
That control has been handed to one man; a judge. He must rule and pass judgment on hundreds of thousands of people and their families who have lost everything in retirement plans and investments. He will be told by those who have a duty to those people that what they have invested has no value. He will be told by the financial institutions that those families have nothing. He will be told by everyone who stands to gain substantially that it is just business, nothing personal. The judge will hold his chin up, make comments to the effect that I must be impartial and simply look at the facts as presented by those who have no incentive to represent a fair assessment.
PEOPLE OF THE UNITED STATES: you are being fleeced without mercy. You are ignorant of what is transpiring in the underworld of high finance, large corporate bankruptcy, and investment banking. When you find out what has been done to you behind the scenes you will be disgusted. Will you do anything about it?
You live under the illusion that you are secure and that your nestegg is yours. I say no...you are grossly mistaken. The level of debt you as Americans have is unsustainable...and in your mind your retirement investments will be there to bail you out if you work long enough. The truth that is underreported and hidden by those who have power is that the greatest threat to you as a citizen is your reliance on financial institutions. They give you credit cards to hang yourself, and then take your dollars without recourse in bankruptcies such as Kmart and Mirant. Investigate who the players are, and what they stand to gain at the expense of the average citizen.
The intergration of the world economy makes the US particulary vulnerable to problems in other nations, such as war and energy supply. Your dollars, funneled to world financial institutions such as CitiCorp are weakening the American people's ability to secure themselves in the face of disasters like September 11. It is just a matter of time before you will be tested beyond what your means allow. To give your value over to banks in a Chapter 11 or any other government sanctioned theft because you do not act is tantamount to capitulation. You are marching to slaughter.
Every shareholder of a public company should be pounding the doors of our government in mass, to force them to change the laws that allow the simily-faced banks to rob you legally. If this change does not occur in the very near future, there will be absolutely no incentive to keep the company you own, otherwise healthy, from filing bankruptcy. On the contrary, every incentive exists for company management to file: they get huge "golden parachutes", the banks get the company, the cronies of the judge gets paid, the investment bankers get paid huge fees, all off the backs of individual investors who were quashed without mercy.
KMart was a travesty of justice. The prior shareholders were literally robbed blind. The creditors claimed the assets had insufficient value. After the bankruptcy, suddenly the assets had tremendous value. The EXACT SAME THING is happening in the Mirant case. In fact, Mirant has not made a move to IPO the Philippines operation when the Philippine government is encouraging it to do so. Revenue from such an IPO would help eliminate Mirant's U.S. debt difficulties. It is a deliberate attempt to steal from the common shareholders in the U.S.
That we do...our legal team in this case is outstanding. I am very encouraged by the actions our lawyers are taking up to and including to day. The judge in the case seems to be very fair and the outcome is going to be based on justice, IMO, not shenanigans by a bunch of Wall Street Wipeout Wizards. The financial news networks are complicit in the attempted fraud if they do not pick up this story and investigate what is going on. Why they have not is beyond me.
Margaret Newkirk of the Atlanta Journal Constitution has been writing some revealing stories, but has not launched into a full-scale investigative report as of yet. A reporter or group of reporters who lock onto this one are going to make history upon revealing the behind-the-scenes attempt to steal this company from its rightful owners, the common shareholders. In this case, it is hundreds of "mom and pop" investors who are being hurt until the case is suitably resolved. Mirant should have obtained refinancing and no valid reason exists to have prevented them from having obtained such.
Thanks. I believe we're going to be a big surpise to a lot of people. Rock on...
Man, I hate them simile faced banks, too. Metaphorically speaking, I hate 'em more than Alle Gorical politicians.
A definite coincidence. I looked over some activity recently that involved Mirant. The broker had put a lot of his clients into Mirant in early July. They BK 11'd a couple of weeks later, the 3rd Wednesday or Tuesday of July, IIRC.
Options for July were still being traded. The broker bought puts to control the losses for his clients -- they lost, but not all of what they invested. Actually, a textbook example of using puts to minimize losses on a tanking stock.
Best of luck to you, Mene.
Best of luck to y'all.
/jasper
Thank you. I wonder why a major media outlet has not picked up this story yet? It IS a big story and worthy of coverage. The previous thread about a broker having apparently set some clients up with all of the correct moves is very interesting.
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