Shareholders Cry Foul in Calpine Plan

The bankrupt company's investors are "shocked and dismayed" that negotiations over an equity rights offering have fallen apart without explanation.

Calpine Corp. shareholders have asked a bankruptcy court to intervene in their dispute with the bankrupt company. Calling themselves “shocked and dismayed,” the shareholders filed a motion in the U.S. Bankruptcy Court for the Southern District of New York asking that documentation be turned over to them to explain why the company abruptly ended all negotiations over a proposed equity rights offering.

That offering, designed to help bring Calpine out of bankruptcy after two years, was “an ideal and virtually risk-free solution to the inherent problems” in the company’s previous emergence plan, the motion claims. According to the shareholders, the benefits would have been twofold: the equity holders could “put their money where their mouth is” by investing in Calpine’s future, which would in turn generate funds to pay off some, if not all, of the money owed to unsecured creditors. The plan also could have resolved the dispute between shareholders who believe the company is undervalued and the company’s valuation experts, who likely would have overvalued the company, they say.

In late August, the California power company announced it had filed an amended reorganization plan that would include the equity offering. At the time, Calpine CEO Robert May said the plan would “provide greater value to Calpine’s estate with less execution risk to our stakeholders than alternatives presented.”

However, in the shareholders’ motion filed this past Wednesday, they say this announcement was made while the two parties were still going over the details of the plan. The company “certainly gave the appearance they were negotiating in good faith [but] nothing could be further from the truth,” the court document says.

One week after the amended plan was announced, the shareholders met with May, who they say affirmed that the equity offering could be the right way to go. But on September 6, the shareholders received a terse E-mail saying that a call to finalize the offering was canceled. Since then, the matter has not been brought up by the company again, the shareholders say. While Calpine can’t share specific information about its negotiations, according to spokesman Mel Scott, it will say that “we are still negotiating with all of our creditors in bankruptcy court,” he told CFO.com. The company expects to emerge from bankruptcy by January 31, 2008, he added.

The fact that the negotiations fizzled in a 72-hour period has the shareholders wondering whether company officials were “proceeding in good faith.” They add: “It is puzzling and frankly disturbing that a multibillion dollar company would treat its shareholders with such condescension and lack of respect.”

The motion asks the court to request all documentation related to the proposed offering from the company. The matter will be discussed at a September 25 hearing.

This isn’t the first time Calpine’s reorganization plans have come in for highly public criticism. In early August, California’s attorney general, Jerry Brown, took issue with its plan, calling it “fatally flawed” and likely to result in the company reneging on contracts with state agencies.

Calpine filed for Chapter 11 protection in December 2005. The company has said that when it emerges, it will be valued at between $19.2 billion and $21.3 billion.

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