Drax Group plc - Listing and refinancing; defence against 3 hostile bids

Tulchan was asked to work with Drax Power, the UK’s largest coal fired power station, in June 2005 and to advise on their financial communications ahead of the listing and refinancing in December 2005. Our communications strategy focused on re-educating the financial community as to the robustness of Drax and the investment opportunity, since there was an assumption that it was a “troubled” business with high risks.

For example, Drax’s particular ownership gave it a uniquely complex capital structure which made its value difficult to demonstrate to the market. In addition, we had needed to address the issue of “dirty” coal by evidencing the significant clean technology improvements and future investment opportunities which were possible following the refinancing.

As well as preparing the investment case for Drax’s Introduction, we worked with the new management team to raise their profile and experience through a series of background briefings. And by undertaking a significant process of educating analysts, journalists and commentators, we were able to help investors understand the prospects for the business and the strategic merits of the refinancing.

Then in September 2005, Drax received a bid proposal from a consortium comprising Constellation Energy and Perry Capital regarding a possible cash offer for Drax valuing the business at approximately £1.9 billion. This was followed in October by a second proposal from a consortium comprising Apollo Management, Texas Pacific Group and TowerBrook Capital Partners which valued the business at over £2 billion. Only a few days later a similar proposal was received from a third consortium comprising International Power and Mitsui & Co.

Throughout this process Tulchan developed a series of key messages highlighting the value of each proposal against the benefits from a refinancing and listing. We spoke to the key journalists on a daily basis ensuring they were fully informed and in doing this, Tulchan were successful in gaining supportive and well informed media opinion.

“The prevailing, bullish view on commodity prices, echoed in Drax’s debt price, makes a stock market listing this December a realistic alternative to selling now. Nor does it preclude more bids later. That is why Drax’s shareholders are right to hold out for more in a duel-track process.”
Financial Times, Lex

On 15 December 2005 Drax Group plc listed on the London Stock Exchange, the largest UK stock market listing that year, with a market capitalisation of approximately £2bn.

With demonstrably strong financial performance, Drax shares proved to be one of the best performing shares in the UK market in the year following listing. Tulchan continues to advise Drax on all aspects of its financial communications.