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Magma Power Adopts 'Poison Pill' Strategy

October 04, 1994|CHRIS KRAUL | TIMES STAFF WRITER

SAN DIEGO — Geothermal energy producer Magma Power Co. on Monday took action to ward off a hostile $840-million tender offer from rival California Energy Co. of Omaha, adopting a "poison pill" shareholder rights package and filing suit in a Nevada court to prohibit a merger with the unwelcome suitor.

Magma Power's rights plan would trigger the issuance of so many new shares of stock to existing Magma Power shareholders that the stake of any hostile bidder would be hopelessly diluted, greatly increasing the cost of the merger, said a Wall Street analyst who asked not to be identified.

Magma Power said the rights plan is "designed to guard against partial tender offers, such as that contemplated by California Energy, and other abusive tactics that might be used an attempt to gain control of the company without paying all stockholders a fair price for their shares."

The lawsuit filed Monday in Nevada state court in Reno asks for "declaratory judgment" prohibiting the tender offer under Nevada law.

Magma Power, which was incorporated in Nevada, still has "not formulated a response," a company source said, to California Energy's tender offer spelled out in a Sept. 19 letter from California Energy Chairman David Sokol.

A merger of Magma Power and California Energy would combine the two biggest companies in the geothermal industry.

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