Filed by Leucadia National Corporation
Pursuant to Rule 425 under the Securities Act of 1933 and
Deemed Filed Pursuant to Rule 14a-12 under the Securities Exchange Act of 1934
Subject Company: Plains Resources Inc.
Commission File No. 0-9808
FOR IMMEDIATE RELEASE
Leucadia National Corporation Contact: Laura Ulbrandt (212) 460-1900
LEUCADIA NATIONAL CORPORATION SUBMITS FURTHER REVISED PROPOSAL
TO ACQUIRE PLAINS RESOURCES INC.
NEW YORK, NEW YORK, MARCH 19, 2004 - Leucadia National Corporation (LUK - NYSE
and PCX) announced that today it submitted the following proposal letter to
Plains Resources Inc. (PLX - NYSE):
Leucadia National Corporation
315 Park Avenue South
New York, NY 10010
March 19, 2004
Plains Resources Inc.
700 Milam Street, Suite 2100
Houston, TX 77002
Attn: The Special Committee of the Board of Directors
Dear Sirs:
We were disappointed that the Special Committee rejected our revised
March 5th proposal to Plains Resources Inc. ("PLX" or the "Company"). We and the
other shareholders of PLX (as indicated by the current trading price of PLX) are
convinced that our proposal provides materially superior value than the
previously announced $16.75 transaction with management (the "$16.75
Transaction").
Notwithstanding the above, in an effort to present an offer that you
will have no choice but to acknowledge as superior to the $16.75 Transaction, we
have increased our offer and have made a number of other material improvements
to our proposal. The modified terms of our revised proposal are responsive to
the issues raised by the Company in its press release and are reflective of
further input we have received from PLX shareholders.
In the transaction, Leucadia National Corporation ("Leucadia"), a
NYSE-listed corporation (Ticker: LUK) and/or any of its respective affiliates
through a newly formed entity (the "Buyer") would acquire 100% of the
outstanding stock of PLX (the "Transaction"). The Transaction consideration
would be comprised of PLX notes, PLX preferred stock (the "Notes" and the
"Preferred", together the "Securities") and cash. Subsequent to the closing of
the Transaction, Leucadia will commence a tender offer (the "Tender Offer") for
$25 million of the Preferred issued in the Transaction at a price of $35.00 per
share and $75 million of the Notes at a price of $35.00 per Note.
We believe the minimum per share value of the Transaction (inclusive
of the cash consideration) based on the Tender Offer price for the Securities
would be $18.00 per PLX share. We believe the actual value of the Transaction to
PLX shareholders will be approximately $18.75 per share, with the Notes valued
at par and the Preferred valued at the same current yield as the PAA Units.
You will note the following substantial improvements to our March 5
proposal:
(i) We have reduced our due diligence condition to five days.
(ii) We have reduced Transaction leverage by approximately $100 million.
While the $16.75 Transaction uses somewhat less leverage than our
modified proposal, it is financed with LIBOR or Prime-based, secured
bank and subordinate financing due in six years. This short-term
financing increases basis risk (LIBOR or Prime versus the PAA Unit
payout) and near-term refinancing risk. By comparison, our Transaction
provides for match funded, 20-year bond financing, which can be
satisfied with PAA Units held by PLX or cash. As a result, the structure
of our Transaction financing substantially lowers refinancing risk for
PLX. We, therefore, believe that our Transaction affords a substantially
better credit profile for PLX than the alternative transaction, and, as
a result, provides substantially less ratings downgrade risk for PAA.
(iii) We are issuing approximately 9.543 million Notes with an aggregate face
amount of $334 million, but we are providing that all 12.4 million units
("PAA Units") of Plains All American Pipeline LP ("PAA") serve as
secured collateral for the Notes. As a result, the Notes will be
overcollateralized by approximately 25% based on the $417 million
current market value of the PAA Units held by PLX and the face amount of
the Notes.
(iv) We have eliminated the ability of the issuer to defer interest payments
on the Notes.
(v) We are issuing 2.857 million shares or approximately $106 million of
Preferred with a $37.00 liquidation preference that will pay dividends
at a rate $0.525 per annum higher than the distributions on the PAA
Units. Based on the current distribution rate of the PAA Units, the
initial yield on the Preferred's $37.00 liquidation preference would be
7.5%. We believe that the Preferred will be particularly appealing for
non-corporate taxable investors because qualifying dividends received by
non-corporate shareholders are taxed at the 15% dividend rate.
(vi) We have increased the face amount of the Notes to the greater of (i)
$35.00 per Note or (ii) the fair market value of a PAA Unit plus $0.25
at the time of closing.
(vii) We have provided that the $100 million Tender Offer will be in the form
of a firm commitment from Leucadia for 2.143 million Notes at $35.00 per
Note and for 714,286 shares of Preferred at $35.00 per share.
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(viii) By offering the Preferred stock consideration, we are creating the
opportunity that a portion of the Transaction consideration may be tax
free to PLX shareholders.
(ix) Option holders will not be required to invest cash to exercise their
options in order to receive the Transaction consideration.
(x) The Transaction allows PLX shareholders to elect whichever form of
consideration they prefer, subject to proration, to better satisfy the
divergent tax, risk, and reward profiles of PLX's shareholder base.
(xi) PLX will remain a NYSE listed (or other national exchange) public
reporting company and a subsidiary of a well regarded, investment-grade
public company with an outstanding long-term track record.
1. Structure of Acquisition. In the Transaction, a subsidiary of the
Buyer would be merged with and into PLX, with PLX as the surviving corporation.
In the Transaction, PLX will issue approximately 9.543 million Notes, 2.857
million shares of Preferred and cash of $12.9 million. In the merger, existing
stockholders of PLX will have the opportunity to elect cash, the Notes and/or
the Preferred in exchange for their existing PLX securities, subject to
proration. Leucadia will fund the acquisition entity with sufficient cash to pay
off the existing indebtedness of PLX and fund the Transaction cash consideration
and transaction costs.
At issuance, the Notes will have a face value of the greater of (i)
$35.00 per Note or (ii) the fair market value of a PAA Unit plus $0.25. The
Preferred will have a liquidation preference of $37.00.
Assuming shareholders elect to receive a pro rata distribution of the
Transaction consideration, shareholders would receive 0.3843 of a Note, 0.1151
shares of Preferred and $0.52 in cash for each share of PLX. Options and other
interests convertible into shares of common stock of PLX will be cancelled and
exchanged for the economic equivalent of a pro-rata share of the merger
consideration in accordance with the terms of such securities. Option holders
will not be required to invest cash to exercise their options in order to
receive the Transaction consideration.
The Notes will be senior secured obligations of PLX collateralized by
all 12.4 million PAA Units held by PLX, which will be the surviving company in
the merger and as such will be full recourse obligations of PLX. Based on
yesterday's closing price of a PAA Unit, the $334 million face amount of Notes
would be secured by approximately $417 million in market value of PAA Units,
providing for approximately 25% overcollateralization.
The Notes will provide holders thereof with returns based upon the
income from and value of the PAA Units. A Note will pay quarterly interest in an
amount equal to the quarterly distribution paid on one PAA Unit. For example, if
the Notes were currently issued and outstanding, they would pay quarterly
interest in an amount equal to PAA's current distribution of $0.5625 for a
current yield of 6.4% (approximately 200 basis points over the interpolated
Treasury) on their face amount of $35.00, subject to an annual minimum interest
rate of $1.00 per Note. If PAA raises or lowers its distribution, the quarterly
interest rate will be adjusted accordingly. If, at the end of the year, the
aggregate quarterly interest payments are less than $1.00, PLX shall make an
interest payment equal to the difference.
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The Notes will mature 20 years after issuance. At maturity, PLX will
owe the Note face amount plus, the amount, if any, by which the fair market
value of one PAA Unit exceeds the face amount. At maturity, PLX may satisfy its
obligations by (i) paying cash to the holders of Notes or (ii) exchanging PAA
Units for outstanding Notes at the then market price of the PAA Units or (iii)
any combination of (i) and (ii). The principal terms of the Notes are set forth
on the attached term sheet.
The Notes will participate in the upside of PAA Units through
increases in PAA distributions and increases in the face amount of the Note at
maturity based on growth in the market value of PAA. In addition, the Notes will
have substantial downside protection due to their minimum $35.00 face value, the
overcollateralization provided by their secured interest in marketable
securities, and their full recourse against PLX.
The Notes are designed to permit investors who cannot own, or choose
not to own, MLP securities the opportunity to participate in the quarterly cash
flows and upside of PAA. We therefore anticipate that the Note owners will be
tax-exempt investors, offshore investors, IRAs, pension funds, and institutional
investors whose performance is based on pre-tax performance, and/or other
investors who prefer to, or can only participate in, the value creation at PAA
through the Notes, rather than by ownership of the PAA Units directly.
The Preferred will be a perpetual preferred that will pay a quarterly
dividend equal to the distribution paid on a PAA Unit plus $0.13125 per quarter
for an incremental annual yield of $0.525 more than the yield on a PAA Unit for
a current yield of 7.5% at the $37.00 liquidation preference. The Preferred
dividend will increase or decrease based on the then current quarterly
distribution of PAA. For example, if the Preferred were currently issued and
outstanding, it would pay a quarterly dividend in an amount equal to PAA's
current distribution of $0.5625 plus $0.13125 for a current quarterly dividend
of $0.69375.
The Preferred will have other traditional preferred stock covenants,
as more fully set forth on the attached term sheet summarizing the principal
terms of the Preferred. We expect the Preferred to be suitable for all
investors. In light of the favorable 15% tax rate for qualifying dividends, we
believe the Preferred will be particularly appealing to non-corporate taxable
investors.
We believe that the additional potential investor base afforded by
the Notes and the Preferred will provide PAA with a substantial alternate source
of future capital in the event that it, in the future, elects to issue MLP
"I-shares" or similar securities designed to appeal to a wider universe of
investors.
The Transaction will afford the opportunity for PLX shareholders to
elect to receive whichever form of consideration they prefer, subject to
proration. This will allow shareholders with differing risk, reward, and/or tax
objectives to maximize the value of the Transaction to them. For example,
depending upon certain factors, holders who elect to receive the Preferred may
have the opportunity to reduce capital gains taxes on the Transaction.
Thirty to sixty days subsequent to the closing of the Transaction,
Leucadia commits to launch, or cause one of its affiliates to launch, the Tender
Offer for 2.143 million Notes at $35.00 per Note and for 714,286 shares of
Preferred at $35.00 per share for a total of $100 million. By allowing the Notes
and the Preferred to trade in the market for a minimum of 60 days after the
closing of the Leucadia Transaction and before the closing of the Tender Offer,
PLX shareholders will have the opportunity to monitor the trading price of the
Securities and can elect at their option to sell the Notes and/or the Preferred
in the market, in the Tender Offer, or to retain the Securities.
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We will endeavor to cause a when-issued market to develop in the
Securities prior to the consummation of the Transaction as promptly as
permissible subject to regulatory requirements.
We note from our reading of the merger agreement and proxy that the
$16.75 Transaction has numerous financing and other contingencies, including
contingencies that are under the control of Mr. James C. Flores, Mr. John T.
Raymond, and Mr. Paul G. Allen. By comparison, upon the execution of the
Leucadia Transaction merger agreement, the Leucadia Transaction will have no
financing contingencies or other contingencies under the control of Leucadia's
principals.
Leucadia will fund the Transaction and the Tender Offer with readily
available cash, cash equivalents and marketable securities which totaled
$1,194,500,000 as of December 31, 2003, Leucadia's last publicly filed financial
statement, excluding amounts held by subsidiaries subject to regulatory or other
dividend payment restrictions.
The Notes and the Preferred will be registered securities, and PLX
will continue to file 10-Ks, 10-Qs, and other required filings as an SEC
registered issuer. We expect that the Notes and the Preferred will be listed for
trading on the New York Stock Exchange (or another national securities exchange
or market).
We believe the Notes and the Preferred will not be considered an
interest in a partnership for tax purposes and owners of Notes will not receive
K-1s, nor will they bear any flow-through income from PAA. In light of the fact
that many investors who own shares of PLX do so to participate indirectly in the
value of PAA because they are not permitted to own PAA Units, we believe that
the Securities will be a superior alternative to PLX stock for existing owners
of PLX as well as for other non-MLP investors, particularly because the
Securities, unlike PLX stock, will pay quarterly cash payments.
We anticipate that the Notes will trade at a premium to PAA Units
because of several factors: (1) a greater universe of investors will be able to
purchase the Notes rather than PAA Units, (2) the number of Notes outstanding
will be limited to a maximum of 9.543 million, (3) the Note face amount will be
secured by the $417 million of PAA Units held by PLX providing 25%
overcollateralization for the $334 million of Note principal, and will be fully
recourse against PLX.
We believe the Notes will be considered by investors to be superior
to MLP I-shares because they will pay a current distribution in cash rather than
stock, and because the holder of a Note will, at their maturity, receive the
greater of the face amount of the Note, or the fair market value of PAA Units,
in cash or, if PLX chooses, PAA Units.
We believe that the Preferred will trade at a premium to PAA because
of several factors: (1) the Preferred will pay $0.525 per annum higher dividends
than the then current distribution on PAA Units, (2) the favorable tax rate for
qualifying dividends, (3) the number of shares of Preferred outstanding will be
limited to a maximum of 2.857 million, and (4) a greater universe of investors
will be able to purchase the Preferred rather than PAA Units.
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2. Effect of Proposal. This letter expresses the proposal of Leucadia
only and is not intended to, and does not create a legally binding commitment or
obligation on the part of Leucadia or its affiliates to effect a transaction
with PLX (it being understood that any such legally binding obligation shall
only be set forth in a definitive merger agreement that has been executed and
delivered by Buyer and PLX). It is understood that Leucadia and its affiliates
shall not be legally bound to PLX by reason of this proposal, nor shall rights,
liabilities or obligations arise as a result of this proposal or any other
written or oral communications between Leucadia or its affiliates on the one
hand, and PLX or its representatives on the other hand.
We believe that the proposal set forth herein constitutes a Superior
Proposal (as defined in the $16.75 Transaction merger agreement) and allows PLX
to engage in negotiations with us. We are extremely interested in completing the
transactions contemplated hereby. We are committed to work with PLX and its
advisors in good faith to finalize the transaction and the detailed Securities
covenants on terms, which are mutually agreeable.
We hereby request an in-person meeting with the special committee and
its legal, financial and tax advisors so that we have an opportunity to address
any potential remaining concerns that you have so that we may complete this
transaction.
Very truly yours,
LEUCADIA NATIONAL CORPORATION
By: /s/ Ian M. Cumming
--------------------------------
Name: Ian M. Cumming
Title: Chairman of the Board
TERMS OF THE NOTES
------------------------------------- --------------------------------------
Issuer: PLX, the surviving company in the
merger.
------------------------------------- --------------------------------------
Structure: The Notes will be issued pursuant a
merger of a subsidiary of a newly
created company with and into PLX,
with PLX being the surviving
company in the merger.
------------------------------------- --------------------------------------
Securities Offered: The Notes will be issued under an
indenture. Approximately 9,543,000
Notes will be issued in the merger.
------------------------------------- --------------------------------------
Face Amount: The face amount of each Note will
be the greater of (i) $35.00 or
(ii) the fair market value of one
PAA Unit on the day prior to the
consummation of the merger plus
$0.25 per Note.
------------------------------------- --------------------------------------
Maturity: The Notes will mature 20 years after
issuance. At maturity, PLX will owe
the face amount plus, the amount, if
any, by which the fair market value of
one PAA Unit as of the maturity date
exceeds the face amount. At maturity,
PLX may satisfy its obligations by (i)
paying in cash or (ii) exchanging PAA
Units for outstanding Notes at the
then fair market value of the PAA
Units or (iii) any combination of (i)
and (ii).
------------------------------------- --------------------------------------
Registration and Listing: The Notes will be registered
securities and are expected to be
listed for trading on the New York
Stock Exchange (or another national
securities exchange or market).
------------------------------------- --------------------------------------
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------------------------------------- --------------------------------------
Interest: Interest shall be paid on a quarterly
basis in an amount equal to the
quarterly distributions received on
one PAA Unit. If at the end of the
year, the aggregate of the quarterly
interest payments made on the Notes is
less than $1.00, PLX shall pay
interest equal to the difference.
------------------------------------- --------------------------------------
Interest Payments: Interest payments on the Notes shall
be payable quarterly in cash in
arrears.
------------------------------------- --------------------------------------
Repurchase of Notes: Leucadia or one of its affiliates
shall commence a tender offer
thirty to sixty days subsequent to
the issuance of the Notes to
purchase approximately $75 million
of Notes at $35.00 per Note.
------------------------------------- --------------------------------------
Redemption: The Notes will not be redeemable prior
to maturity.
------------------------------------- --------------------------------------
Security: Each Note will be secured by
approximately 1.30 PAA Units. The
Notes will also contain provisions
relating to the protection and
substitution of collateral.
------------------------------------- --------------------------------------
Covenants: The Notes will contain covenants
relating to (1) payment of
interest, (2) provision of reports,
(3) restrictions on incurrence of
additional indebtedness, (4)
restrictions on transactions with
affiliates, (5) restrictions on
payment of dividends, (6)
restrictions on asset sales, and
(7) restrictions on liens.
------------------------------------- --------------------------------------
Amendments: Customary provisions permitting
amendments to the indenture with
the consent of a majority of the
principal amount of units
outstanding, provided, that without
the consent of each holder of
notes, an amendment or waiver may
not: (1) reduce the principal
amount of notes whose holders must
consent to an amendment, supplement
or waiver (subject to PLX's right
to prepay); (2) reduce the
principal of or change the fixed
maturity of any note; (3) reduce
the rate of or change the time for
payment of interest; (4) waive a
default or event of default in the
payment of principal or premium, or
interest on the notes (except a
rescission of acceleration and a
waiver of a payment default that
resulted in such acceleration); (5)
make any note payable in money
other than as stated in the notes;
(6) make any change in the
provisions relating to the waiver
of past defaults or the rights of
holders to receive payments of
principal, premium or interest; or
(7) make a change in the foregoing
amendment and waiver section.
------------------------------------- --------------------------------------
Governing Law: The indenture and the Notes will be
governed by New York law.
------------------------------------- --------------------------------------
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TERMS OF THE PREFERRED
-------------------------------------- ------------------------------------
Issuer: PLX, the surviving company in the
merger.
-------------------------------------- ------------------------------------
Structure: The Preferred will be issued
pursuant a merger of a subsidiary
of a newly created company with and
into PLX, with PLX being the
surviving company in the merger.
-------------------------------------- ------------------------------------
Securities Offered: Approximately 2,857,000 shares of
Preferred will be issued in the
merger.
-------------------------------------- ------------------------------------
Liquidation Preference: The liquidation preference of each
share of Preferred is $37.00, plus
an amount equal to accumulated and
unpaid dividends and distributions
thereon, whether or not declared.
-------------------------------------- ------------------------------------
Ranking: With respect to the payment of
dividends and amounts upon
liquidation, the Preferred will
rank senior to all other classes of
stock of PLX.
-------------------------------------- ------------------------------------
Term: The Preferred will have a perpetual
existence.
-------------------------------------- ------------------------------------
Registration and Listing: The Preferred will be a registered
security and is expected to be
listed for trading on the New York
Stock Exchange (or another national
securities exchange or market).
-------------------------------------- ------------------------------------
Voting Rights: Holders of shares of Preferred
shall not have any voting rights,
except as set forth herein or
required by applicable law. If at
any time dividends on the Preferred
shall be in arrears for six (6) or
more quarterly periods, holders of
Preferred, may (by majority vote,
voting together as a class) elect
two additional directors to PLX's
Board of Directors until such time
as all accumulated dividends have
been paid in full or set aside for
payment in full.
-------------------------------------- ------------------------------------
Protective Provisions: For so long as any shares of
Preferred remain outstanding, PLX
shall not, without the consent of
the holders of at least a majority
of the Preferred outstanding at the
time, amend, alter or repeal the
provisions of its Certificate of
Incorporation, whether by merger,
consolidation or otherwise, so as
to adversely affect any right,
privilege or voting power of the
Preferred or the holders thereof.
-------------------------------------- ------------------------------------
Dividends: The Preferred will provide for
cumulative quarterly dividends,
when, as and if declared by the
Board of Directors of PLX, out of
funds legally available therefor,
in cash, in an amount equal to the
amount of the quarterly
distributions received on one PAA
Unit, plus $0.13125 per share.
-------------------------------------- ------------------------------------
Dividend Date: Dividends on the Preferred shall be
payable quarterly in cash in arrears.
-------------------------------------- ------------------------------------
Repurchase of Preferred: Leucadia or one of its affiliates
shall commence a tender offer
thirty to sixty days subsequent to
the issuance of the Preferred to
purchase $25 million of Preferred
at $35.00 per share.
-------------------------------------- ------------------------------------
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This communication shall not constitute an offer to sell or the solicitation of
an offer to buy any securities, nor shall there be any sale of securities in any
jurisdiction in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such
jurisdiction. No offering of securities shall be made except by means of a
prospectus meeting the requirements of Section 10 of the Securities Act of 1933,
as amended. Any offer will only be made through a prospectus, which is part of a
registration statement to be filed with the Securities and Exchange Commission
(the "SEC"). Plains Resources shareholders are urged to carefully read the
registration statement and the prospectus included therein, and the proxy
statement and other documents relating to an offer, when they become available
because these documents will contain important information relating to the
offer. You may obtain a free copy of these documents after they have been filed
with the SEC, and other documents filed by Leucadia with the SEC, at the SEC's
website at www.sec.gov. Once a registration statement, as well as any documents
incorporated by reference therein and a proxy statement have been filed with the
SEC, you will also be able to inspect and copy these documents at the public
reference room maintained by the SEC at 450 Fifth Street, NW, Washington, D.C.
20549. YOU SHOULD CAREFULLY READ THE PROSPECTUS AND THE PROXY STATEMENT WHEN
THEY BECOME AVAILABLE BEFORE MAKING A DECISION CONCERNING AN OFFER.
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