Filed by Leucadia National Corporation and Pershing Square, L.P.
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
Pershing Square, L.P. Contact: William Ackman (212) 813-3700
LEUCADIA NATIONAL CORPORATION SUBMITS REVISED PROPOSAL TO
ACQUIRE PLAINS RESOURCES INC.
NEW YORK, NEW YORK, MARCH 5, 2004 - Leucadia National Corporation (LUK - NYSE
and PCX) announced that it has submitted to Plains Resources Inc. (PLX - NYSE) a
revised proposal to acquire the company.
Representatives of Leucadia and Pershing Square, L.P. will host a conference
call on Monday, March 15, 2004 at 2:00 p.m. EDT to respond to questions from
shareholders regarding the terms of Leucadia's proposal to acquire Plains
Resources.
Callers can access the call by dialing toll free (800) 299-8538. Callers calling
from outside the United States should dial (617) 786-2902. The meeting title,
"Plains Resources - Leucadia National Corporation Conference Call," and
participant passcode, 24546151, will be required to access the call. The
following proposal letter was submitted to Plains Resources:
[Leucadia Letterhead]
March 5, 2004
Plains Resources Inc.
700 Milam Street, Suite 2100
Houston, TX 77002
Attn: The Special Committee of the Board of Directors
Dear Sirs:
We are pleased to submit our revised proposal whereby 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 capital stock of Plains Resources Inc. ("PLX")
in a transaction valued by Leucadia at approximately $18.19 per share ("the
Leucadia Transaction"), a $1.44 or 8.6% premium to the previously announced
$16.75 transaction (the "$16.75 Transaction"). The Leucadia Transaction is
subject only to a one-week due diligence period and the execution of a
definitive merger agreement.
Under separate cover, we will forward to you in the next few days a
blackline version of the $16.75 Transaction merger agreement, modified only to
reflect the economic terms of the Leucadia Transaction and to make certain
conforming changes, which will allow PLX to avoid the time and cost necessary to
renegotiate the merger agreement. In light of the fact that the $16.75
Transaction does not permit PLX to make an Adverse Recommendation Change (as
defined in the $16.75 Transaction merger agreement) without a four business day
notice period, the Leucadia Transaction's due diligence can be substantially
completed by the end of the notice period.
In the detailed description of the Leucadia Transaction below, you
will note that we are responsive to the issues raised about our initial proposal
by the special committee and its advisors as disclosed in your press releases
and public filings as well as comments we have received from numerous
shareholders of PLX:
(i) we are eliminating the requirement that we receive non-public
information on Plains All American Pipeline, L.P. ("PAA"),
(ii) we have reduced our due diligence period to seven days,
(iii) we have increased the yield on the securities issued in the
transaction by an additional $0.04 per annum for a total premium over
the PAA annual distribution of $0.12 per annum,
(iv) we have structured the Notes as debt securities secured by PAA Master
Limited Partnership ("MLP") units ("PAA Units"),
(v) we have increased the principal amount of the Notes to the greater of
$34.00 per Note or the market value of PAA plus $0.25 at the time of
closing,
(vi) we have attached a detailed term sheet describing the terms of the
Notes and their covenants,
(vii) we have increased the post closing tender offer to $100 million and
increased the tender offer price to $32.00 per Note,
(viii) we have increased the number of Notes to equal the 12.4 million PAA
Units held by PLX to satisfy the greater demand for Notes by PLX
shareholders, and to eliminate the transaction complexity associated
with our previous requirement that PLX would sell up to 1.5 million
PAA Units prior to closing,
(ix) we have agreed not to oppose the break-up fee and expense
reimbursement required under the terms of the $16.75 Transaction,
(x) we have agreed to include the terms of the $16.75 merger agreement in
our merger agreement, revised only to reflect the improved economics
of the Leucadia Transaction and to make certain conforming changes,
(xi) the Leucadia Transaction continues not to be contingent on financing,
2
(xii) the Leucadia Transaction will not require the filing of a 13E-3,
(xiii) we have obtained Leucadia's board approval for the Leucadia
Transaction so this is no longer a condition of our proposal,
(xiv) Weil, Gotshal & Manages LLP has researched the structure and terms of
the Leucadia Transaction and believes that there are no elements of
the transaction that would prevent its consummation in a timely
fashion. We are willing to make representatives of Weil Gotshal
available to answer any questions you or your advisors may have about
tax or other legal considerations of the Leucadia Transaction.
1. Structure of Acquisition. In the Leucadia Transaction, a
subsidiary of the Buyer would be merged with and into PLX, with PLX as the
surviving corporation. In the merger, existing stockholders of PLX will have the
opportunity to receive a combination of cash and newly issued publicly traded
securities of PLX (the "Notes") in exchange for their existing PLX securities.
In the Transaction, PLX will issue 12.4 million Notes, one Note for each PAA
Unit owned by PLX.
In the Leucadia Transaction, shareholders would receive 0.5019 of a
Note and $1.19 in cash for each share of PLX. Based on our estimated value of
the Note of $33.86, we estimate the total per share Leucadia Transaction value
to be $18.19 per share, a $1.44 or 8.6% premium to the previously announced
$16.75 Transaction. Options and other interests convertible into shares of
common stock of PLX will be cancelled or exchanged for the economic equivalent
of a pro rata share of the merger consideration in accordance with the terms of
such securities.
Leucadia will fund the acquisition entity with sufficient cash to pay
off the existing indebtedness of PLX and fund the Leucadia Transaction cash
consideration and transaction costs.
Thirty to sixty days subsequent to the closing of the Leucadia
Transaction, Leucadia and/or its affiliates will launch a tender offer (the
"Tender Offer") to repurchase up to $100 million of Notes at a purchase price of
$32.00 per Note. By allowing the Notes 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 Notes and can elect at their option to sell the Notes in
the market, in the Tender Offer, or to retain their Notes.
We will endeavor to cause a when-issued market to develop in the
Notes prior to the consummation of the Leucadia 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.
3
Leucadia will fund the transaction and the Tender Offer with readily
available cash, cash equivalents and marketable securities which totaled
$1,107,000,000 as of September 30, 2003, Leucadia's last publicly filed
financial statement, excluding amounts held by Leucadia's regulated
subsidiaries.
The Notes will be senior debt securities of PLX that will be secured
by the PAA Units owned by PLX, which will be the surviving company in the merger
and as such will be full recourse obligations of PLX. At the closing of the
Leucadia Transaction, PLX will be a direct or indirect subsidiary of Leucadia.
The Notes will provide holders thereof with returns based upon the
income from and value of the PAA Units. The Notes will pay a minimum annual
fixed interest payment of $1.00, plus additional quarterly interest in an amount
equal to the quarterly distribution paid on one PAA Unit plus an additional
$0.03 per quarter. For example, if the Notes were currently issued and
outstanding, they would pay a quarterly interest in an amount equal to PAA's
current distribution of $0.5625 plus $0.03 per quarter. 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. As a result,
the Notes should track the economic characteristics of the PAA Units plus a
yield enhancement. Based on the PAA closing price of $32.15 on March 4, 2004,
the $0.12 per annum yield premium would yield an additional 37.3 basis points
per annum to the holder of Notes compared with the PAA Units.
The Notes will have a principal amount equal to the greater of $34.00
per Note or the market value of a PAA Unit at the closing of the transaction
plus $0.25.
The Notes will mature 20 years after issuance. At maturity, PLX will
owe the Note principal amount plus, the amount, if any, by which the fair market
value of one PAA Unit exceeds the principal amount of a Note. 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 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 buyers and holders of
the notes will be tax-exempt investors, offshore investors, IRAs, pension funds,
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.
We believe that the additional potential investor base afforded by
the Notes to PAA will provide PAA with a substantial alternate source of future
capital in the event that it, in the future, elects to issue a similar security.
The Notes 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 will be listed for trading on the New York Stock Exchange
(or another national securities exchange or market). The Notes will pay a
minimum annual fixed interest payment of $1.00, plus additional quarterly
4
interest in an amount equal to the quarterly distribution paid on one PAA Unit
plus an additional $0.03 per quarter. In addition, the Notes will contain
customary covenants, including without limitation, 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. We have attached Exhibit A to this letter that provides
additional detailed terms of the Notes.
As you are aware, PAA Units require the holder to accelerate the
recognition of any deferred income on the sale of its units. The impact of this
negative tax consequence of PAA Units has traditionally resulted in PAA Units'
reduced liquidity. In light of (i) the more than $400 million market
capitalization of Notes that will be outstanding after the consummation of the
Leucadia Transaction, (ii) the lack of adverse consequences on their sale when
compared with PAA Units, (iii) the broad initial distribution of the Notes in
the PLX merger, and (iv) the greater likely proportion of institutional holders
of the Notes compared with PAA Units, we believe that the Notes will afford the
holders a substantial degree of trading liquidity and reduced transaction costs.
We believe the Notes 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 Notes
will be a superior alternative to PLX stock for existing owners of PLX as well
as for other non-MLP investors, particularly because the Notes, unlike PLX
stock, will pay quarterly cash interest 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 12.4 million, (3) the Notes will have a 0.373%
greater yield than PAA Units, and (4) the Note principal amount will be secured
by the PAA Units held by PLX and will be fully recourse against PLX. If the
Notes were to trade at the same current yield as the PAA Units based on their
closing price of $32.15 yesterday, in light of the $0.12 higher annual
distribution, we would anticipate that the Notes would trade at a $1.71 premium
to the PAA Units, or a price of $33.86.
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 its maturity, receive the
greater of the principal amount of the Note, or the market value of PAA Units in
cash or PAA Units.
2 Expenses. The parties shall negotiate in good faith and enter into
a revised expense reimbursement agreement on terms to be mutually agreed upon.
3. 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.
5
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 and provide us with non-public information
related to PLX. As we have previously informed you, upon your agreement to allow
us to commence the limited due diligence requested in this proposal, we would be
willing to execute the confidentiality agreement that has previously been
provided to us, without any changes thereto.
Buyer is extremely interested in completing the transactions
contemplated hereby and looks forward to working with PLX. Buyer is committed to
work with PLX and its advisors in good faith to finalize the transaction on
terms, which are mutually agreeable. Please call us with any questions with
regard to this proposal.
Very truly yours,
LEUCADIA NATIONAL CORPORATION
By: /s/ Joseph S. Steinberg
----------------------------------
Name: Joseph S. Steinberg
Title: President"
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.
6