Posted on 11/28/2001 9:19:46 AM PST by RCW2001
Wednesday November 28 1:06 PM ET
HOUSTON (Reuters) - Energy trader Dynegy Inc. (NYSE:DYN - news) on Wednesday pulled out of a deal to buy larger rival Enron Corp. (NYSE:ENE - news), saying conditions had changed since the takeover was agreed on almost three weeks ago.
Dynegy had planned to buy its Houston rival for about $9 billion in stock, but the collapse of Enron's stock led Dynegy to invoke escape clauses allowing it to get out of the deal.
The buyout offer finalized Nov. 9 would have had Dynegy paying about $10.41 for each share of Enron, but its shares have since cratered and were trading at $1.19, down 71 percent for the day. Enron could not be immediately reached for comment.
A series of negative disclosures about Enron's finances made since October, have strangled the once-proud energy giant, which was forced to lower its reported earnings by $600 million over the last four years as a result of questionable off-balance sheet transactions.
Its trading business, the crown jewel most coveted by Dynegy, has also suffered from lower volumes as wary trading partners have shifted business away from the cash-poor and credit-threatened Enron.
One Andersen employee was quoted by a newspaper recently as saying that if they hadn't dressed up the 10k report, that they would have lost all of that consulting income.
In other words, they didn't perform an audit so much as they performed a cover up of Enron - in exchange for lucrative consulting fees.
Yet fellow CPA's won't enforce any disbarrment punishment on one of their major corporate players for that sort of chicanery...
Thanks
Accenture's business is I.T. consulting, and it does business with many, many firms in the energy sector, including Enron. Nothing incriminating about them selling "consulting resources" (people's time and talent) to Enron.
If you have any real proof of your assertion, then post it. If, however, it's based on something you read about what some Andersen employee supposedly said, then it's a mighty weak assertion.
Dynegy officials announced their decision shortly after two agencies downgraded Enron's credit rating to junk status -- triggering an obligation to immediately repay billions of dollars in debt that the once-mighty energy trader probably doesn't have the money to cover.
Trading in both stocks were halted on the news. Enron shares had plunged $2.91, or 71 percent to $1.20 in extremely heavy trading Wednesday on the New York Stock Exchange; less than a year ago, they were trading at $84.87. Dynegy shares were off $4.08, or 10 percent, to $36.81.
Analysts said the dire situation left Enron, the seventh largest U.S. company in terms of revenue, facing almost certain bankruptcy.
``It's the end of Enron, no question about it,'' said Gordon Howald, an analyst at Credit Lyonnais Securities in New York. ``I don't know who else could step in.''
Dynegy said Enron had breached its acquisition agreement, triggering a ``material adverse'' clause and causing it to call off the deal.
``Sometimes, a company's best deals are the very ones it did not do,'' Dynegy chairman and chief executive Chuck Watson said in a conference call.
Dynegy said it is no longer trading with Enron, and that the dissolution of the deal does not reflect a failure of the energy trading business.
``The industry has had several weeks to prepare for this event,'' said Steve Bergstrom, Dynegy's president. ``There are no signs of degradation, just a shifting of business between players.''
Dynegy acted shortly after Standard & Poor's and Moody's Investors Service both cited a loss of confidence that the deal would be consummated. They also that Dynegy's willingness to go through with the buyout had been compromised by continued erosion in investor confidence and Enron's core energy trading business.
The downgrades make $3.9 billion of Enron debt due immediately, and up to $16 billion in other debt originally due next year could come due earlier.
Dynegy also said it would exercise its right to purchase Enron's Northern Natural Gas pipeline, an option it received after it and ChevronTexaco Inc. -- which holds a 26 percent stake in Dynegy -- pumped $1.5 billion into the ailing Enron.
Despite Dynegy's claim to the pipeline, analysts are anticipating a battle over Enron's assets in bankruptcy court.
``It's going to be a fight'' between Dynegy and Enron's creditors, Howald said.
Spokesmen for both Enron and Dynegy didn't return repeated calls seeking comment Wednesday. Neither Watson nor Bergstrom would take questions during their conference call.
Enron and Dynegy, both based in Houston, had spent the last several days trying to hammer out a revision to their Nov. 9 merger agreement, which valued Enron stock at more than $10 per share.
``This comes in response to the fact that they weren't able to craft a deal last night. They were working on getting more cash (from banks shepherding the merger) last night, but they didn't get it,'' said A.G. Edwards & Sons analyst Mike Heim said. ``I think bankruptcy's not too far away.''
Raymond James analyst Jon Kyle Cartwright predicted Dynegy will survive with a few battle scars.
``I believe we all misunderstood how dramatic a credibility crisis can be in a recession in a bear market,'' he said. ``The speed at which Enron collapsed caught us all off guard.''
Enron, which earned $979 million on $100.8 billion in revenue in 2000, last month revealed that partnerships run by its executives had allowed the company to keep about half a billion in debt off its books and allowed the executives to profit from the arrangements. Enron's dealings with those partnerships are now the subject of a Securities and Exchange Commission investigation.
The company ousted its top financial officer in October, and several weeks ago restated its earnings back to 1997 -- eliminating more than $580 million in reported income over that span.
There are really two ways to look at this scenario from a big picture perspective:
1. Andersen (Accounting) is inept, hence Enron's badly inflated public 10k and audit, or
2. Andersen (Accounting) is corrupt, hence Enron's badly inflated public 10k and audit.
There is certainly evidence that executives at Enron are corrupt. This evidence includes one $20 million deal that went to Enron's CFO, in the name of a new corporation formed by that CFO. Further evidence includes Forbes listing of a $500,000 payment to a close relative of an Enron executive. Non-evidence, but still rather suspicious behavior, is that Enron's CEO turned down his $60 million golden parachute.
What remains to be proven is whether the corrupt executives at Enron took advantage of merely "slower" executives at Andersen, or whether those executives voluntarily colluded to hide insider deals and inflate Enron's balance sheets.
Instead of having several hundred thousand dollars in their retirement accounts, they are now going to get pink slips next week and nothing to show for their years of work.
A year ago, who ever would have thunk little Dumbya's biggest source of financial support would be a penny stock on November 28, 2001? And if the puny presidential pretender actually has the nerve to run for re-election in spite of his mishandling of the economy, Dumbya shouldn't expect much support from ENE option holders.
Dynegy today terminated its agreement to buy Enron Corp., making it likely that Enron will forced into filing for bankrupty protection.
The announcement came after Enron's credit rating was downgraded to so-called junk status by two rating agencies this morning.
"A move by Enron to seek protection from its creditors through a voluntary filing under Chapter 11 of the U.S. Bankruptcy Code is a distinct possibility if the merger falls through," Standard and Poor's wrote in downgrading Enron's credit rating.
Since Dynegy reached a deal to buy Enron on Nov. 9, there have been new troubling financial disclosures about Enron as well as increasing concerns about the health of its core trading business.
In terminating the deal, Dynegy cited "Enron's breaches of representations," as well as a so-called "material adverse change provision" in the merger deal.
Even though it is backing out, Dynegy will exercise its option to buy all of the Enron's Northern Natural Gas Pipeline.
Dynegy got that option because it immediately gave Enron $1.5 billion in cash after the deal was announced. That money came from Dynegy shareholder ChevronTexaco.
Enron said this afternoon it is temporarily suspending all payments other than those needed to maintain its core energy trading operations and is reviewing whether or not Dynegy is indeed entitled to buy the Northern Natural Gas Co.
"With Dynegy's termination of the merger and the ratings agency downgrades, we are evaluating and exploring other options to protect our core energy businesses," said Enron Chairman and CEO Ken Lay in a statement. "To do this, we will work to retain the employees necessary to the continuing operations of our trading and other core energy businesses."
Enron's debt rating reduction means it will have to immediately repay $3.9 billion more in debt obligations, something it can ill afford.
It also makes it very difficult for Enron to keep running its core trading and marketing business, which depends heavily on access to cash and credit.
Andre Meade, an analyst with Commerzbank Securities, said Enron's junk bond status will effectively shut down the bulk of Enron's trading and marketing operations as would-be trading partners won't be willing to take Enron's credit.
Meade also said he thought it was unlikely Enron could raise the money it needed to pay off the new obligations and keeping operating it business.
Enron's trading franchise -- a major reason that Dynegy wanted to buy Enron in the first place -- was already in trouble as other energy companies moved business elsewhere and raised credit requirements for doing business with Enron.
Monday night, Enron, Dynegy and other parities continued negotiations to try to keep the merger deal on track. The players, among other issues, were negotiating a lower purchase price for Enron and a new equity infusion for Enron.
In its report, S&P said it was concerned the merger agreement wouldn't be rescued and about "the liquidity implications of the possible failure of that transaction."
Enron's trading franchise, S&P said, has sustained significant damage that together with a rising potential legal liabilities weakens Dynegy's commitment to purchase Enron.
Cooperation from Enron key in probe-- Federal officials say they are willing to be more lenient with companies that cooperate in securities fraud cases, an attitude that could help get Enron Corp. off the hook in its current SEC investigation. But it could also put individual executives -- including its former chief financial officer and other former employees -- in the hot seat.
Well, at least the CPA's and consultants won't be prosecuted...
< /SARCASM >
Economically speaking, the city has taken a few high-profile hits this year (Compaq, Continental Air, Enron), and recent saber-rattling by OPEC to flood world markets with petroleum would cause oil prices to fall and deal the local economy a very painful blow.
No, but I am holding some shares of SFY and EGN, both in the natural gas business. Like ENE, they were supposed to do well in the Dumbya economy but got caught with their pants down after gas prices tumbled this year.
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