isopatch, ENE has lots of hard assets including major ownership in EOG. If DYN gets ENE @ $10-11/share, it is the steal of the decade I believe.
Anyway ENE shareholders get all of ENE's and DYN's assets combined if the deal goes through along with a good credit rating again to boot- Worth buying ENE shares IMO
Here's a description of some of Enron's hard assets:
Enron Shedding Load To Stay Afloat
By Susan Kellogg
Issues Analyst
[News item from Reuters] As Enron's stock value continues its downward spiral, the energy giant faces the potential need to sell off some of its major assets, including power plants, pipelines and energy trading assets in order to salvage its remaining credit and restore investor confidence. Enron must discern what assets to sell, at what time, and for what price.
Analysis: As Enron seeks to extricate itself from a downward spiral of events that began earlier this year, returning to the company's core strengths is a recurring theme among analysts, investors and other market watchers. With shares below the $10 mark, and a drop of almost 70 percent in its share price in less than a month, Enron may need to break off the secondary businesses if it is to stay independent. With rumors circulating of a possible hostile takeover bid by companies like Royal Dutch/Shell Group, Enron cannot afford to do business "as usual."
Enron has trekked through one patch of quicksand into another this past year in its water and broadband businesses, and internationally in India. For the past six months, Enron has dabbled with exiting Dabhol Power Company (DBC), which controls a major power project in western India. With 65-percent ownership, Enron's assets in the company are estimated to be worth $870 million. Dabhol's only client, the Maharashtra State Electricity Board (MSEB), has embroiled Enron with Indian politics and a refusal to pay for more than two years of late payments and defaults in payments by the utility.
MSEB had originally agreed to buy the plant's full output, a facet of the contract that critics felt was perhaps strong-armed by the aggressive Houston-based marketer. The state of Mararashtra had a shortage of power only during peak hours, while the project was designed as a base-load station that would supply power even during non-peak hours. The Dabhol plant's tariff, which MSEB said was too high, was calculated on a cost-plus basis. Enron cited tariffs of comparable projects around the world as reference, but critics claimed this method of calculation encouraged excessive project costs. Then there were supporters of the deal who said that the power demand in the most industrialized state in India would grow dynamically in the next few years as the Indian economy expanded.
Since May, Enron and MSEB have been haggling, starting with a notice of termination of contract filed by Enron, a six-month cool-off period initiated by the government, and final notice after Nov. 19 if no resolution has been found. Analysts predict a final termination notice could precipitate a long, legal battle between Dabhol and MSEB. That adds up to no immediate cash flow and more damage to Enron's already shaky reputation.
In August, Enron said it would sell its 65-percent stake in Dabhol for no less than $1.0 billion, in order to cover its costs and direct financial investment in the project. But pressure from Enron's customers and creditors may force Enron to sell at a substantial discount. Enron is allegedly meeting in Singapore with BSES Ltd and Tata Power Ltd, two Indian power utilities who have put forth offers to buy Enron's stake of the $2.9-billion project. Lenders spokespersons have indicated that Enron might be willing to sell its holding in DBC at a 10 to 15 percent discount.
The company likely might sell its gas pipeline and transportation business for up to $4 billion, estimates John Olson, of Sanders Morris Harris, a Houston-based investment bank. This profitable business venture, which has shown an average annual profit growth of 18 to 20 percent, would include 25,000 miles of gas pipes crisscrossing the United States and companies like Northern Border Pipeline Co., Transwestern, Florida Gas Transmission, and EOTT Energy. Potential buyers are plentiful, says Olson. Companies like El Paso, Williams Cos., and Duke Energy are always on the lookout for similar assets. But buyers for Enron's pipeline and transportation assets would have to assume $1 billion of related debts.
Other assets up for grabs could include international power plants and transportation services in Brazil, Argentina, Australia and Europe. These are contributing a collective 15-percent return on equity and up to $700 million of annual earnings for Enron. The challenge is timing. If demands for cash deposits surge, Enron could be forced into a fire sale.
As Enron's stock has been hammered, hitting a nine-year low of $9.55 per share, shares of one of the biggest earners on Wall Street have lost 88 percent of its value. Concerns about Enron's complex finances and ill-fated investments have stimulated a lack of investor confidence in light of Enron's less than up-front disclosure. Fitch cut its rating for Enron's senior unsecured-debt to one notch above junk-bond status. It could go to the cellar if the company is unable to make progress in reducing debt.
Even though Enron is North America's biggest marketer and trader of electricity and natural gas, it must hold on to investment-grade credit ratings to maintain the confidence of fellow traders. To avoid the domino effect. Ed Krapels, energy trading consultant with a Boston independent research firm, says Enron would have to post larger cash deposits with many of its counterparties if the company's share price and credit standing deteriorates any further. A lower credit rating could scare away customers and freeze the wholesale energy markets.
Utilities with energy trading, commodity and derivative operations of large commercial and investment banks could be hit. Enron holds a portfolio in the derivatives market worth $21 billion. If firms on the other side of Enron's trades start to fear that payment is not forth-coming, they might curb their other trading. Were Enron to fail, projects research firm Ventana Capital, a major financial crisis could result in a gridlock in gas, timber, cola, metals, fertilizer, bandwidth or any of the products Enron deals in. So far, however, there has been no active sign of any major trader cutting back on their business with the company. Companies like AEP, Mirant Corp., Aquila Inc., and Ameren Corp. have indicated support, stating the importance of Enron's recovery to the future of energy markets.
Enron's core energy trading business posted a 26-percent increase in recurring earnings in the third quarter, alongside the $638-million loss from businesses such as broadband and water. Analysts see the core business as being in good shape. Even amid the turmoil of dipping stock and SEC investigations, Enron remains the largest natural-gas and power trader in the United States, being a principal in one-quarter of all U.S. electricity and natural-gas trades. The timing is encouraging trades, as people prepare their portfolios for the winter to protect themselves from price volatility, said Enron spokesman Vance Meyer.
Trades on EnronOnline always involve Enron as either the buyer or the seller. The trading platform has the highest volume of any Internet energy trading platform. This past week, EnronOnline conducted 8,000 transactions through its site in one day, with a notional value of $4 billion.
Enron is in negotiation with private equity firms and power-trading companies to arrange a $2-billion capital injection, reported The Wall Street Journal this week. According to the Journal, Enron approached the buyout firms Blackstone Group and Clayton, Dubilier & Rice for help. Several power-trading companies, including El Paso Energy and Reliant energy, were mentioned as those who might be interested in making an equity investment. Investors providing fresh capital to Enron would receive an equity stake in the company or preferred stock that could be converted into common stock if Enron's stock price recovers to a certain level. Analysts have indicated that short-term financing of Enron, rather than long-term financing is top priority in most investor's minds.
If Enron's financial crisis worsens, some industry analysts believe Enron may consider divesting some of its international trading and non-energy commodity trading operations, which account for about a quarter of its total trading revenues. Enron is the leading player in the United Kingdom's spot gas-trading market, and leader in liberalizing European electricity and gas markets, with trading interests in some metals, coal, forest products and steel.
A critical factor to consider is that a break-up of Enron could diminish the value of the assets, the whole being worth more than the sum of its parts. Consider the energy market and players in the same light. Rivals as well as supporters don't want to see Enron sink into the ocean like another Titanic. |
