I don't think ENE's CEO will get a X-mas card from the California Atty General. See bold portion of article below.
November 26, 2001
Enron Lower as Merger Doubts Intensify
By REUTERS
Filed at 6:46 p.m. ET
HOUSTON (Reuters) - Hobbled energy giant Enron Corp. (news/quote)'s. (ENE.N) dizzying stock market flameout worsened on Monday, as its shares fell again amid growing doubts its buyout by smaller rival Dynegy Inc. (news/quote) (DYN.N) will go through as planned.
Enron stock closed down 73 cents, or 15.4 percent, at $4.01 on the New York Stock Exchange. The stock dipped as low as $3.76 -- at least an 18-year low -- before a late flurry brought it back up. Dynegy has agreed to pay $10.55 per share for Enron.
``The market is acting like the deal is not going through or not going through at the original terms,'' said Michael Heim, an industry analyst at A.G. Edwards & Sons.
Three possible scenarios exist: the deal goes through as planned; is canceled; or is restructured, but Heim said the first possibility is the least likely.
``The odds are that the exchange ratio will get renegotiated, but I don't think that's a surprise,'' said another analyst who asked not to be identified, referring to the stock ratio enumerated in the deal.
Escape clauses built into the deal give Dynegy the option to back out if there is serious deterioration in Enron's business or assets. Dynegy spokesman John Sousa reiterated his company's confidence in the deal.
``The status of the merger has not changed. Our due diligence is ongoing and we are looking at everything closely,'' he said.
Sources close to the executives and advisers working on the deal have told Reuters that nothing can change until the thorough financial examination is finished. When that will happen is unclear.
``Dynegy has a good claim that the 'material adverse condition' clause has already been triggered, either by the $690 million loan being accelerated, earnings (being) down or the ongoing trading business weakness,'' Heim said.
A new wrinkle in the saga emerged on Monday, as California Attorney General Bill Lockyer said he would review the proposed merger. Dynegy and Enron were both blamed for much of California's power crisis earlier this year and the acrimony was no better exemplified than by a comment Lockyer made to a reporter about Enron.
Lockyer said he wanted to personally escort Enron Chairman Ken Lay to a prison cell inhabited by an inmate named Spike, who would call Lay his ``honey.''
CROWN JEWEL AT RISK
But Lockyer is the least of Enron's worries. Its recent admission that lower volumes at its trading business -- the crown jewel that Dynegy most covets -- would harm fourth- quarter earnings raises the possibility the segment is losing its profitability.
``Every day that goes by where Enron trading volumes become less, it decreases the value of the assets Dynegy was trying to buy in the first place,'' Heim said. ``Besides trading and marketing, what value does Enron have?''
The majority of Enron's physical assets are spoken for, with partnerships and creditors getting first shot and Dynegy getting the first right to acquire Enron's Northern Natural Gas pipeline.
Enron's hemorrhaging also worsened in the bond market. Its 6.4 percent notes maturing in 2006 and its 6.75 percent notes maturing in 2009 were bid Monday at a respective 52 and 49 cents on the dollar, down from 57 cents each on Friday, according to a trader. The notes yield to maturity a respective 24.2 percent and 20 percent.
Its 20-year zero-coupon convertible bonds fell more than 5 cents on the dollar to just over 28 cents.
The threat of a further credit ratings cut is still hanging over Enron's head -- all three major rating agencies have placed Enron just one rung above junk level. A cut by all three to junk status would trigger guarantees forcing Enron to immediately pay $3.9 billion, mostly to two creditors involved in off-balance sheet financing vehicles.
Dynegy, which is 26.5 percent-owned by energy giant ChevronTexaco (CVX.N), is to swap 0.2685 share of its own stock for each share of Enron. Shares of Dynegy closed down $1.15, or 2.9 percent, at $39.25 in NYSE trade.
Enron agreed to a Dynegy buyout after it was overwhelmed by a series of problems, including a U.S. regulatory probe of off-balance-sheet dealings by its officers, a $1.2 billion cut in shareholder equity, and cuts in its credit ratings.
Enron subsequently restated its earnings some $600 million lower, and investor unease exploded and sent its shares tumbling. The shares were above $90 in August 2000.
This year's collapse has been dizzying. As of the close Monday, Enron's market capitalization had fallen below $3 billion, where it had topped $60 billion at the beginning of 2001.
nytimes.com |
