Enron - Natural Gas Industry Message Board

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Gold/Mining/Energy : Enron - Natural Gas Industry

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To: E_K_S who wrote (715)	11/28/2001 1:55:17 PM
From: E_K_S	of 1433

An excellent overview of how ENE got into trouble... (http://www.bloomberg.com/marketsmagazine/cv_0105.html) Inside Enron CEO Jeffrey Skilling is again propelling the Texas-based energy company into a new mix of businesses. By Adam Levy From the article: "...A glimpse at company history reveals that Enron doesn't always deliver what it promises. A case in point is the company's October 1998 purchase of Wessex Water Plc of the U.K. for $2.8 billion in cash and assumed debt. Enron officials spoke of the water business in much the same way they now talk about broadband: It's a fragmented international market worth $300 billion a year, and Enron could extend its expertise to this business and win a huge share of that market..." "...Enron isn't tied to its assets in the same way as a big integrated company. "If you're stuck with a whole bunch of concrete that you can't move, you're in trouble," he says. Only about 20 percent of Enron's $65 billion in assets is tied up in plants and equipment, and Skilling says he's willing to sell anything anytime. Skilling says he'd rather spend money retaining good people, who are easily shifted around to new businesses. "We're brain-power intensive," Skilling says...." "...Skilling says he's learned lessons from Enron's struggles, helping him create what he describes as the prototype 21st-century corporation. "It's part of the learning curve," he says. "I think our legacy will be that we proved you can build a business on intellectual capital, not physical assets..." =========================================================== I think in the long term the historians will see CEO Skilling's new management style as the downfall of ENE. Leverage assets that eat up all free flow cash flow work great as long as the market is in an up trend but can lead to the demise of the company when (1) debt is downgraded, (2) cash flows run short and (3) liquidity demands run dry. From the charts in the article, the wise investor could see the writing on the wall as the sustained growth in trading revenues was not sustainable and a very risky corporate strategy. I would think that a large company like GE might be interested in some of ENE's assets but many of the cash flow generators are already mortgaged. GE would be better off to just buy the debt on those facilities they might want for $0.20 on the dollar. ENE's CEO will see that people assets can easily walk to another competitor as the house of cards come falling down. EKS

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