Dynegy chief looks to future
By Lisa Sanders, CBS.MarketWatch.com
Last Update: 1:49 AM ET Nov. 9, 2002
HOUSTON (CBS.MW) -- While many market watchers speculate about whether Dynegy has a future, Bruce Williamson has no doubt about it.
The 43-year-old, former senior executive at Duke Energy was tapped as president and chief executive on Oct. 23. And he walked into a mess.
Dynegy (DYN: news, chart, profile) shares have fallen 98 percent from a 52-week high of $47.20. Its credit is considered junk. The use of sham round-trip trades and the way it accounted for a natural gas transaction led to federal investigations. Former Chairman and Chief Executive Chuck Watson stepped down amid the revelations. Chief Financial Officer Rob Doty was fired.
In October alone, the company announced a restructuring that included an exit from the business that made a name for Dynegy -- energy marketing and trading. Six employees were fired and seven disciplined for providing erroneous data about natural gas trades to publications that compile price indexes, and 780 people lost their jobs. At the end of the month, Dynegy announced it had lost $1.8 billion in the third quarter. The next day, ChevronTexaco (CVX: news, chart, profile), which has a 26.5 percent stake in Dynegy, announced it had written off $1.5 billion of its investment.
Nevertheless, Williamson is confident that Dynegy's core businesses will keep the company viable. He shared his reasons in an interview with CBS.MarketWatch.com.
Q. MW: Why, when you had a stable and senior job at Duke, did the position at Dynegy appear attractive?
A. Williamson: There are a couple of different reasons. Dynegy is a company that has a stronger portfolio than people think. The merchant generation business has great geographic diversity, and a lot of that capacity is under power purchase contracts so it's not as exposed to spot power prices. We also have the benefit of fuel diversity. Our coal-fired plants continue to operate with positive margins even today. It's a great set of assets. Our natural gas processing and gathering business has good geographic diversity and strong producer contracts for natural gas production that does and will continue to include ChevronTexaco...they remain our largest customer. And Illinois Power, the regulated utility, provides 650,000 customers with electricity, which provides a nice stable cash flow base.
Q. MW: Do you think the company has been aggressive enough with the reorganization?
A. Williamson: Dynegy has taken decisive steps to sell noncore assets, and realized that it doesn't have the capability to participate in energy marketing and trading. We're winding that down, and once we get back the collateral we've posted with counterparties and asset sales close ... this company has strong liquidity going forward. You put all that together, and the company can be a very strong participant in our core businesses.
Q. MW: What do you like about Dynegy's plan to decentralize the business?
A. Williamson: It pushes down authority and accountability and makes the business more transparent. Although it was announced before I got here, that's how I ran my businesses at Duke.
Q. MW: What's the situation with the balance sheet?
A. Williamson: We do have a problem, and that is we have too much debt. We've over-levered, and over-borrowed. The company's been moving very quickly with asset sales -- we're in discussions to sell the Rough storage facility in the U.K. -- and the cash proceeds will be used to pay down debt. Then, there's a track record that has to be built. We'll become sustainable through sales and operating cash flow and get to a capital structure that's more analogous to an oil and gas company.
Q. MW: Do you anticipate having to make further job cuts?
A. Williamson: No further cuts. It was an unfortunate situation, but the company had to resize the organization to the business opportunities that are here. I want to get the employee base looking forward.
Q. MW: Why did you decide against having a third-quarter conference call?
A. Williamson: I had been in here for about four business days, and I really needed to drill into results. When I give a commitment to analysts, I want to know with certainty what I'm talking about. We'll have a conference call after we file the third-quarter 10-Q next week."
Q. MW: How do you intend to win back investors?
A. Williamson: That will take a bit of time. The marketing business created so much opaqueness to the financial results. We'll push now to have a set of financial statements that have transparency ... and we will be able to do that going forward. Frankly, a lot of analysts were frustrated because they couldn't see through to the base business. We'll overcome that skepticism and we'll do that by demonstrating through the results.
Lisa Sanders is a Dallas-based reporter for CBS.MarketWatch.com. |
