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Gold/Mining/Energy : Enron - Natural Gas Industry -- Ignore unavailable to you. Want to Upgrade?

To: hlpinout who wrote (718)	11/27/2001 6:18:59 AM
From: hlpinout	Read Replies (1) \| Respond to of 1433

November 27, 2001 03:10 Small Houston-Based Power Trader May Drop or Renegotiate Deal with Rival By James P. Miller, Chicago Tribune Nov. 27--As Dynegy Inc. continued to scrutinize merger partner Enron Corp.'s tangled finances, Wall Street traders bet that Dynegy is on the verge of either calling off the Enron buyout it announced three weeks ago or renegotiating a much cheaper price for its once-highflying rival. "The market is acting like the deal is not going through, or not going through at the original terms," said A.G. Edwards analyst Michael Heim. Under terms of the agreement the two Houston energy-industry concerns originally announced, Enron holders are to swap each of their shares for Dynegy stock currently valued at $10.54. If investors really believed the stock-for-stock deal was likely to go through, they'd be willing to pay something very close to that price for Enron shares -- but they're not. As investor doubts have grown, so has the gap between the buyout price and the trding price of Enron's stock. On Tuesday, Enron's already battered shares slid to their lowest level in years, dropping 70 cents, or 15 percent, to close at $4.01. In other words, while Dynegy has proposed to buy Enron for $8.96 billion in stock, Enron's market capitalization -- the value of the company's about 850 million shares -- has plunged to just $3.41 billion. In February, Enron's market cap was about $70 billion. With Monday's slippage, Enron shares are trading at a remarkable 62 percent discount to the Dynegy offer that's currently on the table. The shares of acquisition targets typically trade at a less than 10 percent discount to the deal price after the merger is announced. As Dynegy's audit team continued its in-depth "due diligence" review of Enron's books Monday, a company spokesman declined to discuss rumors swirling around the deal. "The due diligence continues," said John Sousa, the Dynegy spokesman. "We're looking closely at Enron." Asked about one analyst's recent projection that Dynegy may renegotiate the transaction's exchange ratio and give Enron holders just 0.15 Dynegy shares for each Enron share, rather than the current 0.2685 ratio, Sousa said "we don't comment on speculation." Of that there is no shortage of late. In the "soap opera that is Enron," said commentator Carol Levenson of the Gimme Credit bond-market newsletter, there's been little new financial information in recent days, "but plenty of speculation." Levenson suggested that "there's a game of chicken going on between Enron, its bankers, its ostensible merger partner Dynegy, and the rating agencies." Any of the parties "could send this company over the edge at any moment," she said, and Enron "is in an increasingly weak negotiating position." Enron's fall from grace has been astonishingly swift and painful for its stockholders, some of whom are now suing the company for allegedly using misleading accounting maneuvers to conceal the shaky state of its finances. With Monday's drop, Enron shares have tumbled 95 percent from the $82 they commanded just ten months ago. Once a regional pipeline operator known as Houston Natural Gas, Enron transformed itself during the 1990's through an ambitious expansion plan in which it acquired electric-utility operations, constructed overseas power plants, and developed an innovative energy-trading operation. The strategy made Enron a stock-market darling, but it also periodically strained the company's liquidity. To help keep its credit ratings strong, the company created limited partnerships that allowed Enron to keep billions of dollars in debt obligations off its books and out of sight of most investors. While Enron's power-trading group has experienced operating problems of late, it is the limited partnerships -- some of which were managed by Enron officials -- which proved to be the company's downfall. In October, Enron disclosed that it had shrunk its shareholder equity by $1.2 billion to buy back 55 million shares it had issued to the partnerships; the charge associated with "unwinding" the web of partnerships stunned investors by giving the company an unforeseen $618 million third-quarter loss. It also spurred a markdown of the company's credit ratings to just above junk-bond status, as well as a Securities and Exchange Commission investigation into Enron's partnership practices. As further accounting difficulties subsequently surfaced, Enron's finances have turned increasingly shaky and some other trading companies, fearing exposure to Enron's problems, have become reluctant do new transactions with the company. As part of the buyout arrangement Dynegy's 26 percent owner Chevron-Texaco Corp. has already provided Enron with $1.5 billion in upfront cash; in exchange, Dynegy got rights that will allow it to acquire the desirable Northern Natural Gas Co. pipeline if the Dynegy-Enron deal falls through. Dynegy has the right to walk away from the deal if Enron suffers what's known in the mergers-and-acquisition community as "material adverse change." But as Tyson Foods found out earlier this year when it unsuccessfully sought to break its agreement to buy meatpacker IBP Inc. after an accounting mess damaged IBP, proving such a claim can be difficult. Reuters news service contributed to this report. -----