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

To: hlpinout who wrote (719)	11/27/2001 6:20:01 AM
From: hlpinout	Read Replies (1) \| Respond to of 1433

November 27, 2001 Enron, Dynegy May Cut Price of Deal As Enron Hopes to Stem a Cash Crisis By REBECCA SMITH and ROBIN SIDEL Staff Reporters of THE WALL STREET JOURNAL Advertisement Enron Corp., struggling to save its two-week-old deal to be acquired by Dynegy Inc., was in advanced discussions with Dynegy to cut the price of the all-stock transaction by more than 40% to about $5 billion, according to people familiar with the matter. Beleaguered Enron also was in continuing negotiations to extend the maturity dates of some of its borrowings in order to stem a growing liquidity crisis, these people said. Enron has total debt of about $13 billion. Increasingly, analysts are worried that the giant energy-trading concern's relatively few hard assets are so encumbered by debt that they can't be used to support further borrowing. Enron stock slid to its lowest level in over a decade at 4 p.m. Monday on the New York Stock Exchange, falling 70 cents to $4.01 a share. Over the past few months, about $60 billion of Enron's stock value has evaporated, a process that has accelerated since mid-October when the company announced a quarterly loss and a subsequent reduction in its equity base. Since then, revelations that company executives profited from partnerships used to move assets on and off Enron's books have spooked investors and triggered a Securities and Exchange Commission investigation. Recently, the company has twice restated earnings for past periods amid indications that its vaunted energy trading business is showing some signs of stress. The move to renegotiate the acquisition agreement, and particularly to slash the number of Dynegy shares that Enron holders would receive, only two weeks after the pact's signing is virtually unheard of in corporate transactions. While terms are sometimes altered due to unanticipated developments, that typically doesn't happen until a transaction is nearly completed. Enron had hoped to finalize arrangements and make an announcement Monday that would calm its anxious investors, but the situation remained fluid throughout the day. As of Monday evening, the revised deal still hadn't been formalized. See a timeline of Enron's recent woes The deal is critical for Enron. In recent weeks, credit-rating agencies have indicated they will refrain from further cuts to Enron's credit rating so long as a Dynegy purchase appears probable. But if that deal collapses, downgrades could occur that would put Enron below investment grade and in violation of credit agreements with counterparties. This in turn could deal a savage blow to Enron's commodity-trading business that is its lifeblood. Negotiators for the two companies returned to their home bases of Houston Monday after spending much of the holiday weekend meeting in suburban New York where they tried to agree on new provisions to the deal, which was announced Nov. 9. Both Dynegy and Enron declined to comment on the discussions. One apparent sticking point in the talks was arriving at a new stock-exchange ratio. Under the current acquisition agreement, Dynegy would exchange 0.2685 share for each Enron share tendered. Based on Monday's New York Stock Exchange closing price of $39.25 for Dynegy shares, down $1.15, Enron holders stand to receive $10.53 a share for their stock, or a total of about $9 billion. People close to the discussions said the new ratio is expected to be less than 0.15 share of Dynegy stock for every share of Enron stock, which would value Enron at less than $6 a share, or about $5 billion. Another contentious issue concerns the amount of additional capital Enron needs to shore up its finances. A week ago, the company disclosed it may have to post hundreds of millions of dollars or more to honor collateral calls before the end of the year. The problem for potential lenders is finding good assets to back these continued infusions of capital sought by Enron. As part of the original merger agreement, Dynegy already has injected $1.5 billion into Enron, receiving in exchange preferred stock in its Northern Natural Gas Co. pipeline system that runs from the upper Midwest to Texas. Under the agreement, if the acquisition falls apart, Dynegy "will have the right to acquire 100% of the equity in the Northern Natural Gas subsidiary," thus giving it "the full value of its investment." But that arrangement is raising questions on Wall Street about whether creditors are throwing good money after bad. Northern Natural Gas already is heavily encumbered with debts. In addition to $500 million in unsecured public debt and $1.5 billion put in by Dynegy and co-investor ChevronTexaco Inc., a bank consortium led by J.P. Morgan Chase & Co. recently put in an additional $450 million in cash backed by Northern's assets. The bank consortium also provided $550 million to Enron, against which assets of Enron's Transwestern Pipeline Co. unit were pledged. This system, a network between Texas and California, is the only other domestic gas-transportation system fully owned by Enron. That brings total indebtedness to nearly $4 billion for two Enron pipeline systems that only generated transportation revenue of $77 million and $41 million, respectively, in the third quarter. Enron's entire natural-gas pipeline business, which includes two other partially owned systems, produced pretax earnings of $85 million for the third quarter, flat with the year-earlier period. Some observers said that if the Enron deal to be acquired by Dynegy falls apart, this could set the stage for a fight among the different classes of creditors for a priority claim on the pipeline assets. -- Jathon Sapsford contributed to this article. Write to Rebecca Smith at rebecca.smith@wsj.com and Robin Sidel at robin.sidel@wsj.com