[cdn-nucl-l] Dynegy Announces Deal for Enron

["Adam McLean" <adam.mclean@utoronto.ca>]

Holy Cow!  Last year, Enron had 26 times higher sales volume than Dynergy
($860 billion vs. $33 billion) - that's like Tim Horton's taking over
McDonalds!  Simply amazing the power of the market...

Adam

----------------
Posted on Nov. 9th, 2001 at:
http://dailynews.yahoo.com/h/ap/20011109/bs/dynegy_enron.html

Dynegy Announces Deal for Enron
By JUAN A. LOZANO, Associcated Press Writer

HOUSTON (AP) - Energy marketer Dynegy Inc. announced Friday that it will buy
its much larger rival, the once mighty but now troubled Enron Corp., for $8
billion in stock. Dynegy also will assume a hefty $15 billion in Enron debt.

The announcement came after Enron's stock price plummeted about 80 percent
over the past three weeks because of concerns that the company wasn't
revealing serious financial problems to shareholders.

Under the deal, ChevronTexaco Corp., which owns more than a quarter of
Dynegy, would quickly provide about $1.5 billion. ChevronTexaco also would
contribute an additional $1 billion upon completion of the deal, the
companies said.

``With its market-making capabilities, earnings power and proven strategic
approach to wholesale markets, Enron is the ideal strategic partner for
Dynegy,'' Dynegy chairman and chief executive officer Chuck Watson said in
announcing the purchase.

Watson made it clear that he would not tolerate the sort of financial
practices that prompted explosive disclosures by Enron this week - including
an admission that more than half a billion dollars in debt had been kept off
the company's books.

``As a combined company, we will focus on leveraging our core skill sets
and, as always, we will keep a strong balance sheet and straightforward
financial structure as key priorities,'' Watson said.

Enron is the country's top buyer and seller of natural gas, and the No. 1
wholesale power marketer. The company operates a 25,000-mile gas pipeline
system, and also markets and trades metals, paper, coal, chemicals, and
fiber-optic bandwidth.

Dynegy controls nearly 15,000 megawatts of power generating capacity through
investments in power projects, and sells the energy in wholesale markets and
through utilities.

At a news conference, Watson said company officials who negotiated the deal
came away convinced that Enron was worth buying despite its recent troubles.

``We looked under the hood and, guess what, it's just as strong as we
thought it was,'' Watson said.

Under the terms of the deal, Enron shareholders will receive .2685 Dynegy
share for each share of Enron common stock, valuing each Enron share at
$10.41. Enron has about 775 million common shares, said spokeswoman Karen
Denne.

That represents a 21 percent premium above Enron's closing price of $8.63
Friday on the New York Stock Exchange (news - web sites) - but still just a
fraction of their 52-week high of $84.87. Dynegy's shares climbed $2.26, or
6 percent, to close at $38.76 on the NYSE.

In after hours trading on the NYSE, Enron shares shot up 15.6 percent, or
$1.35, to $9.98. Dynegy shares were unchanged.

Dynegy's stockholders will own approximately 64 percent of the new company,
with Enron's stockholders holding the remainder.

The boards of both companies have unanimously approved the transaction,
which is expected to close next summer. The deal is expected to save the
combined company between $400 and $500 million annually because of continued
elimination of ``non-core'' Enron holdings and lower operating costs. Watson
said it was too soon to say if the deal would result in job cuts. Enron has
about 20,000 employees, while Dynegy's work force is about 6,000.

Watson will remain as chairman and chief executive of the combined company,
which will retain the Dynegy Inc. name. Dynegy's Steve Bergstrom will
continue as president.

Enron chairman and chief executive Kenneth L. Lay will no longer have a role
in day-to-day management of the company, but has been offered a seat on the
combined company's board and will help shepherd the merger through.

Dynegy said that Greg Whalley, the current president and chief operating
officer of Enron, will become an executive vice president of the new Dynegy.
He said the merger sets the best course for Enron.

``Few of the options we considered for our core business going forward
provided us with the earning potential and immediate synergies that a merger
with Dynegy could deliver,'' Whalley said. ``Together with Enron's recently
announced bank commitments, this cash infusion gives Enron immediate
liquidity, which we believe will enable the company to maintain its
investment grade credit rating.''

The merger was announced a day after Enron acknowledged it overstated
earnings by about 20 percent over the past four years and kept large amounts
of debt off its balance sheets through business partnerships now under
investigation by the Securities and Exchange Commission (news - web sites).

Analysts said the merger rescues Enron, but leaves Dynegy in uncharted
territory - with the outcome of the SEC investigation completely unknown.
``There is still a shroud hanging over Enron that now moves over to
Dynegy,'' said Carol Coale, an analyst with Prudential Securities.

Early Friday, Moody's Investors Service downgraded Enron's debt ratings to
one level above junk bond status and said the company's long-term debt
ratings remain under review for further downgrade.

In an SEC filing, Enron said financial statements from 1997 through the
first half of 2001 ``should not be relied upon'' and that outside businesses
run by Enron officials during that period should have been included in the
company's earnings reports.

The revised statements reduced Enron's profits for those years by $586
million, from $2.89 billion to $2.31 billion. The revisions also increased
the company's debt each of the four years, reaching $10.86 billion - $628
million more than previously reported - by the end of 2000.

Keeping the debt off its balance sheets likely ensured Enron could maintain
a strong credit rating to support expansion of its core businesses -
wholesale trading of natural gas and electricity.

But the company's stock price started dropping 10 months ago when its
high-speed Internet unit foundered and Enron had trouble collecting money
from power customers in India.

The stock price began to free fall after Enron announced a $618 million
third quarter loss, and news of the SEC investigation surfaced.

Enron responded by firing its chief financial officer and scrambled to get
cash and increase credit lines in an attempt to regain investor confidence,
but investors dumped Enron shares and sent its stock plummeting.

The ousted chief financial officer, Andrew Fastow, ran some of the
partnerships under investigation by the SEC.

Jeff Skilling, Enron's former chief executive who left in August, has been
called to testify before the SEC, although it's unclear when.

-

On the Net:

http://www.enron.com

http://www.dynegy.com