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Enron Mail |
Deal May Be Cut More Than 40%=20
Dow Jones News Service, 11/27/2001 Dynegy Confirms Talks On Enron Deal Structure=20 Dow Jones News Service, 11/27/2001 Enron Fights To Find Near-Term Sellers, But Still Trading Dow Jones Energy Service, 11/27/2001 Joining The Deal Dance Dow Jones News Service, 11/27/2001 RPT Dynegy Confirms in Talks on Structure of Enron Merger Deal AFX News, 11/27/01 Enron Slightly Higher on Hopes for New Deal Price AFX News, 11/27/01 Hedge Funds Say Yes To New Enron Terms Dow Jones News Service, 11/27/01 Enron Credit Rating to Remain Unchanged for Today, Moody's Says Bloomberg, 11/27/01 Enron Turned Down by Investors Alwaleed, Blackstone, Carlyle Bloomberg, 11/27/01 Liberty Funds Analyst Paik Comments on Dynegy and Enron Talks Bloomberg, 11/27/01 A.G. Edwards Analyst Heim Comments on Dynegy and Enron Talks Bloomberg, 11/27/01 Commerzbank Analyst Meade Comments on Dynegy's Talks With Enron Bloomberg, 11/27/01 Enron Shares Recover from A.M. Slump CBS.MarketWatch.com, 11/27/01 Enron In Free Fall=20 Forbes.com, 11/27/2001 Merger Traders Wary Even If Enron, Dynegy Cut New Terms Dow Jones News Service, 11/27/2001=20 US Physical Gas Prices End Up On Short-Term Cold Dow Jones Energy Service, 11/27/2001 ___________________________________________________________________________= _________ Dynegy Confirms -3: Deal May Be Cut More Than 40% -WSJ 11/27/2001=20 Dow Jones News Service=20 (Copyright © 2001, Dow Jones & Company, Inc.)=20 Earlier Tuesday, a report in The Wall Street Journal quoted people familiar= with the matter who said Enron and Dynegy were in advanced discussions to = cut the price of the all-stock transaction by more than 40% to about $5 bil= lion. Sousa, the Dynegy spokesman, didn't comment on the newspaper report.= =20 Dynegy shares recently traded at $40, up 75 cents, or 1.9%, while Enron sha= res changed hands at $3.94, down 7 cents, or 1.7%.=20 Under the original terms of the transaction, Enron shareholders are to rece= ive 0.2685 of a Dynegy share, or $10.78, for each share outstanding, or abo= ut $9.14 billion, based on Dynegy's recent stock price.=20 According to the Journal report, the new terms could be below 0.15 of a Dyn= egy share.=20 The deal is critical for Enron, which also simultaneously carrying out talk= s to receive between $500 million to $1 billion in additional funding to su= pport its operations, while carrying on negotiations to restructure its deb= t, which totals about $13 billion.=20 While Dynegy has already provided Enron with a cash infusion, it is uncerta= in how long Enron's current funds will allow it to remain solvent.=20 Meanwhile, a third employee lawsuit has been filed against Enron over lost = 401(k) retirement savings due to the recent collapse of Enron's stock, whic= h has declined more than 90% in the trailing 12 months. The suit claims Enr= on "locked down" the plan, which prevented employees from being able to sel= l the shares, and seeks $850 million for plan losses.=20 Although the other recently filed employee suits didn't disclose the amount= of compensation the plaintiffs are seeking, it is possible the suits seek = a similar level of damages, a CreditSights report said.=20 If this is true, the CreditSights report said, it is possible the clause th= at allows Dynegy to walk away from the deal if the liabilities from "pendin= g"' or "threatened" litigation may exceed $3.5 billion may be invoked.=20 In addition, to the employee lawsuits, more than a dozen shareholder suits = have been filed against Enron.=20 -By Christina Cheddar, Dow Jones Newswires; 201-938-5166; christina.cheddar= @dowjones.com=20 Dynegy Confirms Talks On Enron Deal Structure - Source By Christina Cheddar 11/27/2001=20 Dow Jones News Service=20 (Copyright © 2001, Dow Jones & Company, Inc.)=20 NEW YORK -(Dow Jones)- Dynegy Inc. (DYN) confirmed the company is in talks = with a number of parties regarding the structure of its transaction with En= ron Corp. (ENE).=20 "I can confirm that we are in discussions with the parties involved in the = transaction related to the structure of the deal," said John Sousa. "I can'= t elaborate any further at this time."=20 An Enron official wasn't immediately to comment.=20 Enron Fights To Find Near-Term Sellers, But Still Trading By Mark Golden Of DOW JONES NEWSWIRES 11/27/2001 Dow Jones Energy Service (Copyright © 2001, Dow Jones & Company, Inc.) NEW YORK -(Dow Jones)- Enron Corp. (ENE) continued to struggle Tuesday to f= ind willing sellers of near-term gas and power in North America, but the on= e-time market maker was still able to trade on a limited basis, according t= o market sources.=20 "It's not getting any better," said one major energy broker. Many energy trading companies aren't selling to Enron and are only buying f= rom it near-term. These include Aquila Inc. (ILA), Mirant (MIR), Royal Dutc= h/Shell Group (RD) subsidiary Coral Energy, Sempra Energy (SRE), and Morgan= Stanley Dean Witter's energy trading subsidiary, said the broker. The brok= er estimated Enron's over-the-counter trading volume to be about 25% of wha= t it was a month ago. Companies are willing to buy from Enron in the spot g= as and power markets, because taking delivery on commodity and paying for i= t a month later poses no credit risk for the buyer.=20 Some other companies, like Dynegy Inc. (DYN), Duke Energy Corp. (DUK) and B= P PLC. (BP), continue to trade with Enron fairly freely, the broker said. D= ynegy has reached an agreement to acquire Enron, though the terms of that d= eal are being renegotiated. The trading subsidiaries of troubled California= utility-holding companies PG&E Corp. (PCG) and Edison International (EIX) = also are trading with Enron.=20 The third and largest group of companies are trading with Enron on a very l= imited basis to reduce exposure by taking off-setting trades against deals = done long ago. These include El Paso Corp. (EPG), Reliant Resources (RRI), = Tractebel SA's (B.TRB) U.S. trading unit and regulated utilities, the broke= r said.=20 Several energy traders said that both power and gas were being sold at pric= es lower than Enron was offering.=20 "They've been cut off from so many people," said one electricity trader.=20 Enron Says Just Slight Reduction In Transactions=20 An Enron spokesman said he has seen a slight reduction in transactions but = not to 25% of the one-month-ago level.=20 The notional value of Enron's 30-day rolling average of transactions is $2.= 8 billion, said Enron spokesman Eric Thode. Thode declined to give volume d= ata for Tuesday or Monday, although the company was giving daily informatio= n two weeks ago.=20 "We're not doing daily information. We're only speaking in terms of 30-day = rolling averages. ... It's not fair to speak in terms of daily because of d= aily volatility," Thode said.=20 Traders and brokers said they hope Dynegy will offer some kind of guarantee= to Enron's trading to restore confidence. But, after Enron's ability to tr= ansact took a severe turn for the worse Nov. 20, Dynegy said that the compa= nies must continue to operate independently until their merger is approved = and completed.=20 Energy companies began shying away from Enron over the past month, as conce= rns about its finances precipitated a 75% drop in its stock price and left = its bonds trading at levels typically associated with junk-rated debt.=20 But Enron saw its ability to trade seriously damaged last week following th= e late release of its quarterly financial report with the U.S. Securities E= xchange Commission. For the first time since Enron's troubles began a month= ago, energy companies stopped selling to Enron in the spot markets for fea= r that Enron might not be able to pay its bills as soon as next month based= on the quarterly filing.=20 Moody's Investors Service and Standard & Poor's all rate Enron one notch ab= ove speculative grade. Moody's has Enron's ratings on review for a downgrad= e, and S&P has Enron on negative credit watch. Fitch calls Enron's credit r= ating "evolving." Enron's ability to do business in the energy markets depe= nds on its maintaining investment-grade ratings.=20 -By Mark Golden, Dow Jones Newswires; 201-938-4604; mark.golden@dowjones.co= m=20 (John Edmiston in Houston and Jon Kamp in Chicago also contributed to this = article.) Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 SMARTMONEY.COM: Common Sense: Joining The Deal Dance By James B. Stewart 11/27/2001=20 Dow Jones News Service=20 (Copyright © 2001, Dow Jones & Company, Inc.)=20 Of SMARTMONEY.COM=20 =20 I KNOW IT'S been hard, but if you've been able to divert yourself from the = amazing news out of Afghanistan this past week, you may have noticed some i= mportant merger stories: trouble in the Compaq Computer (CPQ)- Hewlett-Pack= ard (HWP) deal, Dynegy's (DYN) bid for Enron (ENE), and, on Monday, the ann= ouncement of Phillips Petroleum's (P) proposed merger with Conoco (COC) to = create the world's sixth-largest oil company.=20 The Phillips-Conoco merger is an excellent example of what economists call = horizontal integration - the merger of two companies in the same business, = in this case, oil and gas. As an investor, I love these combinations, even = though as a citizen I'm often troubled by antitrust concerns. Investors who= engage in what's called merger arbitrage, or risk arbitrage, which gained = fame and notoriety in the 1980s, tend to sell stock in the acquiring compan= y, and buy the stock of the company being acquired. Though they're far less= conspicuous now, risk arbitrageurs play a prominent role in many hedge fun= ds. The strategy is appealing to many portfolio managers because returns ar= e determined less by overall movement in the market than by the circumstanc= es of particular deals. Successful risk-arbitrage hedge funds typically ear= n 12% to 20% a year in good markets and bad.=20 Individual investors can do some risk arbitrage of their own, simply by buy= ing stock in a company being acquired and hoping the deal goes through. Bec= ause of the risk that it won't (either because of regulatory hurdles or mar= ket reaction), these stocks usually trade at a discount to the acquisition = price. But few investors are willing to commit the time and resources to ke= ep up with every twist in these deals, let alone investing in enough of the= m to have a reasonably diversified portfolio. I know I don't.=20 Instead, for long-term investors I often recommend buying the stock of the = acquiring company. In this latest instance, that would be Phillips. In simi= lar circumstances, I have had good luck buying Exxon after it launched its = bid for Mobil to form Exxon Mobil (XOM), and Chevron after it acquired Texa= co to become ChevronTexaco (CVX). Their stocks were down on the news, but l= ater recovered handsomely as they began to benefit from cost-cutting and ec= onomies of scale, not to mention reduced competition. Even if the deal fail= s, you aren't stuck owning a stock that was bid up only because a deal was = announced. Honeywell (HON) investors will know only too well what I mean. I= still consider it outrageous that the European Community blocked General E= lectric's (GE) acquisition of Honeywell, but when the deal fell through, GE= investors were glad they had bought the acquiring company rather than the = target.=20 So far, the Phillips-Conoco deal is unusual in that both stocks rose slight= ly after the merger was announced, which suggests that other investors have= caught on to the same phenomenon I've noticed. But even without a built-in= merger premium, I'm enthusiastic about the energy sector. True, oil stocks= have dropped further since I last recommended them, before the calamitous = events of Sept. 11. With talk of an out-and-out price war breaking out and = dire predictions of $10-a-barrel oil, it's no wonder. But it's exactly when= prospects in the oil patch look their worst that it's the time to buy thes= e stocks. If there is indeed a global economic recovery next year, as seems= ever more likely, oil prices will rise. So I recommend Phillips both as a = merger play and as a timely investment in the energy sector.=20 Which brings me to Enron. I'm glad I warned readers away from this former h= ighflying natural-gas, pipeline and energy-trading concern, since its stock= continued to fall precipitously until the takeover bid emerged from Dynegy= . This isn't exactly a horizontal merger, since Dynegy isn't a big factor i= n energy trading, but it will combine the two companies' pipelines and natu= ral-gas holdings. The market reaction to this deal was very unusual, since = shares of Dynegy, the acquiring company, jumped 14% on the news. Enron move= d up just 7%. This is the opposite of what's supposed to happen, but then, = nothing about Enron has been typical. The market seems to be saying that it= likes the deal, but doubts it will go through, a prospect enhanced by the = large breakup fee Dynegy will enjoy if it's horrified by what it discovers = in Enron's still-mysterious books. Personally, I'm sitting this one out, bu= t there may be an arbitrage opportunity in Enron for risk-tolerant investor= s. If the deal goes through (and I think it will), Enron shareholders will = receive 0.2685 share of Dynegy for each share of Enron. That's worth over $= 11 a share at current prices, yet Enron closed Tuesday at just $7, down 23%= after a warning from the company that its falling credit ratings are start= ing to rattle its financial structure. So while Enron's position is becomin= g increasingly precarious, this deal could make for a nice return. And it's= still potentially a very good bet for Dynegy - one that will add to its na= tural-gas reserves and vault it into the front ranks of energy traders, ass= uming it can hold on to Enron's talented but now disgruntled employees. Fin= ally, there's the spectacle of the founding Hewlett and Packard families tu= rning against H-P's proposed acquisition of Compaq on the grounds that prop= osed economies of scale - read layoffs - run counter to the spirit of the c= ompany's founders, who treasured employee loyalty and apparently never fire= d anyone except for cause. The dissidents acknowledged that they have littl= e or no business and managerial experience themselves, although they are re= presented on H-P's board. Forgive me if I seem impatient with these benefic= iaries of extravagant wealth and trust funds, but this reasoning is absurd.= However much we might sympathize with their concern for employee well-bein= g, the directors of a modern corporation must balance employees' needs with= those of other constituencies, especially the shareholders. Otherwise, a c= ompany will suffer far more dire consequences, including bankruptcy or a fo= rced sale in which far more people will lose their jobs than in any merger-= related layoffs. I have already expressed my muted enthusiasm for the propo= sed H-P-Compaq merger. That the deal was even proposed is a sad commentary = on how far the fortunes of these once-great companies have fallen. That sai= d, the merger still makes sense, and it's far better for shareholders than = if the companies are forced to continue in their respective downward spiral= s. I owned both stocks until last week, when I sold my small position in Co= mpaq. I did this primarily to realize a tax loss (more on tax-loss selling = next week), but also because I wouldn't want to own it if the deal falls th= rough. I'm holding on to my larger position in H-P. I think the deal will b= e completed, despite the melodrama of family opposition. Eventually, I beli= eve both stocks will benefit, and patient investors might want to buy one o= r both companies on any weakness. -----------------------------------------= ----------------------------------- ---- Reasons for Thankfulness The stunn= ing success of the Northern Alliance and the American military mission in A= fghanistan has been an amazing story this past week. Who will soon forget t= he accounts of newly liberated Afghans digging up their TV sets, casting of= f their veils and celebrating their freedom from Taliban oppression? The im= plications of this success are profound, and in my view, extremely positive= . Economists are already scaling back their estimates for total cost of thi= s war. Oil prices are plunging. The effect is that of a significant tax cut= , and just when the economy needs it. The capture of Osama bin Laden seems = only a matter of time, which means the world may soon be a safer place. The= promise of greater stability in the Middle East has never seemed more tant= alizing.=20 Is it a paradox that as a calamitous 2001 nears an end, I feel more thankfu= l than I have in years filled with a far greater bounty of peace and prospe= rity? Perhaps not. I hope this Thanksgiving brings you hope, joy and gratit= ude for the many blessings that have been bestowed upon us, and that have s= urvived and even flourished in the wake of tragedy.=20 For more information and analysis of companies and mutual funds, visit Smar= tMoney.com at http://www.smartmoney.com/.=20 RPT Dynegy confirms in talks on structure of Enron merger deal 11/27/2001 AFX News © 2001 by AFP-Extel News Ltd (Repeating to clarify lead)=20 NEW YORK (AFX0 - Dynegy Inc confirmed it is in talks with Enron Corp on the= terms of their two week-old acquisition deal. "I can confirm that we are in discussions with the parties involved in the = transaction related to the structure of a deal," Dynegy spokesman Steve Ste= ngel said.=20 Enron declined to comment.=20 Citing people familiar with the matter, the Wall Street Journal reported to= day that Enron is in advanced talks with Dynegy to cut the price of the all= -stock transaction by more than 40 pct to about 5 bln usd.=20 Enron is also trying to extend the maturity dates of some of its borrowings= to stem a growing liquidity crisis, the Wall Street Journal said.=20 lwl/gc Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 STOCKWATCH Enron slightly higher on hopes for new deal price 11/27/2001 AFX News © 2001 by AFP-Extel News Ltd NEW YORK (AFX) - Shares of Enron Corp were slightly higher in midsession tr= ade on reports that the company is trying to renegotiate the terms of a dea= l with Dynegy Inc, by cutting the price of the all-stock transaction to 5 b= ln usd, or 40 pct, from 9 bln usd, dealers said.=20 At 12.19 pm, amid broad declines in the market, Enron shares were trading u= p 5 cents at 4.04 usd. Dynegy was up 1.26 usd, or 3.26 pct, at 40.51. The DJIA was down 111.48 points at 9,871.28. The S&P 500 was down 10.40 poi= nts at 1,147.02. The Nasdaq composite was down 20.25 points at 1,920.98.=20 Earlier, the Wall Street Journal said Enron was in advanced talks with Dyne= gy in an attempt to salvage their two week-old acquisition deal. The compan= ies are discussing a new price for the all-paper deal, following the sharp = fall in Enron's share price of the past few weeks.=20 Enron had hoped to finalise the deal and make an announcement yesterday tha= t would calm investors -- the shares are trading at a small fraction of the= ir record high last year of 87.50 usd.=20 As of today, however, the revised deal still has not been formalised.=20 The current agreement with Dynegy contains a "material adverse change" clau= se, which could be invoked to call the deal off.=20 As part of its due diligence, Dynegy is examining details of Enron's filing= with the Securities and Exchange Commission last week, which reportedly co= ntained information it had not received previously.=20 "Enron is a black hole, and I don't know how deep the bottom is," said Fade= l Gheit an analyst at Fahnestock & Co.=20 Only four weeks ago, Enron's stock was trading at the 8 usd mark, Gheit sai= d, noting that if the Dynegy had done their homework the stock would not ha= ve continued to collapse.=20 "The market sees this and somebody has to figure out the potential exposure= , it could be several billion dollars," said Gheit.=20 If the deal is to go through then the two companies must arrive at a new st= ock-exchange ratio, said Gheit. Under the current acquisition agreement, Dy= negy would exchange 0.2685 share for each Enron share tendered.=20 According to the Wall Street Journal, 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 usd a share, or about 5 bln usd.=20 blms/cl/gc opyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 IN THE MONEY: Hedge Funds Say Yes To New Enron Terms By Carol S. Remond 11/27/2001 Dow Jones News Service (Copyright © 2001, Dow Jones & Company, Inc.) A Dow Jones Newswires Column=20 NEW YORK -(Dow Jones)- News that Enron Corp. (ENE) and would-be suitor and = savior Dynegy Inc. (DYN) are working to renegotiate their merger agreement = has done little to assuage market jitters about Enron's fate. And so far, even professional arbitrageurs, who normally thrive on placing = bets on whether a merger is going to go through, continue for the most part= to stay clear of Enron's stock and bonds because of the uncertainty surrou= nding the once mighty energy trader.=20 Still, reports that the equity swap ratio offered by Dynegy could be revise= d down to below 0.15 from 0.2685, has some hedge funds, often willing to ta= ke more risks, looking to place trades on the deal.=20 "We're trying to figure out a good play," said a trader at a New York hedge= fund.=20 So far, bets under consideration seem to be those that would include a comb= ination of stock and debt trading, somehow hedging a short position on Enro= n's shares with a long position in some of its bonds.=20 "People that are playing the debt are definitely playing the stock against = it," a hedge fund manager at another fund said. This manager added, "We're = still trying to evaluate different risk/reward scenario on the debt and equ= ity sides."=20 Investors that sell stock short borrow shares in the hopes of replacing the= m later by purchasing them at a lower price.=20 Arbitrageurs typically sell short shares of the acquirer, while taking long= positions in the stock of the target company. But there is nothing typical= about Enron's financial woes and the rescue efforts launched by Dynegy and= large banks like J.P. Morgan Chase & Co. and Citigroup Inc.=20 Traders reported increased activity in the still mostly illiquid Enron debt= market. "Some bids are coming in, especially on the lower priced bonds," s= aid a trader at a large New York investment bank that makes a market in Enr= on's bonds.=20 Enron bonds, which had fallen in value in recent weeks, gained five to seve= n points early Tuesday as investors continue to await confirmation from Enr= on and Dynegy that their merger deal remains on track, albeit at a lower pr= ice. Enron's 6.4% bonds due 2004 were recently trading at about 55 cents on= the dollar, up from 48 cents Monday.=20 Under the original terms of the deal, Enron holders would have gotten 0.268= 5 of Dynegy shares for each of their Enron shares. Quoting people close to = the discussions, The Wall Street Journal reported Tuesday that the new rati= o is expected to be less than 0.15 share of Dynegy stock for every share of= Enron stock. That lower exchange was also mentioned in a Dow Jones Newswir= es story last Friday. At current prices a 0.15 exchange ratio would value E= nron at less than $6 a share.=20 Essentially this new value, if true, means that it has now become easier fo= r hedge funds and other risk takers to play the merger odds.=20 When a hedge fund shorting Enron stock at $4 a share risked losing more tha= n $6 if the merger went through at the 0.2685 ratio, it now stands to lose = only $2 a share (based on the $6 value of Enron stock under the new 0.15 ra= tio). At the same time it has become much easier to hedge that loss potenti= al by going long on Enron bonds. If the merger doesn't happen, Enron is see= n by many as heading for bankruptcy with an ultimate share value of 0. That= means that hedge funds shorting Enron at $4 stand to benefit by that amoun= t.=20 Hedge fund managers and traders said that current thinking puts the value o= f Enron bonds at about 20 cents on the dollar if the merger fails and about= 80 cents on the dollar if it goes through. Meanwhile, the value of Enron s= tock is capped at about $6 a share if the merger goes through with a new co= nversion ratio of 0.15.=20 "A lot of the guys are still very skeptical," said a bond trader at a New Y= ork bank. "But this is really making the hedge trade easier and we've seen = more customers short the stock and buy the bonds."=20 Still, this type of bets isn't for the faint of heart, and most investors a= re likely to wait for more news before taking a position.=20 "We're nibbling a little bit at the bonds right now. But the situation is s= o volatile that it's difficult to be aggressive," the manager of a large Ne= w York hedge fund said.=20 Carol S. Remond; 201-938-2074; Dow Jones Newswires=20 carol.remond@dowjones.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron Credit Rating to Remain Unchanged for Today, Moody's Says 2001-11-27 16:12 (New York) Enron Credit Rating to Remain Unchanged for Today, Moody's Says New York, Nov. 27 (Bloomberg) -- Enron Corp.'s credit rating will remain at ``Baa3,'' the lowest investment grade, by Moody's Investors Service, which said it won't take any ratings action today on the largest energy trading company. David Stimpson, Moody's managing director for ratings communication, said although there was speculation in the market that Moody's would make a ratings change, the company won't take any action on Enron today. Stimpson declined further comment. Moody's had been expected to make a statement on Enron's credit as bankers sought to raise as much as $2 billion for the energy trader in private equity. Bankers led by J.P. Morgan Chase & Co. Vice Chairman James B. Lee have been unable for two weeks to raise the money because of concern Enron won't be able to meet its obligations. That concern was heightened after Enron disclosed a $690 million payment due this week. Enron needs the money to operate as it completes an acquisition by Dynegy Inc. Enron Turned Down by Investors Alwaleed, Blackstone, Carlyle 2001-11-27 15:16 (New York) Enron Turned Down by Investors Alwaleed, Blackstone, Carlyle New York, Nov. 27 (Bloomberg) -- Enron Corp.'s bankers, seeking to raise as much as $2 billion for the energy trader, have been turned down by investors including Prince Alwaleed Bin Talal, the Carlyle Group Inc. and Blackstone Group LP. ``I was approached by several people to invest in the company, but we declined,'' said Alwaleed, a billionaire investor from Saudi Arabia. The fall in Enron's shares, which have declined 95 percent this year, didn't necessarily make it a good investment, he said. Bankers led by J.P. Morgan Chase & Co. Vice Chairman James B. Lee have been unable for two weeks to raise the money because of concern Enron won't be able to meet its obligations. That concern was heightened after Enron disclosed a $690 million payment due this week. Enron needs the money to operate as it completes an acquisition by Dynegy Inc. The prospect that Enron will fail to line up financing, jeopardizing its plan to be acquired by Dynegy, has weighed on its stock and bonds. The company's securities gained today as talks between Enron and Dynegy to renegotiate terms of the transaction convinced some investors the takeover was more likely to take place. Enron 6.4 percent bonds that mature in 2006, which closed yesterday at 48 cents on the dollar, rebounded to trade at about 55 cents on the dollar. At that price, the bonds yield 22.5 percent. Enron shares rose 21 cents, or 5 percent, to $4.22. The stock finished yesterday at $4.01, its lowest level in 14 years. Declining to Invest J.P. Morgan and Citigroup Inc., Enron's largest lenders, plan to provide $250 million to Enron each as part of a $2 billion package. The bankers have been seeking additional investments, which would be made in the form of convertible stock, for more than two weeks. Questor Management Co., a $1 billion private-equity fund that invests in troubled companies, and buyout funds such as Carlyle Group and Blackstone have balked at investing, said people familiar with the situation. Blackstone and Questor declined to comment. Christopher Ullman, a spokesman for Carlyle, said: ``We are not in discussions with Enron about financing.'' ``More equity would leave Enron with a stronger balance sheet, which should reassure their trading partners,'' said Kathleen Vuchetich, who helps manage $1.4 billion in assets at the Strong American Utilities Fund. Vuchetich has 4.2 percent of her portfolio invested in Dynegy shares. Enron and Dynegy discussed revising the terms of their merger over the weekend, said Steve Stengel, spokesman for Dynegy. Dynegy is now talking about paying less than 0.15 share for each of Enron's, valuing the company's equity at about $5 billion, or less than $6 per share, the Wall Street Journal reported, citing people close to the discussions. Terms ``The concern is that the Dynegy deal breaks down,'' said Paul Tice, co-head of U.S. high-grade credit research who covers the energy market for Deutsche Bank. Current terms call for an exchange ratio of 0.2685 share of Dynegy stock for each Enron share. Given recent disclosures about Enron's debt and the drop in the stock price, a fairer ratio would be 0.15 share of Dynegy, said Ronald Barone, a UBS Warburg analyst who rates Dynegy a ``strong buy.'' Under current terms, the deal makes sense for Dynegy only if Enron earns 85 cents or more next year, said Gordon Howald, an analyst at Credit Lyonnais who rates Dynegy a ``buy.'' UBS Warburg's Barone has reduced his estimate of Enron's 2002 earnings to 75 cents a share from $1.65. Enron needs an infusion in part because it has $9 billion of payments due before the end of 2002 and less than $2 billion in cash and credit lines. The decline in reserves has also raised the prospect that Moody's Investors Service may cut Enron's credit rating. A lower rating would trigger $3.9 billion in debt repayments for two affiliated partnerships. Cash Question ``The main question is: `What is the cash position right now?''' said Tice at Deutsche Bank. ``Is the falloff in the cash position of the company stabilizing or not?'' Moody's hasn't issued a report on Enron since the company filed a quarterly report with the Securities and Exchange Commission last week announcing it had a $690 million note due this week. On Wednesday, Enron got a three-week reprieve from lenders on the $690 million note and closed on a $450 million credit line. Dynegy Chief Executive Officer Chuck Watson said he was ``encouraged'' by the developments. Liberty Funds Analyst Paik Comments on Dynegy and Enron Talks 2001-11-27 11:56 (New York) Boston, Nov. 27 (Bloomberg) -- Edward Paik, an analyst at Liberty Funds Group, comments on Dynegy Inc.'s proposed $23 billion acquisition of Enron Corp., the largest energy trader. Paik has Enron shares among the $3.6 billion in assets he helps manage at Liberty. Dynegy may renegotiate terms of its bid for Enron, people familiar with talks between the Houston-based companies said yesterday. ``The stock market is clearly 100 percent certain the Dynegy deal won't go through as negotiated,'' Paik said. ``We're just waiting.'' ``If they announce they've renegotiated the deal, it will be implicit that due diligence has been done, and that Dynegy won't walk away for anything that's happened up until now. If they were to impose more conditions, what good is that? Dynegy needs to resuscitate Enron back to health.'' A.G. Edwards Analyst Heim Comments on Dynegy and Enron Talks 2001-11-27 11:00 (New York) St. Louis, Missouri, Nov. 27 (Bloomberg) -- A.G. Edwards & Sons Inc. analyst Michael Heim comments on Dynegy Inc.'s proposed $23 billion buyout of Enron Corp., the largest energy trader. Dynegy may renegotiate terms of its bid for Enron, people familiar with talks between the Houston-based companies said yesterday. Heim rates Enron ``sell'' and Dynegy ``hold'' and doesn't own shares of either company. The market is waiting for confirmation and details of a renegotiated bid, Heim said. ``We'd need to know why they'd agreed to a new price,'' Heim said. ``It also needs to be combined with some sort of shoring up of Enron's trading business, which needs to be stabilized for the deal to have real value.'' Commerzbank Analyst Meade Comments on Dynegy's Talks With Enron 2001-11-27 10:42 (New York) New York, Nov. 27 (Bloomberg) -- Commerzbank Securities analyst Andre Meade comments on Dynegy Inc.'s proposed $23 billion buyout of Enron Corp., the largest energy trader. Dynegy may renegotiate terms of its bid for Enron, people familiar with talks between the Houston-based companies said yesterday. Meade rates both companies ``hold'' and owns no shares. ``If they are renegotiating, it confirms our fears that Enron's crown jewel, its marketing and trading business, is deteriorating,'' Investors are waiting for a sign on the state of the business, Meade said. Enron's trading business was worth more than $10 billion before partners began shunning it on credit concerns, Meade said. A lower price struck by Dynegy may reveal how much business has fallen, and whether Dynegy believes Enron can regain it, Meade said. A New York Times report that banks may extend payments on some loans until after Dynegy purchases Enron ``raises concern that Dynegy will be hurt by taking on the vast liabilities of Enron,'' Meade said. ENRON SHARES RECOVER FROM A.M. SLUMP By Lisa Sanders CBS.MarketWatch.com 4:10 PM ET Nov 27, 2001 HOUSTON (CBS.MW) -- Shares of Enron recovered from the morning's sub-$4 a share level Tuesday amid reports that the embattled energy merchant is working with Dynegy to renegotiate its takeover offer. Enron (ENE), which once hit $84.88 during the last holiday season, added 13 cents to close at $4.14 on volume of 68.4 million shares. The stock was the most actively traded on the New York Stock Exchange Tuesday. Dynegy shares added $1.64 to close at $40.89. The New York Times reported that Houston-based Dynegy (DYN) and Enron are renegotiating Dynegy's bid, once valued at $9 billion in stock. According to the report, Dynegy is worried that Enron's core business -- energy trading -- is deteriorating. See full story. Getting it done ______________________________________________________________________ Glen Hilton, portfolio manager of the Montgomery New Power Fund, said it's a "crapshoot" as to whether the deal gets done. "I think that regardless of the outcome Dynegy is still in a good position for the long-term," he said. His fund liquidated its Enron holdings completely in mid to late-October. "Enron was the leader (in energy trading), and it's clearly suffering so Dynegy is in a good shot to take up the mantle." Hilton pointed to Enron's 10-Q, filed last Monday with the Securities and Exchange Commission, and the falling share price as potential triggers of the deal's material adverse affect clause. Those two things could very well make Dynegy walk away from the merger. If that happens, Hilton said, an Enron bankruptcy is a very real possibility. "Very few companies understand what Enron does and Dynegy is one of the few that could make something out of it," Hilton said. "If Dynegy can restore confidence in Enron's trading business and get Northern Natural Gas, it looks like it might be worth the headache." Dynegy has the rights to Enron's Northern Natural Gas, a pipeline system, whether the merger goes through or not. Enron wasn't immediately available for comment. Dynegy, through a company spokesman, confirmed that it was in discussions with "the parties involved in the transaction" related to the structure of the deal. Top Of The News=20 Enron In Free Fall=20 Dan Ackman <javascript:newWindow('Ackman')<, Forbes.com <http://www.forbes.= com/news<, 11.27.01, 9:00 AM ET=20 NEW YORK - If not for Sept. 11, Enron would be a major scandal; as it stand= s, it's a minor scandal. The Houston-based energy company, whose Chairman K= enneth Lay is a personal friend of and top fundraiser for President George = W. Bush and Vice President Dick Cheney, is in free fall. The bailout by riv= al Dynegy made public three weeks ago appears to be unraveling.=20 Dynegy's buyout of Enron was originally valued at $9 billion. But just as t= he deal was announced, Enron said its prior financial reporting was inaccur= ate and that it had overstated earnings by $586 million over the past four = years.=20 While the companies have not said the merger is off, investors don't believ= e it will happen, at least not at the stated price; they have bid Enron sha= res down to the point where the company has a market value of less than $3 = billion. The shares closed yesterday at $4.01, down from $78 a year ago.=20 The situation is in flux, as it has been for months. During that time, seve= ral top Enron executives have been forced to resign. Jeffrey Skilling, Enro= n's former chief executive officer, left in August for "personal reasons."= =20 Company officials said they hope to announce, perhaps as early as today, a = series of changes: a lower price for the takeover; a cash infusion of $500 = million; new, extended loan terms by Enron's bankers; and somehow, an agree= ment that prevents Dynegy from walking away in the face of litigation over = Enron's devastated employee-retirement plan. Lawsuits by shareholders are s= ure to follow, considering Enron's restatement and the pay it lavished on e= xecutives, including Lay who received $135 million from salary, bonus and t= he exercise of stock options in 2000 alone.=20 For now, Dynegy says it still wants to do a deal for its crosstown rival wi= th 2000 revenue of $101 billion.=20 Even more alarming than the deterioration in the share price is the crisis = of confidence in Enron's reliability as a trading partner in worldwide ener= gy markets. Last year, Enron was the dominant player in natural gas and ele= ctricity trading--a fast-paced, complex business quite removed from the com= pany's history as a gas- and oil-pipeline builder and operator. The fear no= w is that other companies will refuse to trade with Enron out of trepidatio= n that it will file for bankruptcy and not pay its bills.=20 The company had $10.5 billion in debt as of its last annual report, and tha= t number has likely grown by 20%. Already, credit agencies have cut their r= atings on Enron debt.=20 Dynegy and its partner, ChevronTexaco may pump billions of dollars into Enr= on's operations if the purchase goes through. But the deal will certainly u= ndergo regulatory scrutiny and will take months to close. Investors and ene= rgy traders are increasingly doubtful that Enron can hang on by itself.=20 Enron bills itself as one of the world's leading energy, commodities and se= rvices companies. It says it "markets electricity and natural gas, delivers= energy and other physical commodities, and provides financial and risk man= agement services to customers around the world." While all this may be true= , its popularity with investors was based largely on its fast-growing reven= ue--much like the Internet companies whose collapse it mirrors.=20 Few shareholders had any understanding of what Enron did to generate that r= evenue, and indeed Enron's own auditors at Arthur Andersen were confused. M= ost of the revenue was generated from trading, but the company's shares sol= d as if it was still an industrial company and not a financial firm.=20 Enron was famous for being famous. Before the start of the 2000 baseball se= ason, it purchased the rights to have its name on Houston's new ballpark. B= y 2002, Enron Field may need a new name.=20 The name Enron itself sounds like it has something to do with energy, but i= t means nothing. At the time the company was formed from the merger of Inte= rNorth of Omaha and Houston Natural Gas, the idea was to call the company E= nteron. But the namers then looked in the dictionary and found out that Ent= eron means "intestines;" they decided to drop the "te" in the middle and go= with Enron. Soon Enron may be part of Dynegy, a much smaller company in te= rms of revenue. If the deal falls apart, it may want to go back to Enteron. Merger Traders Wary Even If Enron, Dynegy Cut New Terms By Christina Cheddar 11/27/2001=20 Dow Jones News Service=20 (Copyright © 2001, Dow Jones & Company, Inc.)=20 NEW YORK -(Dow Jones)- Even if Dynegy Inc. (DYN) revises the terms of its a= cquisition of Enron Corp. (ENE), some takeover traders say the stock remain= s too risky.=20 Earlier Tuesday, a Dynegy spokesman confirmed the company was in talks to r= estructure the Enron acquisition. Separately, a person familiar with the ne= gotiations said the talks are centered on creating a package that includes = a lower exchange ratio for Enron shareholders, a provision for additional f= unding for Enron, and the refinancing of Enron's existing debt.=20 Even with the boost Enron shares have received from the reports, they conti= nue to trade at a sharp discount to the original deal's value. Enron shares= recently traded at $4.30, up 29 cents, or 7.2%, while Dynegy shares change= d hands at $41.50, up $2.25, or 5.8%.=20 Under the original terms of the deal, Enron shareholders will receive 0.268= 5 of a Dynegy for each share outstanding, or $9.47 billion. At current trad= ing levels, Enron shares are at a 61% discount to the offer price.=20 According to The Wall Street Journal, Dynegy and Enron are contemplating an= exchange ratio of less than 0.15 of a Dynegy share, or about $5.29 billion= .=20 The rejiggered deal is an attempt to restore confidence in Enron's ability = to carry on its core energy marketing and trading business as the deal move= s toward completion, the person said.=20 As the market waits for more details from the two companies, some say it wi= ll take more than a revised offer to provide takeover traders, also known a= s arbitrageurs, with enough confidence to play the deal in the typical fash= ion.=20 Often arbitrageurs bet on pending mergers by selling short shares of the ac= quiring company and buying shares of the target. In this way, the traders h= ope to profit as the target's share price moves toward the buyer's offer.= =20 But according to some traders, there is too much risk, even for those accus= tomed to uncertainty, to play the Dynegy-Enron deal in this way.=20 Several traders said they were still wary that the deal could collapse and = potentially push Enron into bankruptcy.=20 Enron's fortunes took a sharp turn for the worst after investors began to r= ealize the company liberally used accounting loopholes to move its debts in= to off-balance-sheet financing vehicles, including partnerships run by its = former chief financial officer, Andrew Fastow.=20 "There's nothing like accounting to scare people," said one trader, who sai= d there is still a perception in the market that there is more bad news yet= to come from Enron.=20 -By Christina Cheddar, Dow Jones Newswires; 201-938-5166; christina.cheddar= @dowjones.com=20 US Physical Gas Prices End Up On Short-Term Cold 11/27/2001=20 Dow Jones Energy Service=20 (Copyright © 2001, Dow Jones & Company, Inc.)=20 HOUSTON (Dow Jones))--U.S. natural gas physical prices rose Tuesday, booste= d by short-term cold weather pushing into the Midcontinent and Texas, trade= rs said.=20 But little of that colder air - or demand - reached the Northeast and East = Coast, traders said.=20 "The Texas market was the big driver," said one Gulf Coast trader. "The Dal= las market was buying." He said Waha gas in the Western Texas hub was tradi= ng at a premium to the benchmark Henry Hub.=20 Gas was being turned back in the Northeast and East Coast and "Texas was bu= rning it," he said. The cold is expected to last into the weekend, he said.= =20 Traders said the physical gas-futures spread of nearly $1 per million Briti= sh thermal units below the New York Mercantile Exchange's December futures = contract seen on Monday eased slightly to about 70 cents, but traders still= look for sustained cold in December to bring prices back to par.=20 Traders still pointed to some constrictions in eastern U.S. pipelines. Pric= ing was "all over the place" in wide variances, a trader who works New York= pipelines said.=20 In the West, prices also strengthened on the cooler temperatures, traders s= aid.=20 Traders also avoided doing physical gas deals with Enron Corp., whose merge= r with Dynegy Inc. was reportedly being renegotiated. In the meantime, seve= ral traders said Enron's gas bids and offers were well above pricing seen o= n other boards, and were "out of the market."=20 December goes off the board Wednesday. It settled at $2.606 per million Bri= tish thermal units, down 9.0 cents.=20 At the benchmark Henry Hub in south Louisiana, traders paid $1.72-$2.09/MMB= tu, unchanged on the bid, up 19 cents on the offer. First-of-month November= index is $3.16/MMBtu, traders said.=20 Deals at Transcontinental Gas Pipe Line Station No. 65 were done in a $1.68= -$2.02/MMBtu range, down 4 cents on the bid, up 14 cents on the offer. Nove= mber first-of-month index is $3.19/MMBtu, a trader said.=20 At the Arizona-California Border, where gas from El Paso's pipeline begins = delivery to Southern California lines, buyers paid $2.35-$2.62/MMBtu, up 12= cents-32 cents. November first-of-month index is $2.95/MMBtu.=20 At the Katy hub in East Texas, buyers paid $2.11-$2.40/MMBtu, up 33 cents-3= 5 cents. November index is $3.01/MMBtu. Houston Ship Channel rose 30 cents-= 33 cents to $2.17-$2.39/MMBtu. Index is $3.12/MMBtu.=20 At Waha in West Texas, buyers paid $2.17-$2.45/MMBtu, up 25 cents-29 cents.= November index is $2.86/MMBtu.=20 -By John Edmiston, Dow Jones Newswires; 713-547-9209; john.edmiston@dowjone= s.com=20
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