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Enron Mail |
With growing revenue, a dominant position in major energy-trading markets and a depressed stock price, Enron Corp. would logically be prime takeover bait. But in the topsy-turvy world of Enron, what constitutes logic anymore? Takeover speculation has swirled around Wall Street and the energy markets in recent days as Enron shares have plummeted by about two-thirds to their lowest level in a decade, a selloff sparked by a loss of investor confidence in the Houston energy-trading company following big third-quarter write-downs and the disclosure of a Securities and Exchange Commission inquiry into transactions involving its former chief financial officer. Among the names bandied about as potential buyers of all or at least a substantial chunk of Enron are General Electric's GE Capital unit, Warren Buffett's Berkshire Hathaway and Royal Dutch/Shell. GE and Berkshire had no comment. A spokesman for Shell couldn't be reached. Meanwhile, Enron has approached at least one major institutional investor, seeking a capital infusion, according to a person familiar with the matter. But Enron was turned down because of uncertainties over its financial condition, this person says. While Enron shares, which are trading at about book value, look cheap by historical standards and even compared with two weeks ago, it isn't clear whether history is much guide when evaluating Enron these days, say analysts and others. Even fans of the stock have long complained about difficulty understanding how Enron operates because of its enormously complex financial structure and relatively sparse disclosure. For years while Enron's stock price was soaring, much of Wall Street didn't seem to care about such issues. Moody's Downgrades Enron's Debt, Maintains Review; Stock Drops 10% (Oct. 30) Enron Is in Discussions With Banks for Credit Line of up to $2 Billion (Oct. 29) Enron Taps $3 Billion From Bank Lines in Pre-Emptive Move to Ensure Liquidity (Oct. 26) Enron Replaces Fastow as Finance Chief; Move Follows Concerns Over Partnerships (Oct. 25) Now with Enron's stock dropping, that lack of understanding is haunting the company. "How bad could Enron get? That's really the question," says Prudential Securities analyst Carole Coale. Tuesday, Ms. Coale reduced her price target for Enron shares to $9 and maintained the "sell" recommendation she recently put on the stock. At 4 p.m. Tuesday in New York Stock Exchange composite trading, Enron shares were down $2.65, or 19%, to $11.16, down from nearly $85 a year ago. "When a business like this starts a down cycle, they've got to stop it and stabilize before anyone will be willing to have a really intelligent conversation with them," says Peter J. Solomon, head of Peter J. Solomon Co., an investment-banking boutique. An Enron spokesman says the company won't comment on takeover speculation; nor will it comment on whether it had approached potential investors about a possible capital infusion. However, the continued plunge in Enron shares and turmoil surrounding the company are a significant "overreaction in the marketplace. Our core businesses are strong," he says. The company has said that it is taking steps to restore investor confidence. For example, Enron is trying to negotiate a new credit line with its major banks. Late Tuesday, Enron's bankers were putting the final touches on a new credit line of more than $1 billion, according to people familiar with the discussions. Analysts and other observers say that one uncertainty surrounding Enron is the condition of its vast energy-trading operation. As the nation's biggest energy trader, Enron is a principal in one-quarter of all electricity and natural-gas trades. Enron's EnronOnline Internet-based trading platform has transacted more than $884 billion of trades since it was created in November 1999 and does about $4 billion a day in transactions. One worry is that Enron's trading partners, edgy about the turmoil swirling around the company, will start demanding much tougher credit terms from the Houston company or simply cut back doing business. Such a trend, if it picked up enough momentum, could have troubling consequences for Enron. "We are all in suspense. ... It all depends on how the market reacts," says Susan Abbott, a managing director at Moody's Investors Service. On Monday, Moody's downgraded Enron's long-term debt. There were some warning signs of unease among trading partners even before the company's third-quarter earnings release set the stage for the huge drop in the stock price. About six to seven weeks ago, Entergy Corp. became worried about its level of exposure in Enron-related deals, says Wayne Leonard, chairman and chief executive officer of the big New Orleans energy company. Since then, Entergy has cut its Enron exposure to about $10 million to $20 million from $90 million to $100 million, he says. Mr. Leonard didn't specify what prompted the worries, which appear to have arisen after the surprise August announcement by Jeffrey Skilling that he was resigning as Enron president and chief executive. Mr. Skilling cited personal reasons as well as his concerns over the falling stock price. While the Enron spokesman says the company doesn't comment on specific trading arrangements, he adds that Entergy is one of his company's smaller trading partners. He says major trading partners are doing business with Enron on "essentially the same terms and conditions" and that overall "our trading operations are as strong as ever." The company spokesman adds that a few smaller trading partners in Europe are seeking revised credit terms from Enron. "We are working to put together credit terms, which they are more comfortable with," says the spokesman, who declines to be more specific. In an effort to bolster its liquidity and position in the marketplace, Enron last week drew down some $3 billion, accounting for the bulk of its existing credit lines. While it used most of that money to buy its outstanding commercial paper, a short-term corporate IOU, the company retained about $1 billion of the borrowings as cash. A friendly takeover of all or part of Enron would be likelier than a hostile one. Among the most obvious candidates would be other companies with big trading operations and experience in risk management. Two possible deterrents to a would-be buyer: a flurry of recent shareholder lawsuits filed against Enron and the continuing SEC probe This message is for the designated recipient only and may contain privileged or confidential information. If you have received it in error, please notify the sender immediately and delete the original. Any other use of the email by you is prohibited.
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