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Enron Mail |
A full list of articles will be sent on Monday, but here is some initial co=
verage from yesterday and today... IN THE MONEY: Enron - From Energy Trader To Spinmeister By Carol S. Remond 11/23/2001 Dow Jones News Service=20 (Copyright © 2001, Dow Jones & Company, Inc.)=20 A Dow Jones Newswires Column=20 (This column was originally published Wednesday.)=20 NEW YORK -(Dow Jones)- With the value of its stock continuing to plummet, E= nron Corp. (ENE) tried to put on a good face Wednesday by issuing a press r= elease touting, among other things, increased liquidity. The problem is that most of the so-called news was three days old, recycled= from the company's latest quarterly filing.=20 And investors weren't fooled by the release. Although the stock of the emba= ttled Houston energy trader regained some ground immediately after the rele= ase, climbing to $5.35 a share from $4.60, it quickly gave up most of its g= ains. One hour after the release, Enron stock was back trading at $4.98 a s= hare, down more than 28% on the day.=20 "They had to say something, but really didn't have any new news. It's quite= incredible," said a Wall Street analyst covering Enron.=20 Amid mounting fears that Enron's credit woes could thwart its plan to merge= with rival Dynegy Inc. (DYN), a merger that many see as the only way for E= nron to avoid possible bankruptcy, Enron began its press release by announc= ing that "it has closed on the remaining $450 million of a previously annou= nced $1 billion in secured credit lines..."=20 Great news, given the way Enron has been burning through cash. Except that = investors who took time to read Enron's filing with the Securities and Exch= ange Commission on Monday already knew that "on November 19, 2001, Enron cl= osed a $450 million new secured line of credit, which will mature in the fo= urth quarter of 2002." Readers of the company's 10-Q also knew that the $45= 0 million credit was secured by the assets of Enron's Northern Natural Gas = Co.=20 Meanwhile, the real news everyone was waiting for, an announcement about wh= ether a $690 million loan due next Tuesday had been extended, has yet to be= finalized.=20 Enron said in its release that it expected that an extension to mid-Decembe= r would be formalized soon.=20 Separately, people familiar with the matter said J.P. Morgan Chase & Co. an= d Citigroup Inc. continue to work with Enron to extend the maturity of the = syndicated loan, which contains a clause that, unbeknownst to many, was tri= ggered by Enron's ratings downgrade to "BBB-" by Standard & Poor's Corp. ea= rlier this month. The clause stipulated that Enron would have to repay the = $690 million note on November 27 if it didn't post collateral.=20 Those people said that the syndicated loan, which is built inside a structu= red vehicle used to finance minority interests in power and energy sectors = around the world, would likely be extended to the middle of 2002 when other= bank loans to Enron come due. About $1.75 billion of Enron's $3.5 billion = in syndicated bank loans come due in May 2002 and will likely need to be re= structured.=20 About $250 million of the assets securing the $690 million loan are in the = process of being sold and will be used to pay down the loan, reducing the o= utstanding portion of the loan that will need to be restructured, according= to the people familiar with the terms.=20 Meanwhile, Dynegy also tried to rally, although somewhat halfheartedly, inv= estors around its plan to acquire Enron's stock. Dynegy said it was encoura= ged by reports that Enron closed on its remaining $450 million credit facil= ity and news of the extension of the $690 million loan. Under the terms of = the acquisition, Enron holders would receive 0.2685 Dynegy share for each E= nron share.=20 Investors, however, remain more circumspect, unmoved by the whopping 104% r= isk premium currently attached to the merger. (That's how much investors bu= ying Enron shares would make if the deal was closing Wednesday.)=20 Aside from continued worries about how much bad news may still come, analys= ts and traders appear particularly concerned with Enron's liquidity, or lac= k thereof, going forward.=20 "We're having a hard time believing that this new credit infusion (from the= banks), even with the $1.5 billion from Dynegy, will provide enough liquid= ity for Enron," one risk arbitrageur at a New York hedge fund said.=20 As part of the merger agreement between Dynegy and Enron, Chevron Texaco, w= hich owns 26% of Dynegy, already injected $1.5 billion into Enron. Another = $1 billion is expected upon closing of the deal.=20 Carol S. Remond, Dow Jones Newswires; 201-938-2074; carol.remond@dowjones.c= om ...........................................................................= ..........................................................=20 USA: Houston economy seen weathering major layoffs. By Ellen Chang 11/23/2001 Reuters English News Service=20 (C) Reuters Limited 2001.=20 HOUSTON, Nov 23 (Reuters) - Houston's economy, buffered by a broad and dive= rse tax base, should be able to weather thousands of layoffs from some of t= he city's major corporations, including energy powerhouse Enron Corp., econ= omists and analysts said.=20 Financially ailing Enron Corp. , which has 21,000 employees worldwide and i= s in talks to be bought by Houston-based rival Dynegy Inc. , is the third m= ajor employer in the city to announce severe financial problems in recent m= onths. Analysts expect layoffs if the merger occurs. Continental announced a layoff of 3,000 employees after the Sept. 11 attack= s and Hewlett-Packard Co.'s plan to buy Compaq Computer Corp. will, if fina= lized, result in 15,000 layoffs at the two companies. Compaq also announced= 8,000 layoffs worldwide in July.=20 "It's fair to say that the potential layoffs at Enron and the layoffs at Co= ntinental, taken alone, are negative factors, although probably small in th= e grand scope of the Houston economy," said Phil Scheps, director of Housto= n's finance and administration department.=20 Since last month when Enron became a target of a Securities and Exchange Co= mmission investigation into financial dealings with partnerships, the energ= y giant's market share has steadily eroded.=20 While neither Enron nor Dynegy have given any indication of the number of l= ayoffs that could hit Houston, Barton Smith, director of the Institute for = Regional Forecasting at the University of Houston, said the layoffs "will b= e spread out over a long period of time and will not be excessive."=20 Robin Kapiloff, an analyst at Moody's Investors Service, said the city's ef= forts to diversify its economy over the past decade will protect its revenu= e collections, even as some of the city's biggest employers suffer. "We're = watching to see where things go now," she said.=20 Alex Fraser, a director at Standard & Poor's, said the ratings agency isn't= concerned about Houston's credit position at this point. "While Enron is c= ertainly a large player and prominent corporation, we're unclear on what th= e impact would be."=20 While the fourth largest city in the country experienced a bit of a slowdow= n since the Sept. 11 attacks, Houston has outperformed the rest of the nati= on.=20 With a tax base of $87.3 billion in 2001, Houston is also buffered by the T= exas Medical Center, the city's largest employer. Next year the city's tax = base is estimated to grow to $95 billion.=20 Still, the national recession, energy price weakness in general, and the in= itial loss of consumer confidence related to the attacks has caused the cit= y to reduce its estimate of sales tax growth to 1.5 percent from 5 percent.= That revised estimate equals a $13 million reduction in the city's $1.4 bi= llion budget.=20 But the city's property tax revenue has not been affected. Only a small cha= nge in property tax collections is expected in 2002 because valuations are = based on Jan. 1 data and for most of 2001, real estate growth was very larg= e, Scheps said.=20 While recent economic indicators appear positive, and consumer confidence h= as quickly rebounded, a better read on the strength of Houston's tax revenu= e collections will be available in February when the city receives data for= the December holiday season, Scheps said. ...........................................................................= ..........................................................=20 Meeting in Singapore to discuss Enron's arbitration proceedings against Ind= ian state 11/23/2001 Associated Press Newswires=20 Copyright 2001. The Associated Press. All Rights Reserved.=20 NEW DELHI, India (AP) - A panel of arbitrators will meet in Singapore on Sa= turday to discuss legal action by Enron Corp. against the western Indian st= ate of Maharashtra, an Enron official said.=20 The Houston-based company has a 65 percent stake in the Dabhol Power Projec= t in western India, and is locked in a dispute with the Maharashtra State E= lectricity Board over unpaid electricity charges. The Singapore meeting is likely to be followed by arbitration in a London c= ourt, Dow Jones Newswires reported, quoting an unidentified Enron official = on Friday.=20 The company suspended operation of the power plant in May and now plans to = withdraw from India.=20 Enron has invested about dlrs 1 billion in equity of the 2,184 megawatt of = power project, the largest ever foreign investment in India.=20 Enron sold electricity produced from naphtha to its sole customer, the gove= rnment-owned power utility in Maharashtra, which found the costs too high.= =20 The company also served notice to the federal government for not honoring a= contract that required the government it to cover the Maharashtra state po= wer utility's unpaid dues.=20 Earlier this year, Enron's chairman Kenneth Lay wrote to Indian Prime Minis= ter Atal Bihari Vajpayee threatening to sue the government for up to dlrs 5= billion if it did not resolve the dispute.=20 Dabhol Power Co. initiated arbitration against the state government for not= honoring guarantees on power bills due for December 2000 and January, this= year.=20 The panel, which has been appointed by the Dabhol Power Company and the Mah= arashtra state government, includes an independent observer.=20 (dj-rkm, ng-kh) ...........................................................................= ..........................................................=20 Enron SEC filing contained information Dynegy was unaware of - report 11/23/2001 AFX News=20 © 2001 by AFP-Extel News Ltd=20 NEW YORK (AFX) - Monday's SEC filing by Enron's Corp contained information = that proposed buyer Dynegy Inc had not known about, the Wall Street Journal= quoted a person familiar with the merger plans as saying.=20 Dynegy representatives plan to work through the weekend evaluating the impo= rtance of this new information as part of the company's due diligence on En= ron, the source said, without specifying what the new information was.=20 In the filing, Enron disclosed hundreds of millions of dollars of potential= additional write-offs as well as the possibility that its weakening financ= ial condition could force it to repay more than 2 bln usd in loans by the e= nd of the year. Dynegy announced Wednesday that it is working to accelerate regulatory appr= ovals required to complete the acquisition in accordance with the previousl= y announced agreement.=20 The Journal quoted analysts as saying Dynegy is coming under increasing pre= ssure to renegotiate or walk away from the deal.=20 It also cited Fitch director Ralph Pellecchia as saying that, without the D= ynegy acquisition and continued support from its bankers and customers, an = Enron bankruptcy-court filing "is highly possible".=20 jms For more information and to contact AFX: www.afxnews.com and www.afxpre= ss.com ...........................................................................= ..........................................................=20 Dynegy's Decision to Buy Enron Hits Crossroads Amid Rising Financial Woes 11/23/2001 Dow Jones Business News=20 (Copyright © 2001, Dow Jones & Company, Inc.)=20 Even as it reiterated its intention to purchase Enron Corp., Dynegy Inc. is= coming under increasing pressure to renegotiate or walk away from the mult= ibillion-dollar deal, Friday's Wall Street Journal reported.=20 The pressure is stemming from the continuing slide in the price of Enron (E= NE) shares and the mounting financial problems at the Houston energy-tradin= g company, the nation's biggest marketer of electricity and natural gas. Du= ring the past month, Enron has taken a $1 billion write-off of assets, revi= sed downward the earnings of the past several years and taken a $1.2 billio= n reduction in shareholder equity. The problems have been due largely to dealings Enron had with private partn= erships, run by some of its own executives, under investigation by the Secu= rities and Exchange Commission. In an SEC filing Monday, Enron disclosed hu= ndreds of millions of potential additional write-offs as well as the possib= ility that its weakening financial condition could force it to repay more t= han $2 billion in loans by the end of the year.=20 As of 4 p.m. Wednesday in New York Stock Exchange composite trading, Enron = shares fell $1.98, or 28%, to $5.01 each after having dropped 23% Tuesday. = In excess of 115 million shares traded Wednesday, more than four times the = volume of any other Big Board stock. Enron's bonds also again traded sharpl= y lower, market observers said.=20 The turmoil spilled over to Dynegy's stock, which also was among the most a= ctively traded on the New York Stock Exchange. As of 4 p.m. Wednesday, Dyne= gy (DYN) shares fell $1.94 to $39.76 each.=20 On Wednesday, Dynegy issued a statement in which Chairman and Chief Executi= ve Chuck Watson said his company was working "to accelerate the regulatory = approvals required to complete the merger in accordance with the previously= announced agreement" though it continued to perform "due diligence" on Enr= on.=20 Under the merger agreement, Dynegy has opportunities to renegotiate or walk= away from the deal if Enron's financial and legal problems become severe e= nough. However, some observers said it can be difficult to invoke these so-= called material adverse change clauses. They point to a decision earlier th= is year by a Delaware Chancery Court judge who forced Tyson Foods Inc. to c= omplete a planned purchase of IBP Inc. even though Tyson, a Springdale, Ark= ., food-products company, had wanted to cancel the transaction because of a= drop in IBP's earnings and accounting problems at an IBP unit.=20 Dynegy officials didn't return calls seeking comment. To complete the deal,= two-thirds of Dynegy shareholders and a majority of Enron shareholders wou= ld have to give their approval. No dates for those votes have been set.=20 One person familiar with the merger plans said the SEC filing Monday by Enr= on contained information Dynegy hadn't known about. Dynegy representatives = planned to work through the weekend evaluating the importance of this new i= nformation as part of the company's due diligence, this person said. It cou= ldn't be determined what the new information was.=20 The merger agreement, announced Nov. 9, calls for Dynegy to exchange 0.2685= share for each of Enron's roughly 850 million fully diluted shares, giving= the purchase a value of about $9 billion at Dynegy's current stock price. = However, from a price standpoint, the deal is appearing less attractive to = Dynegy.=20 On the day of the merger announcement, Enron shares were trading at about $= 8.63 each, or about 83% of the purchase price under the exchange ratio. As = of Wednesday, Enron's market price was only about 47% of the merger-formula= price. Such a sharp deterioration is unusual following a merger announceme= nt, when the stock price of the company being acquired generally begins tra= ding relatively close to the offering price.=20 Sentiment among Wall Street analysts also is turning against the merger. In= itially, many analysts lauded the merger as a move that would rescue Enron = and provide a major boost to Houston-based Dynegy. Dynegy and Enron officia= ls have predicted that the merger, supposed to be completed late next year,= would significantly and immediately increase Dynegy's earnings.=20 Now analysts are challenging that assumption. Ron Barone, managing director= at UBS Warburg LLC, said he believes that because of Enron's financial pro= blems, a combined company would actually have lower earnings next year than= Dynegy would have by itself. Mr. Barone said he thinks a "likely scenario"= is that the merger formula will be renegotiated sharply down to about 0.15= Dynegy share for each Enron share.=20 Copyright © 2001 Dow Jones & Company, Inc.=20 All Rights Reserved. ...........................................................................= ..........................................................=20 Financial Post Investing Enron casts pall on analysts: 'Everyone had a buy on the stock' all the way= down Steve Maich Financial Post, with files from news services 11/23/2001 National Post=20 National IN1 / Front © National Post 2001. All Rights Reserved.=20 For thousands of people burned by Enron Corp.'s spectacular implosion, it m= ust have been tough to feel thankful yesterday.=20 Over the past month, the Houston-based company has admitted its earnings re= ports going back four years are useless, written down billions in worthless= investments, and fired its chief financial officer in a failed bid to shor= e up its plunging stock. The slide in Enron's stock (ENE/NYSE) has already wiped out US$67-billion i= n shareholder wealth. Now it may lose its last lifeline, a US$7.93-billion = takeover offer from Dynegy Inc.=20 Enron's fall is proving to be more than just a cautionary tale about sketch= y accounting. The case is raising serious questions about the responsibilit= y of analysts who strongly recommended a stock that many now admit they nev= er really understood.=20 "The public isn't going to trust stock analysts for awhile," said Scott Pre= ston, a San Francisco-based analyst with Research Capital Corp. who does no= t cover Enron. "Every analyst had a buy on the stock. And it's not like the= re was only one little issue there. It's a mess and big brokerages were com= ing out as it was on the way down saying put this thing in your Grandmother= 's [RRSP]."=20 But Wall Street's embarrassment pales next to the pain of shareholders, inc= luding Enron employees whose pensions were loaded with the stock.=20 "I have lost my savings, my plans for the future, everything," Roy Rinard, = a long-time Enron staffer, said this week as he announced that employees ha= ve banded together for a class-action lawsuit against the company.=20 Several analysts have acknowledged that Enron's financial statements were r= outinely incomprehensible. But with brokerages vying for the millions of do= llars in equity and bond underwriting business Enron provided every year, m= any analysts chose to focus on the company's growth, and failed to ask toug= h questions about its books.=20 Critics say the red flags were waving long ago.=20 The first clear sign of trouble came Aug. 14, when Jeffrey Skilling quit th= e CEO job he took over just seven months earlier, citing personal reasons. = Former chief executive Kenneth Lay reclaimed the job. "Our business is stro= ng and our growth prospects have never been better," Mr. Lay said at the ti= me.=20 In fact, cracks were already appearing in the business. Enron's plan to sta= rt trading capacity on fibre optic networks was a costly failure, and the c= ompany was locked in a prolonged dispute with the Indian government over en= ergy purchases in the region.=20 In October, Enron surprised investors by reporting its first quarterly loss= in more than four years, due in large part to the writedown of US$1-billio= n in bad investments. Within a week, the U.S. Securities and Exchange Commi= ssion started investigating Enron's finances.=20 The company soon admitted major accounting errors dating back to 1997. Its = profits had been overstated by US$586-million, or 20%. The company revealed= that some of the investments it had written off were limited partnerships = headed by CFO Andrew Fastow -- a serious breach of good corporate governanc= e. Mr. Fastow was fired, but it didn't stop Enron's descent.=20 The pain may be far from over.=20 Facing a year of regulatory hearings to approve the merger, and a rapidly d= evaluing asset in Enron, many fear Dynegy will walk away from the deal. If = that happens, Enron may be doomed.=20 The stock closed Wednesday at US$5.01, down 93% this year. Dynegy closed at= US$39.76, valuing the Enron offer at US$10.67 a share. The fact that Enron= 's stock is trading so far below the offer price is a sure sign that invest= ors doubt it will proceed, at least not at the current offer price.=20 All this has left investors wondering how so many could have been so wrong,= about so much. And how can so many continue to endorse the stock?=20 Of the 18 analysts that cover the stock, 10 still rate it a "buy." Goldman = Sachs analyst David Fleisher removed Enron from his recommended list this w= eek, but only after his firm was excluded from the banking syndicate arrang= ing the Dynegy deal.=20 Carol Coale, an analyst at Prudential Securities, dropped Enron from "buy" = to "sell" this week, citing its long history of spotty disclosure, and ofte= n evasive answers to questions. She acknowledged to clients that her downgr= ade is "too little, too late" for many. ...........................................................................= ..........................................................=20 Financial Post: World Enron looking for US$1.5B boost to balance sheet: Expects cash from buyout = firms, private equity investors Robert Clow Financial Times 11/23/2001 National Post=20 National FP12 © National Post 2001. All Rights Reserved.=20 NEW YORK - Officials working to shore up Enron Corp.'s balance sheet said y= esterday the struggling energy trader hoped to receive capital injections o= f more than US$1.5-billion as early as next week.=20 Enron is in talks about investments of US$250-million with JP Morgan Chase = and Citigroup and is also hoping to raise at least US$1-billion from privat= e equity investors. People close to Enron declined to comment on which buyout firms might wish = to invest in Enron, but the Blackstone Group, which was reported to be talk= ing to the company before Dynegy Inc. made its US$9-billion rescue bid, is = understood not to be talking to Enron any longer.=20 Members of the 20-strong bank lending group, led by JP Morgan Chase and Cit= igroup, are being asked to defer the maturities of their upcoming debt unti= l after completion of the merger.=20 The move comes as reports from Goldman Sachs & Co. and Fitch, the credit ra= ting agency, raised questions about the company's cash flow and its medium-= term viability.=20 David Fleischer, a Goldman Sachs analyst, argued that cash balances were in= adequate to meet US$2.8-billion of debt obligations falling due before the = end of the year. People close to Enron say that nearly US$1-billion of that= debt has already been restructured.=20 The Fitch report said that if the Dynegy deal was not completed Enron would= struggle to meet US$9-billion of obligations, due before the end of next y= ear.=20 People close to Enron insisted Dynegy remained committed to the merger and = played down talk of renegotiation.=20 Dynegy would shortly issue a statement reasserting its commitment to the de= al, they predicted.=20 But bankers acknowledged the fate of the Dynegy deal was largely irrelevant= in terms of the company's immediate liquidity problems.=20 The company has raised about US$7-billion in cash, enough to cover its oper= ating costs since a US$1.2-billion writedown of shareholder equity plunged = it into crisis on Oct. 16.=20 However, the company's cash flow is being squeezed. The computer screens in= front of energy traders at Enron's London headquarters still glow, even if= they are doing much less business following the U.S. group's financial woe= s.=20 The Belgravia offices house Europe's biggest electricity trader, which acco= unts for about a fifth of all European power contracts, worth roughly (ps)7= 0-billion ($158-billion) last year in British, Nordic and other European ma= rkets.=20 Fears over Enron's credit rating have prompted a sharp fall in its European= electricity trading. Nonetheless, some companies that had previously withd= rawn from buying and selling power with Enron have resumed trading with it = in the short-term market.=20 Few want to risk trading further than a week or two ahead, however, given c= ontinuing doubts over the company's finances. ...........................................................................= ..........................................................=20 Report on Business: The Wall Street Journal WHAT'S NEWS United States Wall Street Journal 11/23/2001 The Globe and Mail=20 Metro B9 "All material Copyright © Bell Globemedia Publishing Inc. and its licenso= rs. All rights reserved."=20 Two Enron Corp. workers are suing the company, claiming it endangered their= retirement funds. The lawsuit, filed in Houston under the Employee Retirem= ent Income Security Act, alleges that Enron encouraged the employees to inv= est more heavily in company stock just before the stock tanked. The lawsuit= was filed by Portland, Ore., utility lineman Roy Rinard and co-worker, Ste= ve Lacey. Enron shares have plunged more than 90 per cent over the past sev= eral months after an accounting controversy that eventually caused it to re= state its earnings since 1997, eliminating more than $580-million (U.S.) of= reported income. ...........................................................................= ..........................................................=20 COMPANIES & FINANCE THE AMERICAS - Enron 'awaiting' capital injections, say= officials. By ROBERT CLOW. 11/23/2001 Financial Times=20 © 2001 Financial Times Limited . All Rights Reserved=20 Officials working to shore up Enron's balance sheet yesterday said the stru= ggling energy trader hoped to receive capital injections of more than $1.5b= n as early as next week.=20 Enron is in talks about $250m investments with JP Morgan Chase and Citigrou= p and is also hoping to raise at least $1bn from private equity investors. People close to Enron declined to comment on which buyout firms might wish = to invest in Enron. However, the Blackstone Group, which was reported to be= talking to the company before Dynegy made its $9bn rescue bid, is understo= od no longer to be doing so.=20 Members of the 20-strong bank lending group, led by JP Morgan Chase and Cit= igroup, are being asked to defer the maturities of their upcoming debt unti= l after the completion of the merger.=20 The moves comes as reports from Goldman Sachs and Fitch, the credit rating = agency, raised questions about the company's cash flow and its medium-term = viability.=20 David Fleischer, a Goldman Sachs analyst, argued that cash balances were in= adequate to meet $2.8bn of debt obligations falling due before the end of t= he year.=20 People close to Enron say that nearly $1bn of that debt has already been re= structured.=20 The Fitch report said that if the Dynegy deal was not completed, Enron woul= d struggle to meet $9bn of obligations due before the end of next year.=20 People close to Enron insisted that Dynegy remained committed to the merger= and played down talk of renegotiation.=20 Dynegy would shortly issue a statement reasserting its commitment to the de= al, they predicted.=20 © Copyright Financial Times Ltd. All rights reserved.=20 http://www.ft.com. ...........................................................................= ..........................................................=20 Dynegy's Bid for Enron Appears Less Appealing --- Merger Deal Loses Luster = as Shares Tumble --- Acquisition Target Faces Numerous Earnings Problems By Rebecca Smith and John R. Emshwiller Staff Reporters 11/23/2001 The Wall Street Journal Europe=20 4 (Copyright © 2001, Dow Jones & Company, Inc.)=20 Even as it reiterated its intention to purchase Enron Corp., Dynegy Inc. is= coming under increasing pressure to renegotiate or walk away from the mult= i-billion-dollar deal.=20 The pressure is coming from the continuing slide in the price of Enron shar= es and the mounting financial problems at the Houston energy-trading compan= y, the biggest marketer of electricity and natural gas in the U.S. In the p= ast month, Enron has taken a $1 billion (1.1 billion euros) write-off of as= sets, restated downward the past several years of earnings and taken a $1.2= billion reduction in shareholder equity. The problems owe largely to deali= ngs Enron had with private partnerships run by some of its own executives n= ow under investigation by the U.S. Securities and Exchange Commission. In d= ocuments filed with the SEC on Monday, Enron disclosed hundreds of millions= of potential additional write-offs as well as the possibility that its wea= kening financial condition could force it to repay more than $2 billion in = loans by the end of the year. On the New York Stock Exchange Wednesday, Enron shares were down 28% at $5.= 01 each, after having dropped some 23% on Tuesday. There was no trading Thu= rsday. More than 115 million shares changed hands Wednesday, more than four= times the volume of any other Big Board stock. Enron's bonds also fell, tr= aders said.=20 The turmoil spilled over to Dynegy's shares, which were also among the most= actively traded on the New York Stock Exchange. Dynegy shares were at $39.= 76 each on Wednesday, down $1.94.=20 Dynegy Chairman and Chief Executive Chuck Watson said his company was worki= ng "to accelerate the regulatory approvals required to complete the merger = in accordance with the previously announced agreement" though it continued = doing due diligence review on Enron. Under the merger agreement, Dynegy has= opportunities to renegotiate or walk away from the deal if Enron's financi= al and legal problems become severe enough.=20 Dynegy officials didn't return calls seeking comment. To consummate the dea= l, two-thirds of Dynegy shareholders and a majority of Enron shareholders w= ould have to give their approval. No dates for those votes have been set.= =20 The merger agreement, announced Nov. 9, calls for Dynegy to exchange 0.2685= of its shares for each of Enron's roughly 850 million fully diluted shares= , giving the purchase a value of about $9 billion at Dynegy's current stock= price.=20 However, from a price point of view, the deal is looking ever less attracti= ve to Dynegy.=20 On the day of the merger announcement, Enron shares were trading at about $= 8.63 a share, or about 83% of the purchase price under the exchange ratio. = As of Wednesday, Enron's market price was only about 47% of the merger-form= ula price.=20 Such a sharp deterioration is unusual following a merger announcement, when= the stock price of the company being acquired generally begins trading rel= atively close to the offering price.=20 Sentiment among Wall Street analysts is also turning against the merger. In= itially, many analysts lauded the merger as a move that would rescue Enron = and provide a major boost to Dynegy. Dynegy and Enron executives have predi= cted that the merger, which is supposed to be completed late next year, wou= ld significantly and immediately increase Dynegy's earnings.=20 Now analysts are challenging that assumption. Ron Barone, managing director= at UBS Warburg LLC, said that because of Enron's financial problems a comb= ined company would actually have lower earnings next year than Dynegy would= have by itself. Mr. Barone said a "likely scenario" is that the merger for= mula will be renegotiated sharply lower to about 0.15 Dynegy shares for eac= h Enron share.=20 Such a move wouldn't be without precedent. According to a person familiar w= ith the merger negotiations, Dynegy reduced the exchange formula at least o= nce prior to the Nov. 9 announcement because of Enron's rapidly sinking sto= ck price, which at the beginning of this year was above $80 a share.=20 In perhaps the most significant sign of the turning tide on Wall Street, Go= ldman Sachs analyst David Fleischer lowered his ratings on Enron and Dynegy= . A longtime Enron fan, Mr. Fleischer issued a report expressing doubts tha= t the merger would help Dynegy's earnings and whether Enron could "recover = the significant business that has been lost" in its energy trading operatio= ns. "The Enron machine continues to sputter," wrote Mr. Fleischer.=20 Some observers say that if Dynegy walked away from the deal or tried to sig= nificantly renegotiate the terms, Enron might be pushed into bankruptcy. Wi= thout the Dynegy acquisition and continued support from its bankers and cus= tomers, an Enron request for bankruptcy protection from creditors "is highl= y possible," said Ralph Pellecchia, a senior director at Fitch, a credit-ra= tings agency. On Wednesday, Fitch maintained its credit rating on Enron at = just one notch above noninvestment grade, or "junk" status. But Fitch also = said that Enron's trading partners had made "significant cash collateral ca= lls" in recent days that are "well in excess of previous expectations," con= tributing to liquidity pressures.=20 Among the advisers Enron has hired during its current crisis is the law fir= m of Weil, Gotshal & Manges, which has a specialty in bankruptcy and corpor= ate restructuring. One energy trader said Wednesday that some colleagues ha= d even started a betting pool about the timing of a possible Enron bankrupt= cy filing. But he quickly added that he had no knowledge that the company h= as contemplated such a step.=20 Asked about a possible bankruptcy filing, an Enron spokeswoman said the com= pany expects the Dynegy deal to go through and therefore doesn't expect to = have to look at alternatives to the merger. Since the merger announcement, = Enron Chairman Kenneth Lay has said that his company had alternatives to th= e Dynegy deal, but he has declined to identify them.=20 ---=20 Thaddeus Herrick in Houston contributed to this article. ...........................................................................= ..........................................................=20 Enron Europe carries on trading. By ANDREW TAYLOR, UTILITIES CORRESPONDENT. 11/23/2001 Financial Times - FT.com=20 © 2001 Financial Times Limited . All Rights Reserved=20 The screens in front of energy traders at Enron's London headquarters are s= till glowing, even if they are doing much less business following the US gr= oup's financial woes.=20 The Belgravia offices house Europe's biggest electricity trader, which acco= unts for about a fifth of all European power contracts, worth roughly GBP70= bn ($99bn) last year in UK, Nordic and other European markets. Fears over Enron's credit rating have prompted a sharp fall in its European= electricity trading. Nonetheless, some companies which had previously with= drawn from buying and selling power with Enron have resumed trading with it= in the short-term market.=20 Few want to risk trading further than a week or two ahead, however, given c= ontinuing doubts over the company's finances. Whether Enron can survive dep= ends on the commitment of Dynegy, the rival US energy group, to its $9bn re= scue takeover announced two weeks ago.=20 John Sherriff, president and chief executive of Enron Europe, was anxious o= n Thursday to show that it was still "business as usual" for his energy tra= ders.=20 He estimates they are transacting about 70 per cent of the number of contra= cts they would normally expect, but only about 40 per cent by volume. Rival= traders believe volumes may have fallen much further.=20 Contracts ranging from a day ahead to many years hence are used as a hedge = to protect generators and retailers from risks of sudden price changes.=20 As financial instruments they are traded many times over. As a result, the = total value of the transactions is much higher than the cost of the actual = electricity delivered. However, the transactions play an increasingly impor= tant role in oiling competitive electricity markets.=20 Rival European power companies and traders are anxious that Enron should no= t fail.=20 Brian Senior, director of trading and asset management at Innogy, the UK ar= m of the demerged National Power, said recent transactions had shown there = was sufficient liquidity in European markets to cope if Enron disappeared.= =20 Traders were more concerned that Enron might not be able to honour existing= long-term contracts. "This could have a domino effect, putting pressure on= other companies," said Mr Senior.=20 US power companies failed in similar circumstances after the Ohio-based Fed= eral Energy defaulted on power contracts in 1998, he said.=20 Martin Stanley, president of European energy trading for TXU, another large= US energy group, said: "We are watching the situation carefully and would = want to do nothing to add to Enron's problems by making unhelpful comments = about their current position."=20 Mr Sherriff said: "Counter-parties are generally being very supportive."=20 Innogy said it had resumed limited trading with the US group but was "watch= ing the situation carefully". TXU said: "We are still trading with Enron in= the short-term market but less than we were."=20 The Nordic market is one of the most active for power trading. US groups su= ch as Enron, TXU and Dynegy have helped to expand the UK market, while Enro= n has a strong base in Germany.=20 © Copyright Financial Times Group.=20 http://www.ft.com. ...........................................................................= ..........................................................=20 What's News Business and Finance Business and Finance 11/23/2001 The Wall Street Journal=20 A1 (Copyright © 2001, Dow Jones & Company, Inc.)=20 DYNEGY IS COMING under increasing pressure to renegotiate or walk away from= its deal to acquire Enron, due to the slide in the price of Enron shares a= nd the mounting financial problems at the energy-trading company. Separatel= y, Enron has been sued by members of its employee-retirement plan, which ha= s suffered losses because of Enron's plunging stock price. In trading Wedne= sday, Enron shares tumbled 28% to $5.01.=20 --- The economy could be declared officially in recession as early as today. Th= e move comes amid signs that the recession already may be bottoming out, wi= th initial jobless claims declining.=20 ---=20 Norway offered to cut its oil production, becoming the latest independent e= xporter to succumb to OPEC's wishes in an effort to prop up world oil price= s.=20 ---=20 WMC rejected a $6 billion takeover bid from Alcoa. The Australian mining co= mpany said it plans to spin off part of the firm in hopes of fetching a hig= her price.=20 ---=20 Retail Brand is set to buy Brooks Brothers from Marks & Spencer for about $= 225 million, less than a third of what the U.K. firm paid in 1988 for the m= en's retailer.=20 ---=20 The FDA approved Lilly's drug Xigris to treat septic infections, a medicine= Wall Street believes could produce sales of more than $1 billion annually.= =20 ---=20 Argentina extended by one week a deadline for institutional investors to te= nder their holdings in a giant debt swap.=20 ---=20 UFJ and Sumitomo Mitsui announced a combined $24 billion in write-offs, as = investors pressure Japanese banks to purge their balance sheets of bad loan= s.=20 ---=20 Archer-Daniels, Cargill and Riceland agreed to sell about $25 million of fa= rm goods to Cuba, the first commercial food deal by the U.S. and Havana in = 40 years.=20 ---=20 Microsoft's general counsel said he plans to retire at the end of the fisca= l year. William Neukom will be succeeded by Brad Smith, deputy general coun= sel.=20 ---=20 Goldman Sachs could slash as many as 1,000 jobs due to the Wall Street slum= p, a Merrill Lynch analyst said.=20 ---=20 CIBC agreed to pay at least $297.8 million to acquire Merrill's Canadian br= okerage and asset-management operations.=20 ---=20 NTT reported a $2.13 billion loss for its fiscal first half, due to the Jap= anese company's losses on overseas investments and domestic restructuring c= osts.=20 ---=20 South Korea's economy grew by 1.8% in the third quarter, showing a surprisi= ng resilience during the global slump.=20 ---=20 CSX tentatively settled litigation from a 1987 chemical-car fire that had l= ed to an initial $2.5 billion judgment against the firm.=20 ---=20 Markets --=20 Stocks: NYSE vol. 1,021,074,890 shares, Nasdaq vol. 1,556,321,162. Dow Jone= s industrials 9834.68, off 66.70; Nasdaq 1875.05, off 5.46; S&P 500 index 1= 137.03, off 5.63.=20 Bonds:(2pm) 10-yr Treas off 25/32, yld 4.954%; 30-yr Treas off 21/32, yld 5= .351%.=20 Commodities: Oil futures $18.96 a barrel, off $0.19; Dow Jones-AIG futures = index 89.862, off 0.069; DJ spot index 96.62, up 0.42.=20 Dollar: 123.08 yen, up 0.56; 2.2246 marks, up 0.0092; euro 87.92 cents, off= 0.37. ...........................................................................= ..........................................................=20 Enron Faces Suits by 401(k) Plan Participants By Theo Francis and Ellen Schultz Staff Reporters of The Wall Street Journal 11/23/2001 The Wall Street Journal=20 C1 (Copyright © 2001, Dow Jones & Company, Inc.)=20 Enron Corp., the embattled Houston energy and trading company, has been sue= d by members of its employee-retirement plan, which has suffered losses bec= ause of Enron's plummeting stock price.=20 Two separate lawsuits, filed in federal court in Houston, allege Enron misl= ed participants in its 401(k) retirement plan about the risks of investing = in the company's shares and note that the company forced the employees to r= emain invested in its stock even as the shares fell. Amid growing disclosur= es of financial problems in recent weeks, the company "locked down" the ret= irement plan from Oct. 17 to Nov. 19 to make administrative changes, which = prevented employees from selling Enron shares as the share price collapsed. Enron, which recently agreed to be acquired by Dynegy Inc., Houston, becaus= e of mounting financial problems, has seen its stock price fall to $5.01 on= Wednesday from a peak of nearly $90 a share last year. The decline has bee= n costly to participants in Enron's retirement plan because more than 60% o= f the 401(k) assets were invested in Enron shares at the end of last year, = according to one of the suits.=20 The first suit was filed Nov. 13 on behalf of plan participants by Campbell= Harrison & Wright LLP, a Houston law firm, and the second was filed Tuesda= y by Seattle-based Hagens Berman LLP. Both seek class-action certification.= =20 Enron said its corporate policy is not to comment on pending lawsuits. A sp= okeswoman also said the company's 401(k) plan offers participants 18 invest= ment choices, one of which is company stock.=20 The company's stock has fallen amid mounting losses and disclosures that it= had extensive off-balance-sheet dealings with a web of partnerships headed= by former company officials. The Securities and Exchange Commission has la= unched a formal investigation into the company's accounting, and Enron has = said it will restate years of financial information.=20 The suits against Enron are the latest of a series of suits filed against c= ompanies over losses in the company-stock portion of their 401(k) plans. Th= e suits allege the plan trustees breached their fiduciary duties by continu= ing to offer company stock, even after they became aware of serious busines= s problems that would hurt the stock price. All the suits are pending.=20 As with most of these companies, Enron matches employee contributions to th= e 401(k) with shares of Enron stock, and also offers Enron stock as an inve= stment choice, in addition to a variety of mutual funds. About $1.3 billion= of the plan's $2.1 billion in assets was invested in Enron shares at the e= nd of 2000, according to the suit filed by Campbell Harrison.=20 Pamela Tittle, a participant in the 401(k) plan who worked in the finance d= epartment and a named plaintiff in the Enron suit filed by Campbell Harriso= n & Wright, had roughly 2,000 shares of Enron stock in her retirement accou= nt and has suffered losses of about $140,000 as a result of the stock's dec= line. The suit alleges that the trustees of the Enron 401(k) plan violated = their fiduciary duties by not informing plan participants that the company = stock was in peril.=20 The suit filed by Hagens Berman, also alleges that the company failed to wa= rn participants about risks of remaining invested in Enron stock. In additi= on, it accuses Enron of systematically misrepresenting its financial result= s since 1998 in connection with the partnerships under investigation by the= SEC.=20 Roy E. Rinard, a lineman for Enron in Oregon who is a named plaintiff in th= e suit filed by Hagens Berman, has seen the value of his retirement plan fa= ll to $70,000 from $470,000, largely as a result of the decline in Enron's = stock. "I feel like I have been betrayed," Mr. Rinard said in press release= issued by his lawyers. "I lost my savings, my plans for the future, everyt= hing."=20 Under federal pension law, companies are allowed to offer their own stock i= n retirement plans, and are allowed to force employees to hold onto the sto= ck. Enron doesn't let employees diversify out of shares they receive as mat= ching contributions to the 401(k) plan until age 50.=20 However, plan trustees are supposed to operate the plan in the best interes= ts of the participants, which includes choosing prudent investments. Genera= lly, to prove that the plan's administrators breached their fiduciary dutie= s, employees must show that the trustees knew the stock was a bad investmen= t. This presents a high hurdle, so it is not surprising that prior lawsuits= over losses in company stock in 401(k) plans have generally come in the wa= ke of allegations of accounting irregularities.=20 Lynn Sarko, one of Ms. Tittle's attorneys with Seattle's Keller Rohrback LL= P, is also co-lead counsel in a similar lawsuit against Lucent Technologies= Inc., Murray Hill, N.J. Another firm representing Ms. Tittle is Dalton Got= to Samson & Kilgard PLC, which is lead counsel in a similar suit against Ik= on Office Solutions Inc., Malvern, Pa. The two law firms are representing M= s. Tittle with Campbell Harrison & Wright.=20 The suits against Lucent and Ikon, like the suit against Enron, allege that= then-current plan trustees kept offering company stock in the plan despite= knowing of serious business problems that would hurt the stock price. Repr= esentatives for Ikon and Lucent say their companies didn't require employee= s to invest in the company stock, and educated employees about the need for= diversification.=20 The suit in which Mr. Rinard is plaintiff notes that on Oct. 17, a day afte= r Enron announced the company was taking a nonrecurring charge totaling $1.= 01 billion in the third quarter, Enron "locked down" the 401(k) plan's asse= ts, preventing participants from selling Enron shares. (A "lock-down" occur= s when a retirement plan is transferred from one administrator to another, = and generally lasts several weeks, during which time participants can't mak= e changes in their investment choices).=20 The lock-down was lifted on Nov. 19. In the interim, on Nov. 8, Enron annou= nced it would be forced to restate downward its reported financial results = from 1997 through 2000. By the time the lock-down was lifted, as a result o= f all the negative news the shares had fallen to below $9 a share from $32.= 20 on Oct. 17, when the lockup started, Hagens Berman attorney Karl Barth s= aid.=20 "They were locked into it right when Enron knew it was going to be announci= ng some really bad news," Mr. Barth said. "Mr. Rinard's looking at having n= o retirement savings now. It's a horrible thing to have to start over in yo= ur 50s." ...........................................................................= ..........................................................=20 Enron says sorry as shares keep falling. 11/23/2001 Energy Compass=20 © 2001 Energy Intelligence Group. All rights reserved=20 Investors in Enron must be wondering when their luck will change. The compa= ny's shares were sent tumbling again this week after the company revealed t= hat its credit crunch was worse than many investors thought. The news spurr= ed talk that rival energy trader Dynegy may have to inject more cash under = its plan to buy Enron - or could even walk away from the deal.=20 In a quarterly filing with the Securities and Exchange Commission, Enron sa= id it must pay down a $690 million note by Nov. 27 because of the recent do= wngrade of its credit rating. Unless Enron repays the note or posts a lette= r of credit, the unidentified creditor can start liquidating Enron assets. = These include CEG Rio, a gas distribution company in Brazil that Enron is a= lready in the process of selling to pay down other debt. At the market close on Tuesday, Enron shares stood at $6.99/share, about 39= % below Dynegy's bid price of $11.60/share, and a fraction of the $90.75 pe= ak reached in August 2000 when the company was in its asset-light pomp.=20 At least Enron is trying to say sorry - sort of. In a conference call with = analysts and investors last week, chairman and chief executive Kenneth Lay = indicated regret for the series of bad investments in non-core businesses t= hat has nearly bankrupted the big energy trading company. "In hindsight, we= made some very bad investments in some non-core businesses," Lay acknowled= ged. "I could not have ever contemplated the events we as a company and you= as a stakeholder have faced over the last several weeks. This has resulted= in a complete loss of investor confidence."=20 And, via the Dynegy deal, a complete loss of Enron independence, although e= ven that is not cut and dried. If Enron fails to settle the $690 million de= bt repayment next week, its credit rating would likely be reduced to sub-in= vestment or "junk" status. And if that happened, it would qualify as a "mat= erial adverse change," allowing Dynegy to pull out of the merger if it want= ed to. Analysts doubt things will get this bad, still giving the deal a 70-= 90% chance of going through. ...........................................................................= ..........................................................=20 Business/Financial Desk; Section C From Sunbeam to Enron, Andersen's Reputation Suffers By FLOYD NORRIS 11/23/2001 The New York Times=20 Page 1, Column 2 c. 2001 New York Times Company=20 THIS has been the worst year ever for Arthur Andersen, the accounting firm = that once deserved the title of conscience of the industry. The Securities = and Exchange Commission filed civil fraud complaints against the Andersen p= artner who audited Sunbeam and against the firm itself in the Waste Managem= ent case.=20 Now Enron has repudiated the financial statements that were certified by Ar= thur Andersen, in the process shaving more than half a billion dollars from= the company's reported profits in recent years. All of which raises the question: Has Arthur Andersen become the black shee= p of the accounting industry?=20 It is not an easy question to answer, and not everyone is willing to rush t= o judgment. ''If you want to attack Andersen for Enron, you need to know mo= re than we know,'' Arthur Levitt, the former chairman of the Securities and= Exchange Commission, said this week.=20 But if there is a thread connecting what is known about the three cases, it= is materiality. In all three cases, Andersen auditors spotted bad accounti= ng but were persuaded it was immaterial and therefore allowed it to go ahea= d.=20 Materiality is one of those flexible concepts that can get accountants into= trouble. The idea is that it doesn't much matter if a few little things we= re gotten wrong. But they can add up.=20 At Enron, however, they did not add up to that much -- a total of $93 milli= on over four years. The biggest restatement of Enron profits concerns a rel= ated party that Enron now says should have been consolidated. It is not cle= ar if Andersen had the facts needed to make that decision at the time.=20 To those who treasure the role of auditors, the humiliation of Andersen is = painful. Back in the 1950's, it was Leonard Spacek, Andersen's managing par= tner, who warned that ''the profession's existence is in peril'' because it= was not showing enough independence. His public prodding was crucial in ma= king the industry do a better job. Two decades ago, when the issue on the t= able was pension accounting, Andersen was the only major accounting firm to= break with clients and push for good rules.=20 Now Andersen's backbone is open to question. It was evidence that senior pe= ople at Andersen repeatedly gave in to pressure from Waste Management that = led the S.E.C. to bring that suit, which the firm chose to settle without a= dmitting it had done anything wrong. The partner that the S.E.C. says looke= d the other way at Sunbeam is fighting the accusations, and Andersen says h= e acted properly.=20 Lynn Turner, who was chief accountant of the S.E.C. at the time and is now = director of the Center for Quality Financial Reporting at Colorado State Un= iversity, says what is happening to Andersen now is reminiscent of what hap= pened to Coopers & Lybrand when he was a partner there and the firm had a s= eries of highly publicized blown audits.=20 ''We got bludgeoned to death in the press,'' he said. ''People did not even= want to see us at their doorsteps. It was brutal, but we deserved it. We h= ad gotten into this mentality in the firm of making business judgment calls= .'' By that he meant that the firm paid too much attention to not offending= clients and not enough to good accounting.=20 For Andersen to avoid that fate, its relatively new chief executive, Joseph= Berardino, who declined to be interviewed for this column, will need to se= t a tone inside the firm making clear that he expects auditors to show the = backbone that Mr. Spacek epitomized. And then he will have to convince the = public of that. ...........................................................................= ..........................................................=20 Dynegy Deal To Buy Enron Hits Crossroads By Rebecca Smith and John R. Emshwiller Staff Reporters of The Wall Street Journal 11/23/2001 The Wall Street Journal=20 A3 (Copyright © 2001, Dow Jones & Company, Inc.)=20 Even as it reiterated its intention to purchase Enron Corp., Dynegy Inc. is= coming under increasing pressure to renegotiate or walk away from the mult= ibillion-dollar deal.=20 The pressure is stemming from the continuing slide in the price of Enron sh= ares and the mounting financial problems at the Houston energy-trading comp= any, the nation's biggest marketer of electricity and natural gas. During t= he past month, Enron has taken a $1 billion write-off of assets, revised do= wnward the earnings of the past several years and taken a $1.2 billion redu= ction in shareholder equity. The problems have been due largely to dealings Enron had with private partn= erships, run by some of its own executives, under investigation by the Secu= rities and Exchange Commission. In an SEC filing Monday, Enron disclosed hu= ndreds of millions of potential additional write-offs as well as the possib= ility that its weakening financial condition could force it to repay more t= han $2 billion in loans by the end of the year.=20 As of 4 p.m. Wednesday in New York Stock Exchange composite trading, Enron = shares fell $1.98, or 28%, to $5.01 each after having dropped 23% Tuesday. = In excess of 115 million shares traded Wednesday, more than four times the = volume of any other Big Board stock. Enron's bonds also again traded sharpl= y lower, market observers said.=20 The turmoil spilled over to Dynegy's stock, which also was among the most a= ctively traded on the New York Stock Exchange. As of 4 p.m. Wednesday, Dyne= gy shares fell $1.94 to $39.76 each.=20 On Wednesday, Dynegy issued a statement in which Chairman and Chief Executi= ve Chuck Watson said his company was working "to accelerate the regulatory = approvals required to complete the merger in accordance with the previously= announced agreement" though it continued to perform "due diligence" on Enr= on.=20 Under the merger agreement, Dynegy has opportunities to renegotiate or walk= away from the deal if Enron's financial and legal problems become severe e= nough. However, some observers said it can be difficult to invoke these so-= called material adverse change clauses. They point to a decision earlier th= is year by a Delaware Chancery Court judge who forced Tyson Foods Inc. to c= omplete a planned purchase of IBP Inc. even though Tyson, a Springdale, Ark= ., food-products company, had wanted to cancel the transaction because of a= drop in IBP's earnings and accounting problems at an IBP unit.=20 Dynegy officials didn't return calls seeking comment. To complete the deal,= two-thirds of Dynegy shareholders and a majority of Enron shareholders wou= ld have to give their approval. No dates for those votes have been set.=20 One person familiar with the merger plans said the SEC filing Monday by Enr= on contained information Dynegy hadn't known about. Dynegy representatives = planned to work through the weekend evaluating the importance of this new i= nformation as part of the company's due diligence, this person said. It cou= ldn't be determined what the new information was.=20 The merger agreement, announced Nov. 9, calls for Dynegy to exchange 0.2685= share for each of Enron's roughly 850 million fully diluted shares, giving= the purchase a value of about $9 billion at Dynegy's current stock price. = However, from a price standpoint, the deal is appearing less attractive to = Dynegy.=20 On the day of the merger announcement, Enron shares were trading at about $= 8.63 each, or about 83% of the purchase price under the exchange ratio. As = of Wednesday, Enron's market price was only about 47% of the merger-formula= price. Such a sharp deterioration is unusual following a merger announceme= nt, when the stock price of the company being acquired generally begins tra= ding relatively close to the offering price.=20 Sentiment among Wall Street analysts also is turning against the merger. In= itially, many analysts lauded the merger as a move that would rescue Enron = and provide a major boost to Houston-based Dynegy. Dynegy and Enron officia= ls have predicted that the merger, supposed to be completed late next year,= would significantly and immediately increase Dynegy's earnings.=20 Now analysts are challenging that assumption. Ron Barone, managing director= at UBS Warburg LLC, said he believes that because of Enron's financial pro= blems, a combined company would actually have lower earnings next year than= Dynegy would have by itself. Mr. Barone said he thinks a "likely scenario"= is that the merger formula will be renegotiated sharply down to about 0.15= Dynegy share for each Enron share.=20 Such a ratcheting down wouldn't be without precedent in the deal. According= to one person familiar with the merger negotiations, Dynegy reduced the ex= change formula at least once prior to the Nov. 9 announcement because of En= ron's rapidly sinking stock price, which at the beginning of this year was = above $80 a share.=20 In perhaps the most significant sign of the turning tide on Wall Street, Go= ldman Sachs analyst David Fleischer lowered his ratings on Enron and Dynegy= . A longtime Enron fan, Mr. Fleischer issued a report expressing doubts tha= t the merger would help Dynegy's earnings and whether Enron could "recover = the significant business that has been lost" in its giant energy-trading op= erations. "The Enron machine continues to sputter," Mr. Fleischer wrote.=20 Some observers say that if Dynegy walked away from the deal or tried to ren= egotiate the terms significantly, Enron might be pushed into a bankruptcy-l= aw filing. Without the Dynegy acquisition and continued support from its ba= nkers and customers, an Enron bankruptcy-court filing "is highly possible,"= said Ralph Pellecchia, a senior director at Fitch, a credit-ratings agency= . On Wednesday, Fitch maintained its credit rating on Enron at just one not= ch above noninvestment-grade, or "junk," status. But Fitch also said it bel= ieved Enron's trading partners had made "significant cash collateral calls"= in recent days that are "well in excess of previous expectations," contrib= uting to "liquidity pressures."=20 Among the advisers Enron has hired during its current crisis is the law fir= m of Weil, Gotshal & Manges, which specializes in bankruptcy and corporate-= workout situations. Asked about a possible bankruptcy filing, an Enron spok= eswoman said the company expects the Dynegy deal to go through and therefor= e doesn't expect to have to look at alternatives to the merger. Since the m= erger announcement, Enron Chairman Kenneth Lay has said his company had alt= ernatives to the Dynegy deal but he has declined to identify them. Enron sa= id it made some progress improving its financial position. The company said= it reached a final agreement with units of J.P. Morgan Chase & Co. and Cit= igroup Inc. on the remaining $450 million of a previously announced $1 bill= ion in secured credit lines. Enron said lenders had agreed to extend repaym= ent of an existing $690 million note to mid-December from next week. The sp= okeswoman said a restructuring of that obligation is expected to be complet= ed next month so that repayment wouldn't be required this year.=20 ---=20 Thaddeus Herrick and Robin Sidel contributed to this article. ...........................................................................= ..........................................................=20 Options Report Premiums Stay High on Enron's Near Options, And `Doubling Up' Date Looms fo= r Tax Losses By Kopin Tan Dow Jones Newswires 11/23/2001 The Wall Street Journal=20 C11 (Copyright © 2001, Dow Jones & Company, Inc.)=20 NEW YORK -- Volatility and premiums on Enron's near-month options remain ex= tremely high. It is a sign that investors are willing to pay a rich price f= or option protection and expect the stock to be unsettled as the Houston co= mpany sorts through its credit and debt problems and seeks to calm frazzled= investors.=20 Enron near-month defensive puts traded heavily in an otherwise quiet sessio= n Wednesday, as investors bought them to hedge. The December 5 puts traded = more than 10,000 contracts and jumped 45 cents to $1.10 at the Chicago Boar= d Options Exchange. The stock closed down $1.98, or 28%, to $5.01, as of 4 = p.m. in New York Stock Exchange composite trading. Enron's calls traded actively as some investors sold them to generate incom= e. Traders noted some call buying -- especially after Enron procured a thre= e-week extension on a $690 million note -- as some hopeful investors bet on= Enron pulling through its troubles and proceeding with its merger with Dyn= egy Inc. Enron's December 5 calls traded more than 14,500 contracts, compar= ed with open interest of 710, as they fell $1.45 to $1.15 at the CBOE.=20 For investors who want to book a tax loss on beaten-down stocks, the "wash = sale" rule can be a hurdle, because it essentially prevents taxpayers from = selling stock or securities at a loss and then reacquiring "substantially i= dentical" securities within a 30-day period before or after that loss. This= poses a problem for those
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