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Enron Mail |
A full list of news articles will be distributed on Monday, but here is som=
e of the initial coverage. Business/Financial Desk; Section A Rival to Buy Enron, Top Energy Trader, After Financial Fall By ALEX BERENSON and ANDREW ROSS SORKIN 11/10/2001 The New York Times=20 Page 1, Column 2 c. 2001 New York Times Company=20 With its stock plunging and its finances in doubt, the world's largest ener= gy trader, the Enron Corporation, agreed to be acquired yesterday by the ri= val Dynegy Inc. for about $9 billion in stock and the assumption of $13 bil= lion in debt.=20 The deal is an extraordinary turnabout for Enron, a Houston-based company t= hat had been a driving force behind electricity deregulation nationwide. Its chairman, Kenneth L. Lay, a big contributor to the Republican Party, pr= ovided political influence, while its former chief executive, Jeffrey K. Sk= illing, helped create markets for the trading of electricity and natural ga= s. But last winter, when California's effort to deregulate the electricity = market led to soaring power prices and rolling blackouts, Enron was the sub= ject of much criticism and political anger.=20 Recent disclosures of discrepancies in Enron's financial statements and an = investigation by the Securities and Exchange Commission caused the shares t= o plunge this week to their lowest level in a decade. As other companies be= came wary of doing business with it, Enron -- also facing a potential cash = squeeze -- apparently had little choice but to find a buyer, and a deal was= hastily cobbled together this week.=20 For critics who had complained about Enron's market power and its dominance= , the combination poses additional concerns. Dynegy's acquisition of Enron = will be reviewed by state and federal agencies, led by the Justice Departme= nt and the Federal Energy Regulatory Commission. Analysts said today that t= hey expected scrutiny of the combined companies' holdings in California, wh= ere Dynegy owns power-generating plants and Enron accounts for much of the = trading of natural gas -- fuel for the state's electric power plants.=20 Buying Enron at a deep discount -- it has lost $60 billion in market value = this year -- could make Dynegy the dominant trader of electricity and natur= al gas. But the agreement carries big risks as well. Along with Enron's gas= pipelines and high-technology trading floor, Dynegy will take on Enron's s= ubstantial debt and a web of complex transactions that Enron has spun over = the last decade.=20 In addition to the $13 billion in debt that Enron carries on its books, it = has guaranteed at least $4 billion in off-balance sheet loans, and the hidd= en debt could total as much as $10 billion, said Carol Coale, a stock analy= st with Prudential Securities.=20 Charles L. Watson, Dynegy's chairman and chief executive, said yesterday th= at Dynegy could sort through Enron's tangled finances. ''We know the compan= y well,'' Mr. Watson said. ''It's not like we just started fresh. I'm confi= dent that it's as solid as we thought it was.''=20 The new company will combine Enron's 25,000-mile natural gas pipeline syste= m with the large number of power plants that Dynegy owns worldwide, as well= as Illinois Power, a Dynegy subsidiary that serves 650,000 customers in Il= linois. But its most important asset will be its trading desk. It will be t= he largest energy trader in the nation, trading more than twice as much pow= er and natural gas as its closest competitors.=20 Mr. Watson said the company did not expect to sell significant properties a= nd that the deal should pass regulatory scrutiny. ''There's really not a lo= t of overlap in assets,'' he said.=20 Mr. Watson and Steve Bergstrom, Dynegy's president, will hold those positio= ns in the new company, which will be called Dynegy and remain in Houston. M= r. Lay, who created Enron in the mid-1980's, will not have any role in the = combined company's daily operations. He has been asked to join its board bu= t has not provided an answer. ''The last three weeks haven't been a lot of = fun,'' he said.=20 In a statement announcing the agreement yesterday afternoon, Mr. Watson sai= d he was confident that the merger would produce a strong new company. ''En= ron is the ideal strategic partner for Dynegy,'' Mr. Watson said. ''We will= keep a strong balance sheet and straightforward financial structure as key= priorities.''=20 To shore up Enron's finances, Dynegy will immediately put $1.5 billion into= Enron through ChevronTexaco, the giant oil company, which already owns 27 = percent of Dynegy. Another billion dollars will be injected once the deal i= s completed.=20 Investors appeared comfortable yesterday that Dynegy could make the deal wo= rk. After falling $3, to $33, on Wednesday, when the companies first said t= hey were in discussions, Dynegy rose $5.76 on Thursday and yesterday to clo= se the week at $38.76.=20 ''On paper, it works,'' Ms. Coale of Prudential said. ''The combined compan= y would be the leading trader, the market leader in most of their businesse= s.'' Ms. Coale, who has a sell rating on Enron and a buy rating on Dynegy, = said she planned to keep her buy rating on Dynegy.=20 As it works to have the deal approved, Dynegy will have to persuade Enron's= traders to stay with the combined company. The pain of the stock's 90 perc= ent plunge this year will not be equally shared. Some Enron employees have = held onto their shares and seen their retirement accounts eviscerated. Mean= while, Mr. Lay, Mr. Skilling and other former and current executives sold h= undreds of millions of dollars in Enron stock in 2000 and this year.=20 The companies also have very different corporate cultures. Dynegy emphasize= s teamwork, while Enron is more competitive, said Ehud Ronn, director of th= e Center for Energy Finance Education and Research at the University of Tex= as. Even before the merger was announced, Enron had lost some of its employ= ees to other energy trading companies, Mr. Ronn said.=20 Some investors and analysts say that the problems with Enron's finances may= extend beyond the partnerships that have been the subject of Wall Street's= scrutiny the last month. James Chanos, a short-seller who has been one of = Enron's most vocal critics, said there was increasing evidence that Enron's= energy trading operations were not as profitable as the company had said. = ''There appears to be a culture at Enron of aggressively booking profits an= d deferring or obscuring losses,'' Mr. Chanos said.=20 On Thursday, Enron said in a filing with the S.E.C that it had overstated i= ts earnings by almost $600 million over the last five years. Mr. Chanos sai= d more restatements were possible, noting that the filing disclosed partner= ships had been used to hedge almost $1 billion in losses in 2000 and this y= ear. So far, the losses from those partnerships remain off Enron's financia= l statements, Mr. Chanos said.=20 Enron's stock had been under pressure for most of this year, as the company= ran up large losses with failed efforts to expand outside its core trading= operation. In August, Mr. Skilling resigned as chief executive, and Mr. La= y resumed control of daily operations.=20 Still, the company appeared financially sound until last month, when it dis= closed that its shareholders' equity, a measure of the company's value, dro= pped by $1.2 billion because of deals disclosed only hazily in its financia= l statements. The announcement unnerved investors, who wondered whether Enr= on had found ways to inflate its profits and move debt off its balance shee= t, and led the S.E.C. to begin an investigation.=20 Mr. Lay tried to reassure investors that Enron's finances were in order and= that its businesses remained strong. But the last three weeks have brought= a series of damaging revelations about partnerships that Enron formed with= some of its top executives, including its former chief financial officer, = Andrew S. Fastow.=20 With questions mounting, the major credit-rating agencies began to downgrad= e Enron's debt, putting additional pressure on the company. If Enron's debt= rating falls below investment grade, it would be forced to repay $3.3 bill= ion in loans that it had guaranteed.=20 To strengthen its balance sheet and bolster its stock, Enron turned to big = investors like Warren E. Buffett in search of billions of dollars of financ= ing. When the financing did not quickly appear, its stock fell further.=20 By this week, some major energy traders were refusing to extend credit to E= nron, worrying that the company would be unable to make good on its contrac= ts. The Mirant Corporation, an Atlanta-based power plant owner and electric= ity trader, sharply curtailed its trading with Enron this week. ''We're tra= ding with them on a very limited basis,'' said James Peters, a Mirant spoke= sman. ''It's not business as usual.''=20 On Wednesday, Enron's stock fell as low as $7 a share, its lowest level in = more than a decade. That day, news of the Enron and Dynegy talks leaked out= .=20 By late Wednesday, the boards of the two companies had tentatively agreed t= o a deal. But Dynegy refused to go ahead until it learned whether Enron's c= redit rating would remain investment grade and was comfortable with the eff= ect of the deal on its own rating. The deal moved forward yesterday after D= ynegy was assured Enron's debt was not in danger of being lowered to junk s= tatus soon after the deal was announced, according to company officials.=20 Dynegy and Enron had provided Standard & Poor's and Moody's Investors Servi= ce, the main credit agencies, with statements showing them what a combined = company might look like and asked the ratings agencies for an expedited rev= iew of the transaction, Mr. Watson said.=20 Under the deal, Enron shareholders will receive 0.2685 share of Dynegy stoc= k for each Enron share, or $9.80 based on Dynegy's closing price on Thursda= y. Enron's stock gained 22 cents yesterday, to $8.63.=20 ''I never thought our stock price would be at this level,'' Mr. Lay said ye= sterday.=20 Enron's shareholders will own only 36 percent of the combined company, and = Dynegy will name at least 11 members of the company's 14-member board.=20 If the deal falls apart, Enron or Dynegy will have to pay a breakup fee of = $350 million.=20 To protect Dynegy's and ChevronTexaco's cash infusion, the money will go to= an Enron unit that owns the Northern Natural Gas Pipeline. If the merger i= s not completed, Dynegy will have the right to buy the unit.=20 An army of bankers and lawyers advised the companies. Lehman Brothers Inc. = acted as financial adviser and Baker Botts and Akin, Gump, Strauss, Hauer &= Feld acted as counsel for Dynegy. J. P. Morgan & Company and Salomon Smith= Barney acted as financial advisers for Enron, and Vinson & Elkins and Weil= Gotshal & Manges acted as the company's counsel. Pillsbury Winthrop served= as counsel to ChevronTexaco. Chart: ''A Marriage of Strength and Weakness'' A merger of Enron and Dynegy= would bring together two of the country's biggest energy companies -- and = save Enron from potential collapse. Graph tracks the weekly closes of Enron= shares from 1999 through 2001. Top North American gas marketers SALES, OF = BILLION CUBIC FEET PER DAY* Enron: 24.6 Reliant: 13.2 Duke Energy: 12.8 BP:= 12.3 Mirant: 11.8 Dynegy: 10.9 Top North American power marketers SALES, O= F MILLION MEGAWATT HOURS* Enron: 212.5 American Electric Power: 134.5 Duke = Energy: 118.1 Reliant Resources: 86.1 PG&E National Energy Group: 73.2 Dyne= gy: 70.1 *Figures are for the 2nd quarter of 2001. (Sources: Bloomberg Fina= ncial Markets; Simmons & Co.; Natural Gas Week)(pg. C2) ...........................................................................= ..........................................................=20 Dynegy, Enron Merger Deal Worth Almost $25 Billion Melita Marie Garza 11/10/2001 KRTBN Knight-Ridder Tribune Business News: Chicago Tribune - Illinois=20 Copyright (C) 2001 KRTBN Knight Ridder Tribune Business News; Source: World= Reporter (TM)=20 Enron Corp., the nation's biggest power trader, was taken over by its small= er, more conservative rival, Dynegy Inc. in a merger deal valued at nearly = $25 billion, company officials announced Friday.=20 The combined company will be called Dynegy Inc. and will be headed by Chuck= Watson, Dynegy's chairman and chief executive. If it wins regulatory and s= hareholder approval, the deal would propel Dynegy, the sixth-largest U.S. p= ower trader, to the No. 1 position, with more than 30 percent of the market= . The Houston-based competitors are new-breed energy companies, formed to cap= italize on wholesale power marketing and trading, with Dynegy emphasizing i= ts own power generation capabilities.=20 Enron, meanwhile, has been laid low in recent weeks by soured transactions = with energy partnerships run by one of its former executives and by a serie= s of revelations about questionable accounting practices. Enron this week w= as forced to restate its earnings over the past five years -- revising them= downward by 20 percent, or $586 million -- and has seen its stock price pl= unge more than 80 percent in the past three weeks.=20 Both Enron and Dynegy have extensive business dealings in Illinois, one of = the first states to begin deregulating its electric power industry; among o= ther things, Dynegy owns Illinois Power, a Downstate utility.=20 The new Dynegy would become one of the largest companies in the world, with= revenues exceeding $200 billion and assets of roughly $90 billion, company= officials said. By comparison, ExxonMobil, the nation's largest company, r= eported revenues of $232.7 billion in 2000.=20 "We needed to do something to strengthen our balance sheet and get the inve= stor community focused on the core energy business," said Kenneth Lay, Enro= n's chairman and chief executive. "We looked at several alternatives; this = was in the best interests of our employees and shareholders."=20 Lay said he would not have a role in running the new company, but was consi= dering a request to serve on the newly combined board.=20 Watson, Dynegy's chairman, said the merger compact included escape clauses = for Dynegy. "But, I wouldn't be standing here if I expected to see that (us= ed). I really believe the value degradation in Enron had nothing to do with= their core business. We looked under the hood, it is just as strong as we = thought it was."=20 Still, Watson acknowledged the possibility that more problems may surface a= t Enron. "I don't think anybody can absolutely unequivocally say there's no= thing (more) there," he said.=20 Dynegy's stock price closed higher Friday, rising $2.26, or 6.2 percent, to= $38.76. Enron's stock was down 33 cents, or 3.7 percent, at $8.63 a share.= =20 Together, the companies have natural gas sales of about 40 billion cubic fe= et per day through the third quarter of 2001 and power sales exceeding 500 = million megawatt hours through the third quarter of 2001. In addition, the = new Dynegy's delivery network will include more than 22,000 megawatts of ge= nerating capacity and 25,000 miles of interstate pipelines. In Enron, Dyneg= y is taking on a company saddled with a heavy debt load and a credit rating= that has been downgraded to near junk bond status and is under the cloud o= f a Securities and Exchange Commission investigation.=20 Under the stock for stock swap portion of the deal, valued at $8.846 billio= n, Dynegy is paying about $10.41 a share for the 850 million outstanding En= ron shares. Dynegy would pay .2685 shares of its stock for each share of En= ron.=20 In addition, Dynegy agreed to provide $1.5 billion infusion in cash to help= stabilize its much larger competitor and assume an estimated $15 billion i= n debt.=20 Just Thursday Enron reported that its debt was an estimated $12.9 billion p= ending completion of financial statements dated Sept. 30. A day later the c= ompany's accounting of its debt jumped $2 billion.=20 Dynegy's current shareholders, including Chevron Texaco Corp., will end up = owning 64 percent of the new company. Chevron Texaco said it would invest a= n additional $2.5 billion in Dynegy.=20 Enron's stockholders will own about 36 percent of the combined company's st= ock at closing, which is anticipated for the third quarter of 2002.=20 In Illinois, in addition to Illinois Power, Dynegy owns a Chicago area elec= tricity peaker plant and is a partner with Nicor Inc., in Nicor Energy, an = unregulated natural gas utility in the Chicago area.=20 Enron's subsidiary, Enron Energy Services, has a high-profile contract to p= rovide 60 percent of Chicago city government's electricity. It also has con= tracts to provide electricity to Quaker Oats Co. and the University of Chic= ago, among others.=20 In addition to Watson, other top Dynegy management will remain in place in = the new company. Steve Bergstrom, president of Dynegy Inc., and Rob Doty, c= hief financial officer of Dynegy Inc., will retain those positions in the c= ombined company. Enron's current president and chief operating officer, Gre= g Whalley, will become an executive vice president of the new Dynegy. The b= oard of directors of the combined company will be comprised of 14 members. = Dynegy's 11 designees will include three from ChevronTexaco. Enron will hav= e the right to designate a minimum of three board members. ...........................................................................= ..........................................................=20 Business/Financial Desk; Section C Regulators Struggle With a Marketplace Created by Enron By JEFF GERTH with RICHARD A. OPPEL Jr. 11/10/2001 The New York Times=20 Page 1, Column 2 c. 2001 New York Times Company=20 WASHINGTON, Nov. 9 -- For years, the Enron Corporation used its political m= uscle to build the markets in which it thrived, pushing relentlessly on Cap= itol Hill and in bureaucratic backwaters to deregulate the nation's natural= gas and electricity businesses.=20 Its achievement, as one Enron executive said today, in creating a ''regulat= ory black hole'' fit nicely with what he called the company's ''core manage= ment philosophy, which was to be the first mover into a market and to make = money in the initial chaos and lack of transparency.'' Now, Wall Street's dissatisfaction with Enron's secretive ways has delivere= d the company into the arms of its much smaller Houston rival, Dynegy Inc.,= in a deal worth about $9 billion in stock and the assumption of $13 billio= n in debt. The combination of the two companies, energy experts and lawmake= rs said today, poses a novel set of challenges for regulators still struggl= ing to grasp the complexities of the marketplace that Enron invented.=20 ''We're in a supersonic-speed era of electronic trading with a horse-and-bu= ggy-era regulatory system to protect consumers,'' said Representative Edwar= d J. Markey, a Massachusetts Democrat who has devised legislation to close = the regulatory gap.=20 Dynegy's acquisition of Enron is expected to be reviewed by numerous state = and federal agencies, led by the Justice Department, the Federal Trade Comm= ission and the Federal Energy Regulatory Commission.=20 Analysts said today that sharp scrutiny would be given to the combined comp= anies' holdings in California, where Dynegy owns generating plants and Enro= n controls a large part of the market for trading natural gas -- the fuel f= or a big share of the state's electric power plants.=20 ''Dynegy would now have a greater ability to take the dominant position in = gas and raise the price of electricity,'' said Frank Wolak, a professor of = economics at Stanford University.=20 Mr. Wolak, a consultant to the Justice Department on a 1999 antitrust case = that led to limits on another merger of electricity and natural gas compani= es in Southern California, said he was skeptical that regulators were up to= the task of reviewing today's deal.=20 The transaction ''is something the Department of Justice needs to look at, = and they are going to have a hard time looking at,'' Mr. Wolak said. ''And = it's beyond the ability of the F.E.R.C. to look at.''=20 Pat Wood -- named chairman of the federal energy commission earlier this ye= ar with the backing of Kenneth L. Lay, the chairman of Enron -- acknowledge= d in an interview today that the agency had ''a long way to go'' in matchin= g the sophistication of the companies it regulates.=20 But he said that the commission had made great strides in grappling with th= e new risk management techniques pioneered by Enron, Dynegy and other energ= y companies. It is hiring more experts, he said, adopting more restrictive = rules on how much ''market power'' one party can control and requiring more= disclosure of certain energy transactions.=20 In an interview this evening, Charles L. Watson, the chairman of Dynegy, sa= id he did not believe that regulators reviewing the deal with Enron would r= equire the sale of any assets. ''We haven't really identified any pitfalls = that require any sort of asset divestiture,'' he said. ''There's not really= any overlap.''=20 A senior executive at one of Enron's largest energy-trading rivals disagree= d. ''I don't think this deal gets through unscathed,'' he said today. ''I'm= sure the Justice Department and the F.T.C. will look closely at the pretty= substantial concentration of market power these companies will have in the= energy-trading area.''=20 Enron is mainly a trader of natural gas and electricity -- indeed, the bigg= est player in both those markets -- and it also owns a network of gas pipel= ines. Dynegy processes and sells natural gas and generates and sells electr= icity. Each company owns a local electric utility, too: Dynegy owns Illinoi= s Power in Decatur, Ill., while Enron owns Portland General Electric in Por= tland, Ore., but last month announced plans to sell it to another Oregon ut= ility.=20 For a decade, as it transformed itself from a gas pipeline operator into th= e nation's biggest energy trader, Enron enjoyed unalloyed lobbying success = in Washington and the enthusiastic backing of Wall Street.=20 In the early months of the Bush administration, Mr. Lay -- whose company wa= s one of the biggest financial backers of George W. Bush's presidential cam= paign -- played a prominent, and some said unusual, role in helping the Whi= te House pick nominees to the federal energy commission. Enron executives m= et with Vice President Dick Cheney, whose energy task force backed many of = the deregulatory initiatives pushed by Mr. Lay.=20 Now, ''the company has become a pariah,'' an Enron executive said today. ''= The Bush administration doesn't want to have anything to do with us.''=20 The problems began with the energy crisis in California, where Enron's outs= poken defense of deregulation, even more than its electricity trading activ= ities, made the company a favorite whipping boy of politicians and consumer= advocates. In the financial markets, meanwhile, Enron's confusing disclosu= res, tolerated when its stock was soaring, drew disdain as the calming of t= he energy storms in California and other parts of the country beat the shar= es down, starting last spring.=20 ''Enron fell victim to their own inconsistencies on transparency,'' Mr. Wol= ak said. As California officials sought to understand why energy prices had= soared out of control, he said, Enron's ''view was that we want everybody'= s data, but if you want ours, get a subpoena.''=20 Energy executives and regulators said that sort of arrogance had long marke= d Enron's attitude about government oversight.=20 Electricity sales had for decades been the job of local utility companies, = operating as monopolies and selling power at regulated rates within their s= ervice areas. A few entrepreneurs, led by Mr. Lay, conceived a different mo= del in which power could be sold by generators or middlemen to big corporat= e users or utilities in faraway regions, at whatever price the market would= bear.=20 In the early 1990's, Congress -- under heavy lobbying by Enron -- passed le= gislation that began to open up electricity sales to marketers. Before long= , Enron became one of the first companies to receive government approval to= sell electricity at market rates. The market for interstate sales of natur= al gas had been freed up a few years earlier, and critics complained that t= raders like Enron were gleaning their profits by stoking volatility in gas = prices.=20 In the mid-1990's, independent gas producers backed legislation in Congress= to allow the creation of a co-operative marketing organization, which, the= y hoped, would have helped stabilize prices.=20 Raymond Plank, the chairman of the Apache Corporation, a gas producer based= in Houston, said that the big gas marketing and trading companies, includi= ng Enron, successfully lobbied to kill the plan, leaving prices as volatile= as ever.=20 ''It was a great concept,'' Mr. Plank said. ''We could have headed off the = problems we have today.''=20 Enron's final lobbying success came last year. With a strong push from the = company's lobbyists, Congress passed futures trading legislation that exemp= ted Internet energy trading platforms like EnronOnline, the industry leader= , from oversight by the Commodity Futures Trading Commission. Enron takes t= he other side of trades on its exchange. In traditional markets like the Ne= w York Mercantile Exchange, which remain subject to oversight, the exchange= acts as a middleman between buyers and sellers.=20 Under Mr. Watson, Dynegy has been less of a pathbreaker than Enron, and tho= ugh California politicians denounced it, too, as a profiteer during the ene= rgy crisis, most analysts say it has been less aggressive than Enron in bot= h its business practices and its lobbying.=20 Indeed, the rival energy-trading executive today predicted ''a huge culture= clash'' as the Houston neighbors merge. ''Blood will flow in Houston over = the integration of the trading operation,'' he said.=20 But regulators may find Dynegy easier to deal with.=20 Earlier this year, the federal energy commission asked for comments on whet= her it should tighten scrutiny of dealings between natural gas pipelines an= d energy-trading shops owned by the same company.=20 Enron wondered what all the bother was. ''Would stricter rules prevent real= affiliate abuse that current rules do not,'' it wrote in a regulatory fili= ng, ''or would they instead merely restrict the activities of some of the m= ore successful participants in the marketplace?''=20 Dynegy, by contrast, painted a grim picture and invited regulators to crack= down. ''Abuses abound,'' it said, ''because of financial windfalls, diffic= ulty of detection, lengthy investigations and increased complexity of the m= arket.'' ...........................................................................= ..........................................................=20 =20 Report on Business: Canadian Dynegy to buy troubled rival Enron Reuter News Agency 11/10/2001 The Globe and Mail=20 Metro B4 "All material Copyright © Bell Globemedia Publishing Inc. and its licenso= rs. All rights reserved."=20 NEW YORK -- Energy provider Dynegy Inc. agreed yesterday to acquire fast-si= nking rival Enron Corp. for $9.5-billion (U.S.), signalling the demise of a= company that just months ago was one of Wall Street's highest fliers.=20 Terms of the transaction call for Dynegy to swap 0.2685 shares of its own s= tock for each Enron share, the companies said. That would value Houston-bas= ed Enron at $10.41 a share, including convertible stock, a premium of 21 pe= r cent over yesterday's closing price of $8.63. ChevronTexaco Corp., which owns a 27-per-cent stake in Dynegy, has agreed t= o infuse $1.5-billion immediately into Enron to support it until the deal c= loses. "With its market-making capabilities, earnings power and proven stra= tegic approach to wholesale markets, Enron is the ideal strategic partner,"= said Dynegy chairman and chief executive officer Chuck Watson.=20 Enron, the United States' largest energy trader, has been struggling to ove= rcome a plummeting stock price and credit rating in the past month followin= g disclosures of deals being investigated by the U.S. Securities and Exchan= ge Commission for possible conflict of interest. ...........................................................................= ..........................................................=20 =20 Financial Desk The Nation Smaller Rival to Acquire Teetering Enron Power: Energy giant tha= t pressed for deregulation in California is on the brink of collapse. NANCY RIVERA BROOKS; THOMAS S. MULLIGAN; NANCY VOGEL TIMES STAFF WRITERS 11/10/2001 Los Angeles Times=20 Home Edition A-1 Copyright 2001 / The Times Mirror Company=20 Enron Corp., the once-highflying energy giant whose aggressive efforts to p= rofit from California's energy deregulation made it a target of consumer an= d political backlash, on Friday agreed to be saved from possible financial = collapse through a proposed acquisition by rival Dynegy Inc.=20 The roughly $7.7-billion deal is a stunning plot twist for Houston-based En= ron, which was vilified in California as it was being glorified on Wall Str= eet. In only the last month, a series of disturbing financial revelations p= ushed to the edge of ruin this once-powerful company, whose top executives = had lectured California on its energy foibles and who influenced the direct= ion of national energy policy. Enron muscled its way to the top of the energy heap using aggressive and, i= n the end, financially suspect strategies that proved its undoing.=20 Now, the company that late last year had a market value of $63 billion is w= orth one-tenth that and has agreed to be swallowed by a cross-town competit= or one-quarter its size. Enron's proud and influential chairman and chief e= xecutive, Kenneth L. Lay, who became a focus of bitter attacks by Californi= a politicians and regulators, would lose his job, as would many others at E= nron.=20 Even the name would disappear. The combined company would be called Dynegy = Inc. if the deal receives all the necessary regulatory and shareholder appr= ovals.=20 California officials took no joy in Enron's fate Friday, though there was p= erhaps some sense of retribution from its many critics in the state.=20 "This is basically a rogue corporation," said Sen. Steve Peace (D-El Cajon)= , an outspoken critic of Enron for years who dealt with the company as he c= haired the committee that hammered out the legislative portion of Californi= a's landmark electricity deregulation plan in 1996. "It has from the beginn= ing been a rogue corporation which answered in its mind to a higher law--a = fundamental belief that there are laws of economics that supersede the law = of the land."=20 A Failed Experiment=20 Steve Maviglio, spokesman for Gov. Gray Davis, said that although Enron was= never a major force in California's doomed electricity market, it was outs= poken in support of deregulation.=20 "In a sense, their experiment was much like California's experiment--a fail= ure," he said.=20 Said Harvey Rosenfield, president of the Foundation for Taxpayer and Consum= er Rights in Santa Monica: "Nothing could better illustrate the disaster of= deregulation than the fact that one of its biggest proponents, which reape= d the reward of deregulation, is suffering the consequences."=20 Enron is the world's largest energy trader, handling one of four energy dea= ls in the United States through its online trading operation, EnronOnline. = Since it reported a surprising third-quarter loss on Oct. 16, partly tied t= o shadowy investment vehicles, Enron has endured a huge loss of investor co= nfidence, which brought on a massive cash crunch and some shrinkage of its = trading business.=20 Under the deal announced Friday, Dynegy, invited in two weeks ago after Enr= on fell short in its efforts to line up new financing, would immediately he= lp Enron by pouring $1.5 billion in cash into the company. The money would = be provided by ChevronTexaco Corp., the San Francisco oil company that owns= nearly 27% of Dynegy.=20 Enron shareholders would get 0.2685 Dynegy share for each Enron share, whic= h values the company at about $7.7 billion based on Friday's stock close. D= ynegy shares surged $2.26 to close at $38.76 per share on the New York Stoc= k Exchange; Enron added 22 cents to close at $8.63 per share, still off 89%= year to date.=20 If the deal closes in six to nine months, as the parties expect, Dynegy and= ChevronTexaco would invest $1 billion additionally in the combined company= .=20 "This is just a financial bonanza really for both companies," said Charles = L. Watson, Dynegy chairman and chief executive, who will head the combined = company. Watson said the merger would immediately add to Dynegy's earnings.= =20 Even so, the repercussions of Enron's fall from grace could be far-reaching= . Coming on the heels of California's energy crisis, Enron's troubles may s= low the country's march toward energy deregulation, which Lay and Enron cha= mpioned for years as a potential boon to consumers and the economy in gener= al.=20 But the deal announced Friday will prevent an even worse outcome, energy ex= perts said: the threatened collapse of Enron, which would clog up for a tim= e the business of buying and selling electricity, natural gas and oil. That= could interfere with delivery of energy around the country, they said.=20 "This is an encouraging development for the energy industry," said Stephen = Baum, chairman of Sempra Energy, the San Diego-based parent of Southern Cal= ifornia Gas and San Diego Gas & Electric. "The Enron-Dynegy combination wil= l create a credit-worthy counter-party which will help preserve order in th= e marketplace. It also will reinforce confidence in the energy trading busi= ness going forward."=20 But some in the industry are less pleased.=20 Raymond Plank, chairman of Apache Corp., a Houston-based natural gas explor= ation and development firm, said he is considering a motion to the Federal = Trade Commission against the proposed merger.=20 "There are issues of concentration in a combination of the largest energy t= rader, Enron, and the fifth-largest, Dynegy," Plank said. "California shoul= d be particularly concerned because Dynegy owns power plants there and Enro= n has pipelines and other interests."=20 Troubles Mount as Stock Plunges=20 The swagger that was Enron is long gone. Consider:=20 * Enron's brash chief executive, Jeffrey K. Skilling, touted only months ag= o as one of the young stars of American business, abruptly resigned in Augu= st, citing personal reasons. Enron's stock already had fallen from its high= of nearly $90 per share as investments in water and telecommunications tur= ned sour, a fact that contributed to Skilling's departure.=20 * The Securities and Exchange Commission has launched an investigation of E= nron's controversial dealings with a number of limited partnerships, some o= rganized and run by Enron managers, including Enron Chief Financial Officer= Andrew S. Fastow, who was ousted last month.=20 * In an extraordinary confession Thursday, Enron announced that it had over= stated profit by $586 million, or 20%, during the last five years. The earl= ier financial statements reported to Wall Street and the investing public, = Enron said, "should not be relied upon."=20 * The company also fired its treasurer and a corporate lawyer, both of whom= it said were investors in one of the limited partnerships. Yet some analys= ts questioned whether, even in its admission of accounting trickery, Enron = wasn't still holding something back.=20 * Credit-rating agencies, which already have downgraded Enron's bonds to ba= rely above "junk" status, continue to pore over Enron's books. Analysts hav= e said a further downgrade to the level of junk, or below investment grade,= could precipitate a crisis akin to a run on a bank and threaten Enron's su= rvival while the merger is pending.=20 With its stock crumbling and trading partners leery about its ability to pa= y its debts, Enron was forced to walk hat in hand down Houston's Energy All= ey to negotiate a saving takeover by Dynegy, the rival once jokingly dismis= sed as "Enron Lite."=20 In the trading markets where Enron still holds a leading but increasingly v= ulnerable position, other players already are stepping up to grab a bigger = share of the business. Even if Enron's trading operation survives more or l= ess intact, under the wing of a Dynegy or some other company, experts said = it may never regain its former level of dominance.=20 "Enron has been a very innovative shop, willing to spend considerably to es= tablish new markets," said analyst Andre Meade of Commerzbank Securities in= New York. "If that culture is not kept, everyone loses."=20 Skilling and mentor Lay had worked for a decade to create both a new kind o= f company and a new set of markets for it to play.=20 In large part, they succeeded. Enron transformed itself from a traditional = gas pipeline company into a high-tech global trader of everything from elec= tricity to pollution credits to aluminum. The company's overarching strateg= y was to pare its physical assets to the minimum to get the maximum profit = bang from its intellectual capital: the ranks of MBAs and PhDs that filled = its Houston trading floor.=20 Rather than maintain its own expensive gas fields and power plants--which i= t relegated to stodgy utilities and oil companies--Enron would handle every= thing by contract, relying on a network of suppliers to obtain, store and d= eliver the goods while the company focused on squeezing out the best price.= =20 Dynegy, in contrast, has invested in such energy assets, including three po= wer plants in Southern California. It uses those assets to back its trading= operation, which is much smaller than Enron's.=20 Enron pulled off a migration from the "dirty" extreme of the oil patch, the= asset-intensive domain of drillers and explorers, to the "clean" end, wher= e all the deals are done on a computer screen. It also was a migration from= lower profit margins and lower risk to high margins and high risk.=20 Shannon B. Burchett, chief executive of Risk Limited Corp., an energy-orien= ted strategic-management consultancy in Dallas, compared Enron to the inves= tment bank Salomon Bros., where he used to work in the former PhiBro commod= ities unit.=20 Enron, Burchett said, embodies "a Wall Street culture that happens to be in= Houston."=20 Wall Street certainly "got it," or thought it did.=20 Accounting Rules Pushed to the Limit=20 At Enron's zenith last year, when its stock peaked near $90 a share and it = was pushing into esoteric markets for weather derivatives and fiber-optic b= andwidth, Enron seemed to be a one-company wave of the future.=20 Enron's aggressiveness, brainpower and willingness to back radical new idea= s with serious capital helped it acquire an aura that in some ways was its = undoing, analysts said.=20 Investors accorded Enron's stock a price-to-earnings valuation that was con= sistently higher than those of its peers, reflecting the view that its cutt= ing-edge business model could consistently deliver faster-growing profit th= an its competitors.=20 To keep profits arcing ever upward to justify the outsize valuation, Enron = began pushing the accounting rules as hard as it pushed competitors in the = trading arena. It acknowledged as much in its statement Thursday, conceding= that the operations of three of the limited partnerships should have been = consolidated with Enron's own financial statements instead of being held se= parate.=20 By raising capital and running deals through the limited partnerships, Enro= n could keep large amounts of debt and certain volatile assets off its own = balance sheet, while simultaneously booking profit from the partnerships' t= ransactions, analyst Meade said.=20 Deals Backed by Costly Guarantees=20 One risky aspect of some of Enron's deals through the partnerships was what= Meade called a "double-trigger guarantee," under which Enron would pledge = a cash payout if either its bond rating fell below investment grade or its = stock declined below a certain price.=20 The guarantees must have seemed a cheap way to sweeten a deal when Enron's = stock was flying high, but they came back to haunt the company later, when = it had to pay cash to make good on its obligations, Meade said.=20 Other energy-trading companies use similar devices, but Enron carried it to= an extreme and disclosed too little detail to make the process understanda= ble to investors, he said.=20 Enron's magic, like that of the Internet-stock phenomenon, had never been e= asy to understand in the first place. The company had a reputation among an= alysts for providing scanty financial detail and hard-to-grasp explanations= of some of its dealings.=20 But as long as the reported profit kept climbing, Enron kept getting the be= nefit of the doubt.=20 M. Carol Coale, a respected Houston-based analyst for Prudential Securities= , ruefully recalled a time last winter when she told Enron she could find "= no positive catalyst for the stock" and was considering downgrading her inv= estment opinion.=20 Skilling telephoned Coale and asked her to hold off, promising her that the= re was unspecified good news on the horizon that would justify her faith.= =20 "I believed him," Coale said last week in an interview in Houston. She held= her rating steady at that time but has since downgraded Enron to an outrig= ht "sell."=20 Instead of Skilling's promised good news, questions mounted during the spri= ng, and Enron's stock continued a steady decline. Coale and other analysts = were troubled that a large proportion of Enron's earnings seemed to come no= t from its core trading operations but from unusual transactions involving = the company's own stock or that of affiliates.=20 In California, Enron played a key role as chief cheerleader for electricity= deregulation and a key energy middleman in the state. As wholesale electri= city prices soared and the state plunged into its energy crisis late last y= ear, Enron and other out-of-state electricity generators and traders became= favorite targets of California politicians and regulators, who said the co= mpanies were manipulating the market and charging too much for power.=20 But significantly, California was not a directly successful territory for E= nron.=20 Markets in water did not develop as Enron subsidiary Azurix envisioned. And= Enron's plans for selling electricity to retail customers were deferred ev= en as deregulation took effect in 1998 because the state's deregulation for= mulas didn't allow room for retail competition.=20 Lay complained about California frequently and met with the governor to try= to influence the state's moves to repair its energy problems. In an interv= iew in his Houston office in January--overlooking Enron's new headquarters = building, which is still under construction as the company's name disappear= s--Lay said he and other Enron executives had objected to the way Californi= a regulation was set up.=20 "We objected more vehemently than anyone. We opposed the concept of the poo= l," he said, referring to the now-defunct California Power Exchange, in whi= ch most of the state's power was bought and sold in an hourly market. "What= competitive market in the world has a pool? We don't buy our groceries thr= ough a centralized PX."=20 Enron also backed away from building a small power plant in California last= year when the state imposed price caps.=20 One of the loudest complaints by Davis and other California officials was t= hat generators of electricity were playing "games" to get higher prices.=20 They criticized Enron severely, too, even though it was not a major generat= or, because the level of its worldwide trading operations--buying and selli= ng contracts worth billions of dollars in electric power every day--gave En= ron immense sway over pricing and supplies of electricity. They also believ= e that Enron and Lay helped play a part in the reluctance of federal regula= tors for several months to place restraints on the California marketplace.= =20 CEO's Future Role Uncertain=20 "Millions of people in California businesses lost money because this rogue = company succeeded in controlling the government of the United States," said= state Sen. Peace, one of the architects of the state's deregulation plan.= =20 "Ken Lay was a mystic," Peace said. "Whatever he said had to make sense bec= ause he was Ken Lay. It was hero worship.=20 "Many of the people working as economists at the Federal Energy Regulatory = Commission worshiped Ken Lay. As a consequence, the things Enron promoted a= nd pushed for were never challenged, intellectually and otherwise."=20 Lay, who has been asked to sit on the board of the combined company, said F= riday that he had not yet decided whether to accept.=20 He described his time building Enron as "a very long ride. It's been a very= good ride for the most part.=20 "I have to say the last few weeks have not been very much fun," he said.=20 *=20 Rivera Brooks reported from Los Angeles and Mulligan from Houston and New Y= ork. Times staff writer James Flanigan in Los Angeles contributed to this r= eport.=20 *=20 RELATED STORY=20 Fallen CEO: Enron's Lay is a brilliant man defeated by arrogance, associate= s say. A22=20 RELATED STORY=20 Energy crisis: Power firms have seen their fortunes dim in recent months. S= unday Business C1 PHOTO: Dynegy Chairman and Chief Executive Charles L. Watson, right, announ= ces the merger, with Enron Chairman Kenneth L. Lay.; ; PHOTOGRAPHER: Associ= ated Press; PHOTO: "This is just a financial bonanza really for both compan= ies," says Charles L. Watson, Dynegy chairman and chief executive.; ; PHOTO= GRAPHER: Associated Press ...........................................................................= ..........................................................=20 Dynegy to buy Enron Associated Press 11/10/2001 Deseret News=20 D07 Copyright © 2001 Deseret News Publishing Co.=20 HOUSTON -- Energy marketer Dynegy Inc. announced Friday that it will buy it= s much larger rival, the once mighty but now troubled Enron Corp., for $8 b= illion in stock. Dynegy also will assume a hefty $15 billion in Enron debt.= =20 The announcement came after Enron's stock price plummeted about 80 percent = over the past three weeks because of concerns that the company wasn't revea= ling serious financial problems to shareholders. Under the deal, ChevronTexaco Corp., which owns more than a quarter of Dyne= gy, would quickly provide about $1.5 billion. ChevronTexaco also would cont= ribute an additional $1 billion upon completion of the deal, the companies = said.=20 "With its market-making capabilities, earnings power and proven strategic a= pproach to wholesale markets, Enron is the ideal strategic partner for Dyne= gy," Dynegy chairman and chief executive officer Chuck Watson said in annou= ncing the purchase.=20 Watson made it clear that he would not tolerate the sort of financial pract= ices that prompted explosive disclosures by Enron this week -- including an= admission that more than half a billion dollars in debt had been kept off = the company's books.=20 "As a combined company, we will focus on leveraging our core skill sets and= , as always, we will keep a strong balance sheet and straightforward financ= ial structure as key priorities," Watson said.=20 Enron is the country's top buyer and seller of natural gas, and the No. 1 w= holesale power marketer. The company operates a 25,000-mile gas pipeline sy= stem, and also markets and trades metals, paper, coal, chemicals and fiber-= optic bandwidth.=20 Dynegy controls nearly 15,000 megawatts of power generating capacity throug= h investments in power projects, and sells the energy in wholesale markets = and through utilities.=20 At a news conference, Watson said company officials who negotiated the deal= came away convinced that Enron was worth buying despite its recent trouble= s.=20 "We looked under the hood . . . it's just as strong as it ever was," Watson= said.=20 Under the terms of the deal, Enron shareholders will receive .2685 Dynegy s= hare for each share of Enron common stock, valuing each Enron share at $10.= 41. Enron has about 775 million common shares, said spokeswoman Karen Denne= .=20 That represents a 21 percent premium above Enron's closing price of $8.63 F= riday on the New York Stock Exchange -- but still just a fraction of their = 52-week high of $84.87. Dynegy's shares climbed $2.26, or 6 percent, to clo= se at $38.76 on the NYSE.=20 In after hours trading on the NYSE, Enron shares shot up 15.6 percent, or $= 1.35, to $9.98. Dynegy shares were unchanged.=20 Dynegy's stockholders will own approximately 64 percent of the new company,= with Enron's stockholders holding the remainder.=20 The boards of both companies have unanimously approved the transaction, whi= ch is expected to close next summer. The deal is expected to save the combi= ned company between $400 million and $500 million annually because of conti= nued elimination of "non-core" Enron holdings and lower operating costs.=20 Watson will remain as chairman and chief executive of the combined company,= which will retain the Dynegy Inc. name. Steve Bergstrom will remain as pre= sident of Dynegy.=20 Enron chairman and chief executive Kenneth L. Lay will no longer have a rol= e in day-to-day management of the company, but has been offered a seat on t= he combined company's board and will help shepherd the merger through.=20 "I am personally committed to working with Chuck Watson, Steve Bergstrom an= d their colleagues in the months ahead to accomplish the merger and to buil= d a solid foundation for future value creation," Lay said.=20 Dynegy said that Greg Whalley, the current president and chief operating of= ficer of Enron, will become an executive vice president of the new Dynegy. = He said the merger sets the best course for Enron.=20 "Few of the options we considered for our core business going forward provi= ded us with the earning potential and immediate synergies that a merger wit= h Dynegy could deliver," Whalley said. "Together with Enron's recently anno= unced bank commitments, this cash infusion gives Enron immediate liquidity,= which we believe will enable the company to maintain its investment grade = credit rating."=20 The merger was announced a day after Enron acknowledged it overstated earni= ngs by about 20 percent over the past four years and kept large amounts of = debt off its balance sheets through business partnerships now under investi= gation by the Securities and Exchange Commission.=20 Analysts said the merger rescues Enron, but leaves Dynegy in uncharted terr= itory -- with the outcome of the SEC investigation completely unknown. "The= re is still a shroud hanging over Enron that now moves over to Dynegy," sai= d Carol Coale, an analyst with Prudential Securities. ...........................................................................= ..........................................................=20 Business Dynegy, Enron OK $25 billion deal ; New company would rank among largest Melita Marie Garza, Tribune staff reporter 11/10/2001 Chicago Tribune=20 North Final ; N 1 (Copyright 2001 by the Chicago Tribune)=20 Enron Corp., the nation's biggest power trader, was taken over by its small= er, more conservative rival, Dynegy Inc., in a merger deal valued at nearly= $25 billion, company officials announced Friday.=20 The combined company would retain the Dynegy name and would be headed by Ch= uck Watson, Dynegy's chairman and chief executive. If it wins regulatory an= d shareholder approval, the deal would propel Dynegy, the sixth-largest U.S= . power trader, to the No. 1 position, with more than 30 percent of the mar= ket. The Houston-based rivals are new-breed energy companies, formed to capitali= ze on wholesale power marketing and trading, with Dynegy emphasizing its ow= n power generation capabilities.=20 Enron, meanwhile, has been laid low in recent weeks by soured transactions = with energy partnerships run by one of its former executives and by a serie= s of revelations about questionable accounting practices. Enron this week w= as forced to restate its earnings over the past five years--revising them d= ownward by 20 percent, or $586 million --and has seen its stock price plung= e more than 80 percent in the past three weeks.=20 Both Enron and Dynegy have extensive business dealings in Illinois, one of = the first states to begin deregulating its electric power industry; among o= ther things, Dynegy owns Illinois Power, a downstate utility.=20 The new Dynegy would be one of the largest companies in the world, with rev= enues exceeding $200 billion and assets of roughly $90 billion, company off= icials said. By comparison, ExxonMobil Corp., the nation's largest company,= reported revenues of $232.7 billion in 2000.=20 "We needed to do something to strengthen our balance sheet and get the inve= stor community focused on the core energy business," said Kenneth Lay, Enro= n's chairman and CEO. "We looked at several alternatives; this was in the b= est interests of our employees and shareholders."=20 Lay said he would not have a role in running the new company but was consid= ering a request to serve on the newly combined board.=20 Watson said the merger agreement included escape clauses for Dynegy, "but I= wouldn't be standing here if I expected to see that [used]. I really belie= ve the value degradation in Enron had nothing to do with their core busines= s. We looked under the hood; it is just as strong as we thought it was."=20 Still, Watson acknowledged the possibility that more problems may surface a= t Enron. "I don't think anybody can absolutely unequivocally say there's no= thing [more] there," he said.=20 Dynegy's stock price closed higher Friday, rising $2.26, or 6.2 percent, to= $38.76. Enron's stock was up 22 cents, or 2.6 percent, at $8.63 a share.= =20 Through the third quarter of 2001, the companies together have natural gas = sales of about 40 billion cubic feet per day and power sales exceeding 500 = million megawatt hours. In addition, the new Dynegy's delivery network woul= d include more than 22,000 megawatts of generating capacity and 25,000 mile= s of interstate pipelines.=20 In Enron, Dynegy is taking on a company saddled with a heavy debt load, a c= redit rating that has been downgraded to near junk bond status and which is= under the cloud of a Securities and Exchange Commission investigation.=20 Big premium=20 Under the stock-for-stock-swap portion of the deal, valued at $8.846 billio= n, Dynegy is paying the equivalent of $10.41 a share for the 850 million ou= tstanding Enron shares, a 24 percent premium. Dynegy would pay .2685 shares= of its stock for each share of Enron.=20 In addition, Dynegy agreed to provide a $1.5 billion cash infusion to help = stabilize its larger competitor and to assume an estimated $15 billion in d= ebt.=20 On Thursday Enron reported that its debt was an estimated $12.9 billion pen= ding completion of financial statements dated Sept. 30. A day later the com= pany's accounting of its debt jumped $2 billion.=20 Dynegy's current shareholders, including Chevron Texaco Corp., will end up = owning 64 percent of the new company. Chevron Texaco said it would invest a= n additional $2.5 billion in Dynegy.=20 Enron's stockholders would own about 36 percent of the combined company's s= tock at closing, which is anticipated in the third quarter of 2002.=20 Chicago-area operations=20 In Illinois, in addition to Illinois Power, Dynegy owns a Chicago- area ele= ctricity peaker plant and is a partner with Nicor Inc. in Nicor Energy, an = unregulated natural gas utility in the Chicago market.=20 Enron's subsidiary, Enron Energy Services, has a high-profile contract to p= rovide 60 percent of Chicago's city government's electricity. It also has c= ontracts to provide power to Quaker Oats Co. and the University of Chicago,= among others.=20 In addition to Watson, other top Dynegy management would remain in place in= the new company. President Steve Bergstrom and Rob Doty, chief financial o= fficer, would retain those positions in the combined company. Enron's presi= dent and chief operating officer, Greg Whalley, would become an executive v= ice president.=20 The board of directors of the combined company would have 14 members. Dyneg= y's 11 designees would include three from ChevronTexaco. Enron would have t= he right to designate a minimum of three board members. ...........................................................................= ..........................................................=20 Financial Enron Accepts $8 Billion Buyout Offer From Dynegy; Energy Giant Was Forced = to Negotiating Table After Disclosing That It Had Overstated Earnings Peter Behr Washington Post Staff Writer 11/10/2001 The Washington Post=20 FINAL E01 Copyright 2001, The Washington Post Co. All Rights Reserved=20 Embattled Enron Corp. yesterday accepted a buyout offer valued at about $8 = billion from crosstown rival Dynegy Inc. If the deal is completed, it would= end Houston-based Enron's reign as the leader in the huge energy trading m= arkets that set the prices of power and natural gas in the nation.=20 Its cash dwindling and its credit rating hammered, Enron was forced to the = negotiating table after its recent disclosures that its obligations to a co= mplex web of partnerships involving company officials had caused the tradin= g powerhouse to overstate its earnings and obscure its total debt obligatio= ns. Four top Enron officials have resigned or been replaced since July and,= once Dynegy takes control, Enron's chairman and chief executive, Kenneth L= ay, will also leave the company. Lay said yesterday that he had not decided= whether to accept Dynegy's offer to serve on the combined company's board. "It's been a good ride for a long time," Lay said in a conference call last= night. "The last three weeks haven't been a whole lot of fun."=20 The final deal was announced after the close of stock trading. Enron's shar= es -- which had fallen from $33 to $8 after the disclosures -- ended the da= y slightly higher, at $8.63. Dynegy's stock closed at $38.76, up $2.26.=20 Dynegy offered all stock for the Enron shares, so the total value of the de= al will fluctuate with Dynegy's stock price. Dynegy also said it would assu= me about $13 billion in Enron debt, bringing the total value of the transac= tion to around $21 billion.=20 Dynegy's rescue of Enron will begin with an immediate cash infusion of $1.5= billion, which will be supplied by ChevronTexaco Corp., a major Dynegy sto= ckholder. ChevronTexaco will invest another $1 billion in Dynegy after the = acquisition has passed regulatory review and is completed, which executives= said they expect will take six to nine months as Enron tries to unscramble= the complex partnerships that are now under investigation by the Securitie= s and Exchange Commission.=20 The takeover agreement gives Dynegy an escape clause permitting it to cance= l the purchase if Enron winds up with heavy regulatory fines or legal judgm= ents from shareholder suits tied to its handling of the partnerships.=20 Chuck Watson, Dynegy's chairman and chief executive, said in the conference= call that a close scrutiny over the past two weeks of Enron's financial co= ndition convinced him that the company's trading and pipeline businesses we= re solid. "We looked under the hood, and guess what? It looked just as stro= ng as we thought it was." Watson said he did not think more damaging disclo= sures were forthcoming from Enron.=20 Until the partnership mess, Enron was the nation's dominant energy trader, = and it had front-door political connections to the White House. Lay, its lo= ngtime chairman, raised more then $100,000 for the presidential election ca= mpaign of his friend George W. Bush. Enron rode the growth of energy tradin= g markets beginning in the mid-1990s, as first natural gas, and then electr= ic power sales were deregulated at the wholesale level. Its revenues leaped= from $9.2 billion in 1995 to $100.8 billion last year.=20 During those heady times, the Houston company could choose which questions = to answer about its dealings with related partnerships and its Byzantine bo= okkeeping.=20 "It was always very difficult to get information," said Louis B. Gagliardi,= an analyst with John S. Herold Inc. "They would always rebuff you."=20 Until this fall, the muscular company seemed too big to stumble, said inves= tment manager David Coxe, with Harris Insight Equity Fund in Chicago.=20 Coxe bought 78,000 shares of Enron at $40 a share in August, after wrestlin= g with the decision for months, he said. Then Jeffrey Skilling, Enron's chi= ef executive and strategic mastermind, unexpectedly resigned. The stock, wh= ich had been as high as $90 in August 2000, pitched downward.=20 "Enron seemed so indispensable to the nation's energy markets that I though= t it inconceivable it could implode," Coxe said. "That's how I got sucked i= n."=20 Enron's fall is "classic hubris," Coxe said: a Greek tragedy striking someo= ne who chose to defy the gods -- "in this case, the rules of the system."= =20 Among the rules that Enron now acknowledges it didn't follow were the accou= nting standards that applied to the complex partnerships it created. The pu= rpose of the partnerships, Enron said, was to reduce the risks of investmen= ts in Internet transmission systems and to sell power plants and other asse= ts it no longer wanted.=20 The accounting errors were described in a 20-page SEC filing Enron made Thu= rsday. The errors resulted in a $1.2 billion reduction in the value of shar= eholders' equity. The company also said it had overstated its earnings by $= 586 million since 1997.=20 Enron created partnerships that would buy major assets -- such as a power p= lant -- that Enron wanted to sell, or in other cases, assets such as fiber-= optic cable networks that Enron intended to run but did not want to have on= its balance sheet.=20 The partnerships had outside investors, but the general partner of two of t= hem was Enron's own chief financial officer, Andrew Fastow. He earned $30 m= illion in fees from managing two of the largest partnerships, according to = the SEC document.=20 Enron added to the capital of these partnerships by pledging its stock, or = securities convertible into stock. Some of those stock transactions should = have been counted as loans, resulting in the $1.2 billion drop in sharehold= er equity, Enron now says.=20 Investors are asking why Enron's auditor, Arthur Andersen LLP, did not insi= st that these transactions be handled that way in the first place. Enron's = SEC filing mentions but does not explain some "proposed audit adjustments" = over the past four years that were overruled.=20 Even though, as Enron now acknowledges, it created an information barrier, = masking critical information and violating standard accounting rules, many = financial analysts who were recommending the stock to investors were not pu= shing hard enough to punch through that barrier, some analysts acknowledge.= =20 "It was so complicated that everybody was afraid to raise their hands and s= ay, 'I don't understand it,' " Gagliardi said.=20 The questions are now coming, from a new committee reporting to Enron's boa= rd that will investigate how the company's financial reporting was handl
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