Enron’s CEO Steps Down After 6 Months
Jeffrey K. Skilling stunned the energy industry by abruptly resigning Tuesday as chief executive of energy-trading giant Enron Corp., barely six months into a job for which he’d been groomed for years.
Skilling’s departure follows a series of setbacks for Enron, including seeing its huge investment in the fiber-optic telecommunications sector turn sour and facing accusations of electricity price-gouging in California. The company’s stock price has lost half its value this year.
Skilling, 48, called his resignation “a purely personal decision” having “nothing to do with Enron.”
By leaving voluntarily, Skilling will forfeit a severance package that would have been worth several million dollars. The normally outspoken Skilling declined to offer further explanation, prompting analysts to ask whether another shoe might drop.
Enron Chairman Kenneth Lay told reporters and analysts in a conference call Tuesday evening that he would immediately assume Skilling’s duties and extend his own employment contract by two years, through 2005, to provide ample time to craft a succession plan.
Skilling and Lay were the main architects of Enron’s spectacular transformation from a natural-gas pipeline firm into a lean, high-tech trader of everything from oil to wood pulp to pollution credits.
Though solidly profitable and much admired for its innovativeness, Enron has stumbled lately and seen its stock price decline from a peak of $90.75 last August.
Shares of Houston-based Enron closed at $42.93 on Tuesday on the New York Stock Exchange, up 78 cents. However, the stock tumbled in after-hours trading on word of Skilling’s resignation, which came after the market close.
A major setback has been the near-collapse of the telecommunications sector, where Enron had made a big push into the trading of fiber-optic bandwidth. A promising start for that business quickly turned into losses that reached $102 million before taxes in the quarter just ended.
“It’s very clear that they have been struggling with their business model of late,” Raymond James analyst Frederick Schultz said Tuesday night.
Enron is one of the independent power suppliers accused by California officials of price-gouging during the state’s electricity crisis. In the meantime, however, natural gas and electricity prices have fallen, and Wall Street has grown concerned that federal efforts to push for energy price caps will affect long-term growth.
Skilling’s sudden departure may anger some institutional investors, Schultz said, since the executive has spent time in recent months wooing mutual funds and pension funds to invest in Enron stock.
The analysts and reporters for the trade publications that follow Enron most closely seemed flummoxed by Tuesday’s developments.
Curt N. Launer of Credit Suisse First Boston asked whether the company anticipated filing “any disclosure to tell us any other items behind this surprising news.”
“There’s nothing to disclose,” Skilling replied. “The company’s in great shape.”
Prudential Securities analyst M. Carol Coale found Skilling’s timing odd, in that he was recently engaged to be married and has just completed construction of a large home in Houston.
“Something’s just not sitting right with me,” she said. “It seems odd that he would walk away from a severance worth millions.”
Lay explained during the conference call that the severance pay called for in Skilling’s contract, which expires in 2003, does not take effect if the separation is voluntary.
Skilling last year cashed in stock options for gains of $62 million, according to Enron filings with the Securities and Exchange Commission. Lay’s gains were nearly double that, at $123 million in 2000, according to the documents.
Such cash-outs were part of the cause of a volatile exchange between Skilling and Boston-based analyst Richard L. Grubman of Highfields Capital Management during a conference call in April to discuss Enron’s first-quarter earnings.
After Grubman criticized Skilling for not having certain financial information available, Skilling fired back, calling the analyst a vulgar name.
“He’s got some nerve,” Grubman said afterward, according to the Toronto Globe & Mail.
Top Enron executives sold 7 million shares at prices in the $70s and $80s, Grubman said, adding, “Now the stock is in the high $50s, low $60s and I’m an . . . because I ask about the balance sheet?”
Lay, who was Enron chief executive for 15 years before giving way to Skilling in February, has been scrutinized recently for his close political ties to the Bush administration.
Lay acknowledged Tuesday that he has met once this year with Vice President Richard Cheney and had two telephone conversations with President Bush’s top political aide, Karl Rove.
However, “most comments about my influence on energy policy or on the administration are grossly exaggerated,” Lay said.
Lay insisted that Skilling’s decision should not be seen as a sign of a conflict over Enron’s strategy.
“There is absolutely no change in our business direction or business strategy,” Lay said, noting that he and Skilling had been working together to formulate the strategy since the 1980s, when Skilling was still a consultant at McKinsey & Co.
Analysts said Skilling may have chafed at the length of time it took him to finally be elevated to chief executive. They believe he forced Lay’s hand last year by putting out word with analysts that he had been offered another post in London.
Whatever personal issues may have influenced Skilling’s resignation, the job was doubtless a pressure cooker.
Skilling spent part of last week in England, offering the company’s condolences on the death of three workers killed in an explosion at an Enron-owned power plant there.
The company also has been embroiled in a long dispute with the Indian state of Maharashtra over that government’s refusal to buy power from an Enron-backed plant.
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Enron shares have lost half their value over the last year after soaring in the first half of 2000.
Enron shares, monthly closes and latest on the NYSE
Tuesday:$42.93, up $0.78
Source: Bloomberg News