Enron’s Shares Fall on Debt Concerns
The latest negative disclosures from Enron Corp. on Tuesday pulled its shares down 23% to a level significantly below the price Dynegy Inc. had agreed to pay for the beleaguered energy giant, raising concerns that the planned takeover could fall apart or be renegotiated.
Shares of Enron fell $2.07 to close at $6.99 on the New York Stock Exchange after earlier touching $6.55--a low not seen since May 1991--on the company’s report Monday of new debt problems and an earnings revision.
“It’s become more clear that the chances of this deal going through aren’t 90%, but much closer to 50-50,” Edward Paik, who helps manage the Liberty Utilities Fund, with 1.6 million Enron shares, told Bloomberg News.
Meanwhile, credit rating agency Standard & Poor’s said it may again cut the Houston company’s BBB-minus rating, which could trigger debt payoffs.
But the agency said Enron’s near-term liquidity should be sufficient to keep it operating until the deal with Dynegy is completed.
“This is as high a high-wire act as I have ever seen,” said analyst John Olson, of investment house Sanders Morris Harris.
“If this merger is to survive, equity investors will need to have a reason to buy the stock and their confidence will need to be restored, because the equity investor has been leading the way down.”
Enron’s hellish Tuesday on the market came after the company made new disclosures in a . Securities and Exchange document, filed after the market closed Monday.
Most pressing was news that Enron has until Nov. 26 to put up $690 million in collateral against a debt to a partnership. Otherwise, the partnership could begin liquidating assets, including a Brazilian gas company that Enron plans to sell to raise $250 million.
In the SEC filing, known as a Form 10-Q, Enron said it was suffering a decrease in trading volumes, particularly in longer-term deals.
Since the trading business--Enron’s crown jewel and the segment most coveted by Dynegy--is low-margin, volume drives its profitability.
It is too early to tell what effect the lower volumes would have on future profitability, Enron said, but analyst Andre Meade of Commerzbank Securities said Dynegy will watch the drop in volume carefully.
“If it has a long-term effect, it will definitely impact the value Dynegy will put on this business,” he said.
Dynegy gave a limited response when asked whether it was concerned about lower volumes, and whether it was aware of the $690-million debt before it made its deal to acquire Enron.
“We are in due diligence and Enron’s 10-Q is a part of the process,” Dynegy spokesman John Sousa said.
One analyst who follows Enron said the SEC filing painted a darker picture of the company’s cash position, given that it had $2.3 billion on hand as of Nov. 16.
“It shows that the cash drain on the company looks to be very significant,” said the analyst, who asked not to be identified.
Enron owes $9.15 billion by the end of next year, and its liability for debt and other obligations is $16.86 billion, the SEC filing says. Its merger with Dynegy is expected to close by the third quarter of 2002, raising the possibility that an Enron without investment-grade credit might not have the liquidity to survive that long.
Enron acknowledged as much in the SEC filing, stating that it would be unlikely “to continue as a going concern,” if a credit rating cut triggers the early payoff of $3.9 billion in debts to partnerships to which it belongs.
