Enron Pursuing a Cash Infusion
Enron Corp. said talks are continuing with potential investors for an infusion of as much as $1 billion as the biggest energy trader tries to avoid a collapse of its planned purchase by Dynegy Inc.
An investment would ease concern that Enron’s weakened finances may prompt Dynegy to pull out of or renegotiate the terms of the transaction, which is valued at $23 billion in stock and assumed debt.
Enron is seeking an additional $500 million to $1 billion in cash but wouldn’t divulge details. “We are not going to discuss the particulars of who we are talking to,” Enron spokeswoman Karen Denne said Sunday.
Shares of the Houston company fell by 48% in the last three trading sessions on the New York Stock Exchange. At Friday’s closing price of $4.71, the stock sells for less than half the $10.85 that Dynegy is slated to pay in the acquisition. That’s a sign investors are skeptical the transaction will go through as planned.
Enron is likely to have approached Kohlberg, Kravis Roberts & Co., Blackstone Group and Carlyle Group for a private equity investment, said industry analyst David Snow of PrivateEquityCentral.Net.
The firms have declined to comment.
In a conference call Nov. 14, Enron Chief Financial Officer Jeffrey McMahon said the company is in talks with several private investors and expects to receive $500 million to $1 billion from those sources.
On Wednesday, Enron got a three-week reprieve from lenders on a $690-million note due this week, gaining more time to restructure its finances. Dynegy Chief Executive Chuck Watson said he was “encouraged” by the commitment to extend the note payment as well as the closing of a $450-million credit facility. He said Dynegy remained committed to the purchase.
Enron already received $1.5 billion in cash Nov. 13 from ChevronTexaco Inc. as part of the Dynegy buyout agreement. In return, Dynegy received preferred stock and other rights in an Enron unit that owns the Northern Natural Gas Co. pipeline. Under the deal’s terms, if Dynegy and Enron fail to merge, Dynegy can acquire the pipeline company.
But Barron’s reported over the weekend that Dynegy’s right to the pipeline might be challenged by J.P. Morgan Chase & Co. and Salomon Smith Barney Inc., which accepted the asset as collateral for $1billion in loans to Enron.
Dynegy spokesman John Sousa declined to comment on Enron’s attempts to secure financing or whether more cash for Enron is a condition of keeping the merger alive.
Enron’s dealings with affiliated partnerships have led to a federal investigation of the company, which restated its earnings and saw its credit ratings cut.
The company said in a Securities and Exchange filing a week ago that it has less than $2 billion in cash and credit lines left.
