Pressure Mounts on Enron Buyout
Enron Corp. shares Monday sank to a low not seen since the 1987 stock market crash, as investors continued to mark down the chances of the energy trader’s completing its pending buyout by rival Dynegy Inc.
Enron stock tumbled 70 cents, or 15%, to $4.01 on the New York Stock Exchange. Dynegy fell $1.15, or 3%, to $39.25 on the Big Board.
The pressure on Enron is mounting not just from Wall Street but from regulators, bond-rating agencies, the energy trading community and Enron’s own employees, many of them angered by the devastation of their retirement accounts as the company’s stock has plunged 95% this year.
An employee lawsuit was filed Monday in federal court in Houston, alleging that Enron misled workers about its profitability and breached its fiduciary duty by inducing them to buy company stock for their 401(k) retirement plans.
About 15,000 Enron employees are owed a total of $890 million in compensation for losses sustained in their retirement accounts, said Eli Gottesdiener, whose Washington firm represents the plaintiffs.
One of the plaintiffs, Gary Kemper, a maintenance foreman with Enron’s Portland General Electric unit in Oregon, said the total value of his 401(k) account has shrunk to $129,000 from $317,000 this year as his Enron holdings collapsed to about $9,000 from $197,000.
“It wouldn’t tick me off so bad except that they were sending us e-mail after e-mail [last summer] saying things are fine,” Kemper said in an interview Monday, referring to company executives. “Of course, we find out later that they were dumping their own stock, millions of dollars at a time.”
Enron Chairman Kenneth L. Lay cashed in stock and options worth $123 million last year, when the stock was near its peak.
Kemper and his wife had been planning to retire early, four years from now, but it is no longer clear that they will be able to afford it, he said.
Another law firm representing Enron employees, Seattle-based Hagens Berman, is looking into the possibility of adding Enron’s accounting firm as a defendant, partner Karl Barth said Monday.
The accountant, Andersen, has been criticized for failing to catch irregularities that caused Enron to restate its earnings dating back to 1997 and declare its previous financial reports unreliable.
Egan-Jones Ratings Co., a credit-rating agency in suburban Philadelphia, on Monday cut its rating on Enron’s senior debt by one notch, saying the company will need $1 billion to $1.5 billion in the next 45 days to fund operating losses and other liabilities.
Egan-Jones dropped Enron’s bonds to the sub-investment-grade, or junk, level in August, about when the company’s chief executive, Jeffrey K. Skilling, abruptly resigned. The agency’s view is more severe than those of larger rivals Moody’s Investors Service and Standard & Poor’s, which both continue to keep Enron’s debt in the investment-grade category.
Sean Egan, a managing director of Egan-Jones, said he views the chances of the merger going through at less than 50-50. And if the merger falls through, Enron’s chances of survival are not very high, he said.
Dynegy has kept mum about the deal since Wednesday, when it said it was trying to speed regulatory approvals. Wall Street analysts have noted that Dynegy could invoke terms of a “material adverse change” clause allowing it to modify or walk away from the deal if it determines that Enron’s condition is markedly worse than it was when the deal was struck Nov. 9.
Under the merger deal, Enron shareholders would receive 0.2685 Dynegy share for each of their shares. That implied a value of $10.54 a share, more than double Enron’s closing price Monday. The gap indicates Wall Street’s doubts about whether the deal will get done.
Elsewhere Monday, the office of California Atty. Gen. Bill Lockyer reiterated that it will scrutinize the Dynegy-Enron merger on antitrust grounds.
Analysts say California could use its power to delay the deal as a way to squeeze Dynegy for better prices on long-term power contracts it negotiated during the height of the state’s energy crisis this year.
Enron already is under investigation by the Securities and Exchange Commission over controversial deals involving limited partnerships organized and run by former company executives.
