Dynegy Refigures Enron Offer
The dramatic slide in the stock of energy trader Enron Corp. halted Tuesday, as its intended rescuer, rival Dynegy Inc., confirmed that it is renegotiating the terms of the takeover.
Wall Street read the news as a sign of at least some improvement in the chances that the deal will go through. But Enron stock rose only 10 cents to $4.11 in New York Stock Exchange trading, so confidence in Enron’s survivability remains tepid, traders said.
Dynegy shares rallied $1.64, or 4%, to $40.89 on the Big Board, as investors anticipated a new deal at a lower price.
Reached Tuesday evening, a spokeswoman for Enron said, “We don’t expect an announcement tonight.”
The two companies, both based in Houston, have agreed on a new price of 0.15 Dynegy share for each Enron share, or $6.13 a share at Tuesday’s closing price for Dynegy, a person familiar with the negotiations said Tuesday. That revalued figure is more than 40% below the original price announced Nov.9.
The terms also would include another interim infusion of cash to help stabilize Enron’s trading business and enable it to make a $690-million payment due creditors Dec. 14, the person said.
He said it was unclear how big the infusion would be and whether the money all would come from Dynegy and its 26% owner, ChevronTexaco Corp., or whether a portion would come from Enron’s bankers as part of a restructuring of Enron’s debt.
ChevronTexaco provided Enron an immediate $1.5 billion in cash at the time the takeover was announced. In return, Enron agreed to sell its Northern Natural Gas Co. pipeline subsidiary to Dynegy.
Enron’s efforts to attract additional equity investments of up to $2 billion so far have failed. Bloomberg News reported Tuesday that Enron’s bankers, led by J.P. Morgan Chase & Co., have had their overtures rejected by Saudi Prince Alwaleed bin Talal, Carlyle Group Inc. and Blackstone Group.
The major credit-rating agencies again Tuesday refrained from downgrading Enron’s bonds to junk status, awaiting word of a restructured deal.
Some analysts theorized that, by deferring a downgrade of Enron’s bonds to junk status, rating agencies were cutting the company more slack than normal because they are conscious that such a downgrade would send the company into bankruptcy. That in turn could cause what one analyst termed a meltdown of financial markets, given Enron’s long reach in accounting for as much as 25% of all electric power and natural gas traded globally.
Ronald M. Barone, analyst at Standard & Poor’s rating agency in New York, said he was surprised no deal was struck as of Tuesday evening. “We’re still waiting,” he said.
Under the terms of some of its controversial deals involving limited partnerships established and run by former Enron executives, a rating cut to below investment grade would trigger a requirement that Enron make immediate cash payments to creditors. Such payments would total $3.9 billion, Enron said in a recent filing with the Securities and Exchange Commission.
The SEC is investigating the limited-partnership arrangements and the circumstances that caused Enron to dramatically restate its official financial statements, erasing more than $580 million in reported profit since 1997.
Enron also faces a raft of lawsuits by ordinary stockholders and by employees who contend they were misled about the firm’s financial condition and induced to invest in company stock when executives knew it was overvalued.
Enron’s core trading business has been deteriorating as nervous trading partners have reduced their exposure to a possible bankruptcy, said energy analyst Michael Heim at A.G. Edwards & Co. in St. Louis.
Although Enron’s trading volume reportedly has been holding up, reaching as much as 80% of normal levels, Heim said such volume mainly represents short-term trades.
Enron is best-known for long-term, structured trades, which are more complex and far more profitable; those deals are evaporating as Enron’s fate remains uncertain, he said.
