-----Original Message-----
From: 	Bhatia, Randy  
Sent:	Wednesday, November 21, 2001 8:55 AM
To:	Gossett, Jeffrey C.; Keiser, Kam; Jones, Brad; O'Rourke, Ryan; Pehlivanova, Biliana
Subject:	FW: DYN($42/sh)/ENE($7/sh) Merger At Risk. - Simmons and Company latest thoughts

got this from a friend at dynegy.  written by someone at Simmons & Co., Inc.

                                         To:     Sales Trading
                    11/21/01 07:42       cc:
                    AM                   Subject:     DYN($42/sh)/ENE
($7/sh) Merger At
                                          Risk.




SUMMARY:  We are reducing our estimated probability that the DYN/ENE merger
is completed to less than 50%/50% based on our belief that ENE's existing
wholesale and retail businesses are having a difficult time maintaining
their volumes and margins.  We have discussed ENE's need to improve counter
party confidence on a number of occasions over the last few weeks, and we
believe counter party confidence deteriorated further based on the
information included in the 10Q, and the strong negative reaction in the
stock and bond markets yesterday.  The tone of our discussions with
competing traders and marketers (representative of ENE's counter
parties--which are critical in maintaining ENE's volumes) is becoming more
negative.  While ENE is continuing to confirm that volumes are improving
since the lows on November 9, our market intelligence is suggesting
improment has stalled.  In addition and probably related, ENE's liquidity
position seems to be continuing to deteriorate despite significant recent
capital infusions.  We are reducing 4Q01 estimates to reflect lower volume
and margin assumptions.  What would get us more comfortable?  ENE 8K
disclosure confirming higher volume and decent margins (ENE has committed
to provide 4Q guidance by early-mid December, and/or a change in the tone
of the counter parties that would suggest they are increasing trading
activities with ENE.

OPINION ON THE STOCKS:
   ENE.  No change in our opinion on ENE--the upside potential is simply
   not worth the downside risk.
   DYN.  DYN is likely to benefit in almost all outcomes.  If our concerns
   about counter party confidence prove to be wrong, the upside associated
   with the accretion in the transaction would likely be huge.  However, we
   sense DYN is getting frustrated by continued restatement of earnings,
   unexpected debt triggers and worse than expected liquidity problems.  If
   the transaction falls apart, DYN would have some transaction costs that
   would negatively impact cash flow in the near-term, but DYN would
   benefit from gaining market share and hiring some of ENE's talent away
   longer term.  A potential downside case for DYN is that DYN retrades the
   deal on recent information, but is forced to reduced its flexibility to
   terminate the transaction through material adverse change
   considerations, this out come would concern us.  We continue to believe
   DYN is a solid long-term holding for investors.  However, we are
   recommending caution with new money, due to our belief that DYN still
   has $5/sh to $7/sh of "deal" premium factored into the current stock
   price which could be at risk if the deal fails.  We do not believe DYN
   has significant accounts receivable exposure to ENE in the event the ENE
   has further liquidity problems (we believe DYN's trading agreement with
   ENE limits exposure to maybe $100 to $150 MM).

COUNTER PARTY INCENTIVES:  ENE identified in its 10Q that transaction
volume (especially long-term transactions) have declined since the 3Q.  If
you are a utility or industrial customer, why enter into a long-term
transaction with ENE?  Why not go directly to DYN or diversify with other
suppliers?  If you are a natural gas or power producer, why create the
account receivable risk?  If you are a counter party, strategically why
would you contribute to the continuation of the ENE machine--to the
ultimate benefit of strengthening another competitor (DYN)?  We believe
that ENE is offering attractive financial incentives (premium purchases
and/or discounted sales) to entice counter parties to trade with them.
However, this would also suggest ENE margins may be getting squeezed.

EPS ESTIMATES (new/old/consensus):
   4Q01-$0.20/0.35/0.42, FY01-$1.55/1.70/1.78, FY02-$1.50/1.50/1.90
   We are reducing expectations for margins in the Wholesale segment from
   9cts/mmbtu to 7cts/mmbtu--negatively impacting 4Q EPS by 10cts/sh.  In
   addition, we expect contributions from Enron Energy Services will be
   lower due to challenges in closing long-term transactions (much of EES's
   earnings are mark-to-market recognition of the value created in
   long-term agreeements) impacting our estimate by 5cts/sh.


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