Enron Bonds Subject To Market Jitters, Not Buyout Talk
Capital Markets Report- 11/05/01
Market Views Enron Takeover Rumors With Skepticism
Dow Jones News Service- 11/05/01
No Excuses for this Enron Board
RealMoney.com- 11/05/01
This Market Deserves Your Well-Placed Optimism
RealMoney.com- 11/05/01



Enron Bonds Subject To Market Jitters, Not Buyout Talk
By Michael C. Barr
Of DOW JONES NEWSWIRES

11/05/2001
Capital Markets Report
(Copyright (c) 2001, Dow Jones & Company, Inc.)
NEW YORK -(Dow Jones)- Reports over the weekend that embattled Enron Corp. (ENE) might be the object of a takeover bid failed to move the company's bonds Monday. 
On Sunday, the Independent in London reported that Royal Dutch Petroleum Co. (RD) planned to mount an $11 billion offering for the company. And Barron's stated that there was speculation that Enron might attract takeover interest from either Royal Dutch or Warren Buffet's Berkshire Hathaway Inc. (BRKA).
Enron's bonds are quoted in dollar prices and not in terms of a spread in relation to Treasury bond issues. 
A $74 bid and a $77 offer was quoted as the market for Enron's 7-7/8% bonds of 2003 Monday morning, similar to Friday's levels. 
"The company's bonds were quoted in the low- to mid-70s on Friday and the rumors have not shown up in that pricing," said Wayne Schmidt, portfolio manager, Advantus Capital Management, St. Paul, Minn. 
"Market perception and not takeover rumors impact the pricing of the bonds," said Eric Bergson, portfolio manager, Northern Trust Global Investments, Chicago. 
Even an Enron bond with a very short time to maturity is not trading at par, traders said. 
The 6.45% coupon bond due on November 15, 2001, less than two weeks away, was bid at a dollar price of 99. 
"Some investors don't want to own anything with a downside risk," said Harold Rivkin, principal, H. Rivkin & Co., a distressed debt brokerage firm, Princeton, N.J. The bonds could lose a lot of value in that time frame, with little upside potential gain, he added. 
There is "very little liquidity in the company's bonds," said Rivkin. Enron's bonds will follow the company's stock movements, he added. Enron closed Monday at $11.03, down $0.27 from Friday's close of $11.30. 
Enron officials weren't immediately available to comment. 
Crisis Of Investor Confidence 

The Houston-based energy services company has faced a crisis of investor confidence since it reported a $618 million third quarter loss and a $1.2 billion reduction in shareholder equity last month. 
And last Wednesday, the company said that the Securities and Exchange Commission had elevated to a formal investigation its inquiry into Enron's financial dealings with partnerships headed by its former chief financial officer, Andrew Fastow. 
The ratings agencies have reacted to the company's liquidity problems brought about by the loss in investor confidence. Fitch downgraded Enron's senior unsecured debt Monday to triple-B-minus, from triple-B-plus. It's now just a notch away from junk bond status. 
Last week, Standard & Poor's Corp. lowered the credit rating to triple-B, while Moody's Investors Service lowered the rating to Baa2. 
Shell May Have Interest, But 

Royal Dutch Shell may have an interest in Enron, say analysts. 
"Shell has a very sophisticated trading operations and has been looking to expand in North America and Latin America," said Tina Vital, equity analyst, Standard & Poor's. 
Enron is known for its trading prowess. 
And Enron could also be attractive if it could be bought cheaply, since "Shell has a history of not overpaying for its acquisitions," Vital said. 
But, "no one is going to buy the company unless it squares up its equity issues," she added. 
The company is not perceived by the markets as having been forthcoming in its financial reporting, analysts said. 

-By Michael C. Barr, Dow Jones Newswires; 201-938-2008; michael.barr@dowjones.com



Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Market Views Enron Takeover Rumors With Skepticism
By Christina Cheddar
Of DOW JONES NEWSWIRES

11/05/2001
Dow Jones News Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)
NEW YORK -(Dow Jones)- With each day shedding light on new revelations about Enron Corp.'s (ENE) financial dealings, it is difficult to put odds on the company as a takeover target. 
But speculation has been persistent that Royal Dutch/Shell Group may use Enron's weakened position to launch either a friendly or hostile takeover.
Over the weekend, the British newspaper, The Independent, fanned the flames of speculation again by saying that Shell was expected to offer $11 billion for the Houston energy trader. 
A Shell spokesman wasn't immediately available. 
Surely, Enron's thousands of miles of pipeline assets would provide a company such as the Anglo-Dutch oil giant with a great advantage in the U.S. natural gas market, where Shell has maintained it wants to increase its presence. 
However, a great deal of study would be needed to uncover the potential liabilities lurking in the company's financial structure. Enroll has used a web of off-balance sheet financing vehicles to fund its growing business and preserve its credit rating thereby lowering its borrowing costs. 
Some have also alleged the company used the structure to shift losses off its balance sheet. 
Several arbitrageur traders said it is unlikely a conservative company such as Shell would want to make an acquisition while a Securities and Exchange Commission investigation is pending. 
As for Enron's core franchise - its energy marketing and trading business - it could be easily argued that the most valuable asset there is Enron's staff. As a result, it would help if deal were friendly because such a transaction could protect against the attrition sometimes associated with hostile transactions. 
Shell has been growing its own position in the wholesale energy marketing and trading sector through its Coral Energy unit, and the acquisition of Enron could give it instant clout in the market. Also, Shell's strong balance sheet would provide the market will necessary assurance of creditworthiness. 
Traders and those who follow corporate mergers and acquisitions agreed it would be better for any prospective buyer to wait it out until the situation calmed and more details of Enron's business are uncovered. 
A growth-fund manager, who requested anonymity, also said it is important to know where the rumors are coming from given the decline in Enron's stock price. He speculated that some hedge fund managers might be attempting to use the rumor to stir up interest in the battered stock. 
Enron shares recently traded at $11.14, down 16 cents, or 1.4%. The stock began the day in positive territory, and traded as high as $12.20 intraday. 
The stock has declined more than 60% since the company in mid-October posted a third-quarter charge of more than $1 billion. The company also later disclosed an additional $1.2 billion reduction in shareholders' equity caused by the early termination of controversial outside partnerships run by its former chief financial officer Andy Fastow. 
In the weeks that followed the disclosure, Enron's credit rating was downgraded by Moody's Investor Service, Standard & Poor's, and Fitch. 
-By Christina Cheddar, Dow Jones Newswires; 201-938-5166; christina.cheddar@dowjones.com



Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

No Excuses for This Enron Board
By James J. Cramer <<mailto:jjcletters@thestreet.com>>

RealMoney.com
11/05/2001 03:27 PM EST
URL: <<http://www.thestreet.com/p/rmoney/jamesjcramer/10003517.html>>

The more I look at this board of directors at Enron (ENE:NYSE - news - commentary) , the more puzzled I am. I thought that the directors would be somewhat typical of the "professional" board members that predominate at large companies, busy people who wouldn't know a derivative if it walked into them and hit them along side the head with a two-by-four. 
It's just the opposite. Let me rip down some of these folks' bios, and you can be as puzzled as I am. Let's take them alphabetically. 
Robert Belfer ran Belco Petroleum, and comes from a sophisticated family of oil operatives. He should be able to spot anything that even smacked of chicanery in the oil business from just his old-boy ties. I know this family; they are very smart and very wise to the ways of Wall Street, Main Street and the oil patch. 
Norman Blake is a gent I met years ago at USFG, before he sold it at a huge profit. This man has recently served as CEO of Comdisco, a leasing company that is not only comfortable with debt and financing, it is wallowing in it. 
Blake has General Electric training. This man can smell things that are not so right from miles away. Where was he in all of this? Stuck in Comdisco hell? 
Ronnie Chan is a longtime kingpin in Hong Kong, a place where financial originality is always on display. Chan certainly would have understood how unseemly all of these 17 partnerships would have appeared. He's seen everything over in Kong. 
John Duncan is an energy investment guy, a director of EOTT Energy, and a seasoned pro who knows oil and gas financing and accounting. Again, very sophisticated. 
Wendy Gramm regulated derivatives. She was the chairman of the CFTC and a director of the Chicago Mercantile Exchange. How could she not have spotted this obvious conflict and probed what these partnerships entailed? That was part of her old job. 
Robert Jaedicke was a professor of accounting at Stanford Business School, where he was also dean. This guy wrote the book on this stuff and really should have seen it coming. 
(I am skipping Ken Lay, the CEO.) 
Charles Lemaistre and John Mendelsohn, two execs from the University of Texas M.D. Anderson Cancer Center, can't be expected to catch this stuff, and therefore gets a pass from me. 
Paulo Ferraz Pereira is a former president and chief executive officer of the State Bank of Rio de Janeiro. That's probably put him in more than his fair share of difficult financial situations. How could he not raise a word about it? 
Frank Savage serves as chairman of Alliance Capital Management International, perhaps the most sophisticated company in the world of money management. I am sure Savage never saw a situation as bad as Enron's looking through his own company's portfolio of investments. 
Jeffrey Skilling, the man who resigned as CEO, needs to be heard from. We know that he is a director of the Houston branch of the Federal Reserve Bank of Dallas, a sinecure that slouches and undervigilant execs don't get hold. What did he know and when did he know it? 
John Wakeham, Lord Wakeham to everybody, is perhaps the most financially sophisticated Brit to serve in Parliament. He managed a large private practice as a chartered accountant. He's big and powerful and smart. 
Herbert Winokur is a longtime financial hand who also has run investment partnerships and used to serve as a director of Penn Central, a place that saw more than its share of ups and downs and tricky financial situations. 
In short, this is the most sophisticated, hands-on group of folks I have come across. I can't believe they checked off on this stuff. I have to believe they didn't know, or if they knew of the partnerships, I believe they had no idea what they were doing. 
I want so badly to presume that these partnerships were simply set up to take down a lot of debt and not hurt Enron's credit rating with the agencies -- not that that's such an ethical setup. But at least it makes me think that the board might have been confused or not focused because it would have seemed unimportant, as they might not have known how big and how extended the partnerships were. 
Still, let's not fool ourselves. This was a powerhouse, fantastic, upright board of people who know a thing or two. I can't believe they let this stuff occur. I think they knew nothing. 
Which is pretty terrible in its own right. 



This Market Deserves Your Well-Placed Optimism
By James J. Cramer <<mailto:jjcletters@thestreet.com>>

RealMoney.com
11/05/2001 10:32 AM EST
URL: <<http://www.thestreet.com/p/rmoney/jamesjcramer/10003495.html>>

D?j? vu circa 1991. That's what I keep thinking about. I recall that time vividly. Bank of Boston, Chase, Chemical, Citibank, they all started rallying. We bears would call each other and joke about it. We would say that it was a ridiculous move, that it should be shorted and shorted aggressively, because there was no way that any of these banks would make it. 
Heck, Bank of Boston was teetering on insolvency. Citibank was technically bankrupt already. The Jim Grants of the world (more powerful now than they were then because he didn't have as many years of being dead wrong but erudite under his belt) would be alerting everyone to the absurdity of the common stocks of the banks rallying. 
I would call the analysts, and they wouldn't know anything either -- the ones who liked the banks all the way down, who still liked them and who had no credibility at all. The ones who hated them didn't want to get off the winning horses. They didn't know that the race was over and that a new one had begun. 
Or, to put it the brutal way that I now know was right: No one with a brain was long any of these. 
Turns out, of course, that brains were one of those commodities that was wildly overvalued at the bottom. What you had to do was check your skepticism and embrace optimism, because at certain points in history optimists get it right. 
That's how I feel about this market. I think the time to be skeptical was before all of the damage occurred. I think we will look back at this period and say the following: The great bear market started in March 2000 and was continuing to run rampant until Sept. 11, the crisis that triggered a massive influx of liquidity and lower interest rates that turned things around. Most of the brains at the time were thinking that nothing really could change and that we were going to slide into a Japanese recession or that no turn would ever come. They were wrong, just like they were in 1991. 
We get so caught up in the "Is Cisco bottoming?" or "Is Intel breaking out?" minutiae that we forget that the market has been pretty good for some time now, pretty good since that crescendo selloff two months ago. 
You would think that we'd have converted more bears to bulls by now, but like in 1991, it didn't happen until well into the turn. 
Don't confuse my optimism with some cold hard realities. I think that, for example, XO Communications is going to fail, and when it does, there will be the requisite selloff and setbacks to tech. I think that McLeod is going to fail and we will see the same. There are a ton of companies that won't get through this period, just like there were a ton of banks and savings and loans that failed long after the turn came in 1991. 
And I reserve the right to hate individual stocks. I can't get my arms around how Ford comes back; I don't understand the Enron fiasco at all. I am not even sure that Qwest can staunch the bleeding. 
But that doesn't make me bearish. 
Understand that I am strictly a Pavlovian creature. Had I not lived through the giant financial short squeezes of late 1990 and early 1991, had I not personally been "bought in" on a half-dozen banks I was shorting and had I not later on seen those banks get big bids from super-regionals not long after I, too, would be suspicious and want to bet against the market. I can't, though, because my capacity for loss remembrance is so much greater than my ability to remember my wins that the pattern stays in my head like a hot stove that I don't want to get burned by again. 
Believe me, I am a cold-blooded individual about these things. If I thought the short side was the right side here, I would be all over it. We have had a huge bounce off the bottom; there would be nothing "unpatriotic" about saying "get out now." 
But I don't think that's right. I think this market's going to keep working here. 
If it doesn't, people will email me and harangue me and make fun of me, and I will say, c'est la vie, I took a stand; it was wrong. Taking stands, however, is what it is all about. Knowing your context and making money with that context is what I do and have done for 20 years. If you don't have a context, if you don't have a view, there's only one thing to do: Give your money to others who do. 
Random musings: Glenn Curtis's Era of Value Newsletter has been making me money. When something makes me money I talk about it. Check it out here. Curtis and Gary B. Smith both are doing some terrific things. Understand, I get all of the newsletters out there. I see the hype that a Navallier or a Murphy puts out and I want to puke. This stuff is nothing like that, nothing at all. It is honest, candid and doesn't guarantee that you will shoot the lights out, like those who you know can't ... On my radio show, it's Mutual Fund Monday, where we will fix your 401(k)). Call me at 1-800-862-8686 from 3 p.m. to 4 p.m. ET.