Don't Bet It All On Your Employer ; The plunge of Enron stock serves as a warning that workers should not invest too much in their company
Time Magazine, 12/03/01
Pick One Stock; Our annual Love Only One stock-picking contest.
Forbes Magazine, 12/10/01
The Informer
Forbes Magazine, 12/10/01
Can shoppers save the economy?; Four-star defense; An anthrax enigma; Smokeout; Gore, capitalist; Falling star; Forward Spin
U.S. News & World Report, 12/03/01
Enron, Dynegy Work to Salvage Merger Deal
The Wall Street Journal, 11/28/01
Deals & Deal Makers: Banks, Too, Have Stake in Enron Merger --- Stature, Money Are Both on the Line
The Wall Street Journal, 11/28/01
Energy-Trading Market Survives Enron for Now
The Wall Street Journal, 11/28/01
Business World: Enron Is History, Says History
The Wall Street Journal, 11/28/01
Trying to Restore Confidence in Enron to Salvage a Merger
The New York Times, 11/28/01
Enron, Dynegy pursue the right price
Houston Chronicle, 11/28/01
Cooperation from Enron key in probe
Houston Chronicle, 11/28/01
Dynegy Completes $600 Mln Purchase of U.K. Gas Storage Assets
Bloomberg, 11/28/01

Natural Gas, Electricity Trading Appears Resilient, WSJ Reports
Bloomberg, 11/28/01

J.P. Morgan, Citigroup Have Stakes in Enron Purchase, WSJ Says
Bloomberg, 11/28/01

Enron's 401(k) Savings Plan Was Set Up for a Fall: David Wilson
Bloomberg, 11/28/01

Enron Receives Proposal for $1 Billion Investment, FT Says
Bloomberg, 11/28/01

GLOBAL INVESTING - Enron faces lawsuits over handling of pension plan ENERGY TRADER'S EMPLOYEES ALLEGE ...
Financial Times, 11/28/01
COMPANIES & FINANCE THE AMERICAS - Enron works to save Dynegy bid.
Financial Times, 11/28/01
WORLD STOCK MARKETS - Black clouds of pessimism hang over Wall Street AMERICAS.
Financial Times, 11/28/01
Enron's Many Victims
Los Angeles Times, 11/28/01
Dynegy Asks Enron for New Terms
The Washington Post, 11/28/01
Dynegy Refigures Enron Offer Takeover: Buyer lowers price; energy trader's stock stabilizes. Rating agencies show restraint.
Los Angeles Times, 11/28/01
Ratings agencies agree to hold off on ratings move on Enron for now - WSJ
AFX News, 11/28/01
Dynegy Completes BG Storage Ltd Buy
Dow Jones News Service, 11/28/01
Dynegy Completes Acquisition of UK Natural Gas Storage Assets
Business Wire, 11/28/01

INDIA: India's ONGC says rejects BG offer on fields.
Reuters English News Service, 11/28/01
AUSTRALIA: Pacific Hydro to select wind turbine maker.
Reuters English News Service, 11/28/01
Dynegy confirms it's renegotiating Enron deal
The Daily Deal, 11/28/01
Dynegy confirms move to renegotiate Enron takeover
Chicago Tribune, 11/28/01
USA: UPDATE 6-Enron, Dynegy hammer away at new merger deal.
Reuters English News Service, 11/27/01
New negotiations for Dynegy purchase of Enron sends shares higher
Associated Press Newswires, 11/27/01
USA: Enron woes bite into its energy trading.
Reuters English News Service, 11/27/01
Enron/Dynergy Renogotiate MergerCNNfn
CNNfn: Markets Impact, 11/27/01
Enron Board Agrees to Lower Dynegy Purchase Price, Paper Says
Bloomberg, 11/27/01

Enron Finding It Harder to Trade, Competitors Say (Update2)
Bloomberg, 11/27/01




Personal Time/Your Money
Don't Bet It All On Your Employer ; The plunge of Enron stock serves as a warning that workers should not invest too much in their company
Sharon Epperson

12/03/2001
Time Magazine
Time Inc.
79
(Copyright 2001)

Steve Lacey, 45, an emergency-repair dispatcher for a utility company in Salem, Ore., has a personal life that reads like a holiday greeting card. He recently married his longtime love, and after packing boxes over Thanksgiving weekend, they are set to move into their dream house in the country, just in time for Christmas. Lacey's retirement plans, however, are in ruins. He works for the embattled energy-trading firm Enron, and has all his 401(k) savings in Enron stock, which plunged from $90 a share in late 2000 to $4.71 at the end of last week. 
Much of that decline has come since October when Enron reported it had lost $638 million in the third quarter and later admitted it had overstated earnings from 1997 to 2000. As their life savings shriveled, all Lacey and his co-workers could do was watch. From Oct. 17 to mid-November, Enron blocked its employees from shifting investments in their 401(k) accounts, while it switched to a new plan administrator.
Lacey has joined a federal lawsuit that accuses Enron of breaching its fiduciary duty to employees by encouraging them to invest in Enron stock even after executives became aware of serious financial problems that would hurt the stock price. "There was a lot of promotion inside the company to invest in Enron and help us grow, so everybody got into it," Lacey told TIME's Cathy Booth Thomas. Enron says it doesn't comment on pending lawsuits. 
Lacey and his colleagues could not have anticipated that they would be stuck with a plummeting stock. But their woes should be seen as a warning not to hold too much of your employer's stock in your 401(k) and to regularly monitor the diversification of your investments. 
Like Enron's, many firms' 401(k) plans can have blackout periods lasting from a few days to a few weeks when they change plan administrators. "That's not necessarily wrong or illegal," says Alden Bianchi, chairman of the employee-benefits group at the Mirick O'Connell law firm in Westborough, Mass. Employees need to make sure their 401(k) investments are diversified at all times--in case they can't shift them for a while. 
Like Enron, many other big firms match employee contributions with company stock. Your allocation to that one investment can grow very quickly. And you might not be allowed to reallocate those matching funds into other investments until age 50 to 55. At the end of last year, a whopping 39% of total assets in profit sharing and 401(k) plans were invested in the stock of the sponsoring company. Among employees who are allowed to hold their employer's stock in their 401(k) account, 18% invested half or more of their savings in that stock. 
Financial planners will tell you it's a mistake to bet so much on a single stock--especially that of the company you work for, whose fortunes already affect your job security and career advancement. Planners often advise investors to hold as little of their employer's stock as they can--say, only the amount the company gives them as a matching contribution. Then they should shift assets out of even that matching stock into a mix of diversified stock-and-bond mutual funds as soon as they are old enough to do so. Similarly, if your employer gives you options to buy company stock, don't buy and hold the stock; cash it in and invest the proceeds in a diverse blend of stocks and bonds or mutual funds. 
Remember that it's your responsibility to arrange your investments so that they can survive any financial trouble your employer might suffer. As financial planner Clare Wherley of New Providence, N.J., says, "It's not the company's responsibility to make sure your investments go up." 
Sharon Epperson is a correspondent for CNBC Business News. E-mail her at sharon.epperson@nbc.com 
DIVERSIFY YOUR 401(K) ASSETS 
Steve Lacey invested 100% of his savings plan in his employer's stock. Experts say even the average worker, who holds 39% of his 401(k) assets in company stock, is poorly diversified 
Average allocation of assets in employee profit-sharing and 401(k) plans 
Company's stock 39.2% Stock funds 35.4% Bond funds 5.9% Cash/Money market 3.4% Other 16.1% 
Source: Profit Sharing/401(k) Council of America

COLOR PHOTO: SUSAN SEUBERT FOR TIME COLOR CHART 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	



Pick One Stock; Our annual Love Only One stock-picking contest.
Andrew T. Gillies and Megan E. Mulligan

12/10/2001
Forbes Magazine
176
Copyright 2001 Forbes Inc.

Bearish Wall Streeters again dominate our annual Love Only One stock-picking contest. 2002 may not be so easy. 
Our year-end Love Only One contest invites analysts and money managers to stick their necks out by choosing one stock to buy or to sell short. Those who beat the market over the next 12 months get return invites.
Our 12 bulls, with an 18% average decline, fared somewhat better than the S&P500, which fell 20% from Nov. 13, 2000 to Nov. 1, 2001. Not much to write home about. But it was a great year to finger rotten stocks. Our five bears' picks fell an average 56%. Four bears qualified to reenter, and three chose to do so. 
ProFund Advisors' William Seale hit the bull's-eye by selecting Transmeta as a stinker. In the past year the stock has fallen 95%. He's back this year with a rap on Carnival Corp. Already, one big cruise line, American Classic Voyages, has declared bankruptcy. Now Carnival, despite being stronger than most cruise operators, will suffer as the heavy burden of overhead is spread among fewer vacationers, he says. At a recent $23 Carnival is trading at 16 times estimated 2002 earnings per share and is eminently shortable. 
Stephen N. Worthington of Barbary Coast Capital Management foresaw trouble with the burn rate and debt load at wireless service provider Metricom, trading a year ago at $15.75. Nice call. In July 2001 the company filed for Chapter 11 protection. 
This year Worthington sees trouble brewing on the balance sheet of PacifiCare Health Systems. He cites an impending writeoff of the HMO's intangibles (mostly goodwill), now 42% of assets. 
Martin Weiner of Comstock Partners correctly anticipated that a sagging market would dent enthusiasm for stock trading, as he picked broker Charles Schwab, which fell 57%. For 2002, Weiner estimates a 20% drop in capital spending for the semiconductor industry. So he says you should short Applied Materials, the big supplier of chipmaking equipment. 
Two new bears sign on for the year ahead: Timothy Ghriskey of Ghriskey Capital Partners and Cengiz Searfoss, portfolio manager at West Broadway Partners. Ghriskey sees a slide in Nestle, as investors lose their appetite for food stocks in an eventual market rebound. Searfoss targets Eastman Kodak for the stiff competition it confronts in a low-margin business. 
Now for the bulls. Jean-Marie Eveillard, manager of the First Eagle SoGen Global Fund, gained 21% with timber producer Rayonier. For next year Eveillard still likes timber, as well as real estate and gold stocks. His choice for our contest is Security Capital, a holding company for a number of real estate investment trusts and private real estate entities. 
Morgan Stanley chief investment strategist Byron Wien rode retailer Target to a 23% increase. Now he likes Oracle, arguing that it will outlast its competitors and that its share price already reflects the technology spending downturn. 
Thrya Zerhusen, manager of the ABN AMRO/Talon Mid Cap Fund, beat the market last year with a 9% gain on American Power Conversion, the manufacturer of backup power supplies. Now she opts for Unisys shares, at just 0.5 times sales and 9 times her 2002 earnings estimate. 
Six new bulls join the contest. Subodh Kumar, chief investment strategist at CIBC World Markets, picks Intel on the theory that chip companies lead technology rallies. Michael Mauboussin, chief U.S. investment strategist with Credit Suisse First Boston, goes for Enron, suggesting that the acquisition by Dynegy will take place on current terms. Enron shares are trading at a 19% discount to their Dynegy value. 
Anna Dopkin, manager of the T. Rowe Price Financial Services Fund, considers troubled insurer Safeco a promising turnaround. Wendy Trevisani, associate portfolio manager with Thornburg Investment Management, says E-Trade will succeed with its diversification from pure trading into banking and lending products. 
Kurt Von Emster, portfolio manager of MPM BioEquities Fund, bets on Regeneron Pharmaceuticals: "This biotech has a prolific pipeline, a hoard of cash and fantastic science." Sandi Gleason, a portfolio manager with Kayne Anderson Rudnick, recommends Syncor International on the strong projected growth of its radiopharmaceuticals business. 
To track current quotes on these stocks, go to www.forbes.com/love. 

The Long and Short of It 

Eight newcomers, plus nine reigning winners from last year's contest,
enter our annual Love Only One scrum. 


Name/affiliation 
Stock Price 
Buzz
Richard E. Cripps/Legg Mason 
Computer Sciences $33.94 
higher government tech spending
Anna Dopkin/T. Rowe Price 
Safeco 31.28 
new management
David Elias/Elias Asset Mgmt 
J.P. Morgan Chase 36.34 
cheap at 11 times 2002 estimated EPS
Kurt Von Emster/MPM Capital 
Regeneron 22.09 
obesity drug in phase-3 trials
Jean-Marie Eveillard/First Eagle SoGen Funds 
Security Capital 18.67 
market shift into real estate
Grace Keeney Fey/Frontier Capital Mgmt 
General Mills 47.00 
predictable & sustainable profits
Sandi Gleason/Kayne Anderson Rudnick 
Syncor International 29.59 
recession-proof growth
Subodh Kumar/CIBC World Markets 
Intel 25.94 
new products & aggressive pricing
Michael J. Mauboussin/Credit Suisse First Boston 
Enron 11.99 
market overreaction; Dynegy deal
Wendy Trevisani/Thornburg Investment Mgmt 
E-Trade 6.79 
growing bank & mortgage business
Byron R. Wien/Morgan Stanley Dean Witter 
Oracle 14.17 
long-term winner in tech
Thyra Zerhusen/ABN AMRO Funds 
Unisys 9.35 
services account for 70% of sales
SHORT-SELLERS 

Timothy Ghriskey/Ghriskey Capital Partners 
Nestle S.A. 53.02 
P/E well above 9-year average
William Seale/ProFund Advisors 
Carnival 22.65 
decline in travel & high overhead
Cengiz Searfoss/West Broadway Partners 
Eastman Kodak 26.80 
heavy debt & digital competition
Martin Weiner/Comstock Funds 
Applied Materials 36.99 
reduced spending in chip industry
Stephen Worthington/Barbary Coast Capital Mgmt 
PacifiCare Health System 18.26 
razor-thin margins, dying business




2001 Roundup 


Collectively, our bulls barely outperformed the market's 20% decline
over the course of the contest. The bears had more fun-on average
their picks tumbled 56%. 



Name/affiliation 

Ticker Stock change*
Michelle R. Clayman/New Amsterdam Partners 

BBOX Black Box -20%
Richard E. Cripps/Legg Mason 

T AT&T -5
Gail Dudack/independent strategist 

CPHD Cepheid -25
David Elias/Elias Asset Mgmt 

HD Home Depot 3
Jean-Marie Eveillard/First Eagle SoGen Funds 

RYN Rayonier 21
John R. Hickman/Juricka & Voyles 

DSWT Duraswitch -30
Mark C. Jordan/AG Edwards 

CDO Comdisco -96
Grace Keeney Fey/Frontier Capital Mgmt 

TMO Thermo Electron -18
Ron H. Muhlenkamp/Muhlenkamp Funds 

SFP Salton -51
Byron R. Wien/Morgan Stanley Dean Witter 

TGT Target 23
Martin Whitman/Third Avenue Value Funds 

AVX AVX -29
Thyra Zerhusen/ABN AMRO Funds 

APCC Amer Power Conv 9
SHORT-SELLERS 


Lou A. Cardinali/Fiero Brothers 

KKD Krispy Kreme 57
Mark Coffelt/First Austin 

JNPR Juniper Networks -87
William Seale/ProFund Advisors 

TMTA Transmeta -95
Martin Weiner/Comstock Funds 

SCH Charles Schwab -57
Stephen Worthington/Barbary Coast 

MCOM Metricom -99

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


Departments
The Informer
Janet Novack, Justin Doebele, William P. Barrett, Lynn Cook, Benjamin Fulford, Daniel Fisher

12/10/2001
Forbes Magazine
54
Copyright 2001 Forbes Inc.

Almost Makes Boesky a Saint 
The U.S. Tax Court says Chicago-based FMC Corp. can't take a $218 million tax deduction for theft losses blamed on the big mid-1980s insider trading scandal involving infamous arbitrager Ivan F. Boesky. The court held that FMC's complaint--Boesky's dealings caused it to pay that much more to buy back its own stock--was erased when it lost a nontax case making the same claim against an investment firm whose employee had leaked then-Forbes 400 member Boesky the information. FMC, the court said, was asserting the "remarkable proposition" that its own shareholders had received too much. --Janet Novack
Watch What We Do, Not What We Say 
Goldman Sachs Group is preparing to sell shares of a real estate investment trust it created consisting of commercial property in Japan. A big pitch: Rental yields are juicy compared with other investments available to domestic investors. Yet sources say Goldman itself is holding back on signing a lease for new digs in Tokyo, expecting rents to drop in coming months, which could happen. An ongoing building boom is expected to add a glut-inducing 25% to downtown Tokyo prime office space by 2004. No comment from the venerable Goldman. --Justin Doebele 
Regulators Get Hang of Law 
After criticism on this page and elsewhere, NASD Regulation, the brokerage-owned regulatory agency, is finally moving to make it harder for errant stockbrokers to hide their sins from investors. Under proposed rules, brokers who settle (i.e., pay money to end) a client's arbitration claim before a hearing would generally no longer be able to keep the matter out of an NASDR database accessible to the public. Also, NASDR would drop its legally absurd position that it had to honor expungement orders won by brokers in state courts even if it wasn't a party. --William P. Barrett 
A Buying Opportunity, Y'all? 
Energy-company mergers--Enron-Dynegy and Chevron-Texaco--likely will help swell the office vacancy rate under Houston's glittering skyline from a tight 2% to a not-so-tight 15%. Also heading south: prime space rent, already cheap by major-city standards at $27 per square foot per year. Big landlord losers: Canadian real estate investment trust TrizecHahn and Fort Worth's Crescent Real Estate Equities. --Lynn Cook 
Soap Opera 
In Japan, Sanyo, the big appliance maker, has just rolled out a washing machine the company claims needs no detergent at all. Soapmakers are foaming at the mouth as they try to disprove the new contraption's effectiveness. Amid the claims and counterclaims, machine sales appear brisk. --Benjamin Fulford 

If Your Company Wants to Put Its Name on a Stadium, Think About Selling 



With the sudden collapse of its stock, Enron becomes the latest public
company to join the growing list of big firms whose share price
underperformed the market after buying the naming rights to a
professional sports arena. --Daniel Fisher 




VENUE/CITY 


YEARNAMED PERFORMANCEVS. S&P 500*
3Com Park/San Francisco 


1995 -186%
Pro Player Field**/Miami 


1996 -171
PSINet Stadium/Baltimore 


1999 -111
Compaq Center/Houston 


1998 -95
CMGI Field/Foxborough, Mass. 


2000 -69
Bank One Ballpark/Phoenix 


1996 -65
Cinergy Field/Cincinnati 


1996 -63
Coors Field/Denver 


1991 -52
Enron Field/Houston 


1999 -52
Network Associates Coliseum/Oakland 


1998 -48
Adelphia Coliseum/Nashville 


1999 -47
Safeco Field/Seattle 


1998 -35

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

Top of the Week
Can shoppers save the economy?; Four-star defense; An anthrax enigma; Smokeout; Gore, capitalist; Falling star; Forward Spin
Lisa Stein

12/03/2001
U.S. News & World Report
10
c Copyright 2001 U.S. News & World Report. All rights reserved.

Can shoppers save the economy? 
Seems that when consumers get the blues they go shopping. And that's good news for the nation's wobbly economy.
After a second consecutive week of sunnier reports, economists wonder whether their gloom--as well as their growth--forecasts may be in need of tinkering. After all, the slowdown was supposed to feel like a recession by now. 
But don't tell that to shoppers: Michigan's consumer sentiment index actually rose in November to 83.9. The Conference Board's index of leading economic indicators went up 0.3 percent in October while retail sales jumped 7.1 percent. 
What's more, for the fourth consecutive week, initial jobless rates dipped, this time to 427,000. The economy, in fact, is suddenly beginning to look a lot like it did on September 10--not robust maybe, but not hopeless either. Some optimistic analysts were ready to break out the champagne. 
"These data scream that the biggest job losses are now over," says Ian Shepherdson of High Frequency Economics. Adds economic adviser Joel Naroff: Such "positive news could lead to a much happier holiday than anyone could have dreamed of two months ago." 
Four-star defense 
Pentagon commanders are assigned to keep tabs on almost every country in the world--except the United States. Now there may be a commander in chief--or CINC, in Pentagon-speak--for the homeland too. If the brass get its wish, CINC USA will oversee fighter jets, National Guard troops, chemical-weapons experts, and other forces that defend America's skies, borders, and cities. It's not a new idea. But until September 11, critics concerned about violating restrictions on the domestic use of military troops had rebuffed it. The bigger issue now is identifying a single authority--one who reports to the president--who would oversee the military defense within U.S. borders. The Pentagon wants to give the responsibility either to the North American Aerospace Defense Command, or NORAD--which monitors the nation's skies--or to Joint Forces Command, which develops new fighting concepts. 
A point of friction: the role of the National Guard, which is clinging to its tanks and artillery even though the Pentagon sees it as better-suited for domestic guard duty. 
An Anthrax Enigma 
Clueless In Connecticut 
Investigators are scouring the home of Ottilie Lundgren, the 94-year-old Connecticut woman who died of inhalation anthrax. The suspected culprit: her mail. Nearby postal workers were prescribed a regimen of antibiotics while officials questioned relatives and tested the home for traces of the lethal spores. "This is a very unusual case that we hope will give us more clues," says Jeff Koplan, director of the Centers for Disease Control and Prevention. 
But officials say Lundgren's death--like that of Bronx hospital worker Kathy Nguyen--could yield more questions than answers. 
Smokeout 
Tobacco Wars 
Beware lighting up in your home in Montgomery County, Md. If the smell offends your neighbor, you could face a hefty fine. The suburban Washington, D.C., county last week passed one of the nation's stiffest antismoking packages, treating tobacco smoke the same as other pollutants like asbestos and radon. Violators could be fined as much as $750. "This does not say that you cannot smoke in your house," says council member Isiah Leggett. "What it says is that your smoke cannot cross property lines." 
Tobacco companies threaten legal action; ditto, the American Civil Liberties Union. 
Gore, Capitalist 
Taking Care Of Business 
Just days after a consortium of newspapers decided Al Gore might have won the Florida recount and become president if only he had insisted that the overvotes be counted as well as the undervotes--you remember overvotes and undervotes, don't you?--Gore announced he was forsaking politics for money, at least for now. Gore will become vice chairman of Metropolitan West Financial Inc., a financial services company in Los Angeles. Avoiding the big question--will he keep the beard?--the former veep said: "For more than 25 years, I have worked on business and economic issues from the perspective of a public servant engaged in public policy. I am eager to learn more about business as an active executive of this dynamic and community-oriented company." 
While some of Gore's former aides had hoped their ex-boss would join a think tank pending another run for the presidency in 2004, they now insist that a private-sector job doesn't take him out of the race. 
Falling Star 
The Art Of The Deal 
Early this year, Enron executives groused that Wall Street didn't appreciate their innovative business model, arguing that the company was severely undervalued at $80 per share. If only investors showed that kind of disrespect for Enron today. The beleaguered Houston energy trader's stock price tumbled to as low as $4 last week, threatening a merger deal with Dynegy that is seen as Enron's best survival hope. The latest free fall came after Enron disclosed the severity of its credit crunch to regulators. 
Both Dynegy and Enron insist the deal's still on, and Enron's shares recovered slightly after its lead lender gave it more time to pay off a $690 million loan. Still, it could take six to nine months to finalize the deal. 
Forward Spin 
HELPING HANDS Congress returns from Thanksgiving recess to work that will involve a lot of giving and no small measure of thanks. The defense appropriations bill will get early and generous attention, followed by an economic stimulus bill that will be greeted with hands extended, asking that time-honored question: Where's mine? 
NEXT STOP? The last day in November is the deadline for ending sanctions against Iraq. That seems highly unlikely given the uncertainty over any role Baghdad might have played in propping up Osama bin Laden or even in supporting terrorist attacks. 
FAIL-SAFE After dismal academic performance and a projected $1.2 billion deficit, Philadelphia's school district will now be under the watchful eye of not only Pennsylvania Gov. Mark Schweiker but also Edison Schools Inc. Schweiker backed off a proposal to allow Edison to take over school management. Instead, the private company will serve as consultants and help in recruiting new managers for the troubled school district.

Picture: Can shoppers save the economy? (WILL LESTER--INLAND VALLEY DAILY BULLETIN / AP); Picture: REFLECTED GLORY. President Bush lauded Robert F. Kennedy last week as the Justice Department renamed its main building to honor the former attorney general and liberal icon. (JIM LO SCALZO FOR USN&WR); Picture: Ottilie Lundgren (IMMANUEL LUTHERAN CHURCH / AP); Picture: Gov. Mark Schweiker (DAN LOH--AP) 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Enron, Dynegy Work to Salvage Merger Deal
By Rebecca Smith and Gregory Zuckerman
Staff Reporters of The Wall Street Journal

11/28/2001
The Wall Street Journal
A3
(Copyright (c) 2001, Dow Jones & Company, Inc.)

Top executives of Enron Corp. and Dynegy Inc. raced to salvage a deal to combine the two energy-trading companies amid growing signs that Enron is facing cash-flow problems as a result of a sharp downturn in its core trading business. 
The executives' task gained urgency amid worries that Enron's debt may soon be downgraded to junk status by leading credit-rating agencies. After holding talks with executives of Enron and Dynegy, representatives of Moody's Investors Service Inc., Standard & Poor's Ratings Group and Fitch Inc. agreed to hold off on making any ratings move yesterday, people familiar with the discussions said. J.P. Morgan Chase & Co. and Citigroup Inc.'s Citibank, which are shepherding the merger and have already loaned $1 billion and agreed to invest an additional $500 million in the merged company, may arrange still more funding for Enron, these people said.
"I hope they err on the conservative side and stockpile cash," said Ralph Pellecchia, analyst for Fitch, the credit-rating agency. 
With few viable options remaining, Enron's board late yesterday informally agreed to a new share-exchange ratio of 0.12 shares of Dynegy for each Enron share tendered, down more than 50% from the original offer of 0.2685 Dynegy share for each Enron share, according to one person familiar with the situation. But the talks were still fluid as of late yesterday. 
The latest proposed share-exchange ratio values Enron at $4.91 a share, or a total of $4.17 billion. This would compare with the original value of $10.98 a share, or $9.33 billion. In exchange for reducing the purchase price, some members of the Enron team were insisting on more control over the merged company. Dynegy also was considering an additional $250 million cash investment in Enron. Dynegy, together with ChevronTexaco Inc., has already injected $1.5 billion into Enron in an effort to stabilize the company. 
Talks between Enron and Dynegy were said to be tense and occasionally acrimonious. 
At 4 p.m., Enron shares were up 10 cents to $4.11, while Dynegy shares were up $1.64 to $40.89, in New York Stock Exchange composite trading. 
Talks between Enron and Dynegy began in earnest over the weekend to cut the price of the all-stock transaction after Enron's share price had plummeted in the wake of disclosures that its future earnings wouldn't be as high as originally anticipated. On Nov. 9, Dynegy originally agreed to buy Enron after the emergence of damaging revelations concerning a series of deals that allowed Enron executives to profit personally at the expense of the company and its shareholders. Those deals are now the subject of a Securities and Exchange Commission investigation. 
While struggling to keep the planned merger alive, Enron also has been seeking to extend the maturity dates of some of its borrowings. Enron has a total of about $13 billion of debt, of which about $9 billion comes due by the end of next year. The company may find itself on the hook for an additional $7 billion in off-balance-sheet debt and another $3.9 billion in potential liabilities, related to troubled investment partnerships, if its credit rating drops to below investment grade, says Mr. Pellecchia, the Fitch analyst. A cut to a junk-status credit rating could deal a fatal blow to Enron, which needs huge sums of cheap money to keep its trading operations alive. 
Enron, nowadays, seems to be generating less cash from that business, which accounted for more than 90% of its profit in the most recent quarter. In the five weeks since Enron's problems became widely known, its trading partners have sought to protect themselves by shifting deals elsewhere from the dominant EnronOnline trading exchange and to limit their exposure to the Houston-based company. About a week ago, Enron said it had about $1.6 billion in cash, which surprised analysts who expected a number at least $1 billion higher given the most recent infusions from Dynegy and the banks. 
Enron spokeswoman Karen Denne said the company "is continuing to meet all our obligations." She added that trading activity at the EnronOnline unit had been "below average" in recent days, but that the company believes "it has stabilized." 
Analysts say cash on hand doesn't appear to be enough to keep Enron alive for long, given the reluctance of its trading partners and creditors. Rebecca Followill, an analyst at Howard Weil in Houston, says that Enron needs a bigger cash hoard than ever to rebuild confidence. She reckons Enron needs $4 billion to $5 billion on hand while the merger deal winds its way through shareholder and regulatory approvals. 
--- 
Robin Sidel and Jathon Sapsford contributed to this article.

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

Deals & Deal Makers: Banks, Too, Have Stake in Enron Merger --- Stature, Money Are Both on the Line
By Jathon Sapsford and Kara Scannell
Staff Reporters of The Wall Street Journal

11/28/2001
The Wall Street Journal
C1
(Copyright (c) 2001, Dow Jones & Company, Inc.)

As important as completing the Enron Corp.-Dynegy Inc. merger is for the two companies, it is almost as critical for the banks that have backed it. 
J.P. Morgan Chase & Co. and Citigroup Inc. have emerged as prominent financiers and cheerleaders behind the problem-plagued transaction, putting hundreds of millions of dollars of their own money into Enron in hopes of keeping the deal alive. Late yesterday, that effort continued, with the banks scrambling for new terms to avoid a credit downgrade that could scuttle the deal.
But in addition to putting their money behind the proposed merger, the two lending giants have also staked their reputations -- and perhaps even some of their prowess in the mergers-and-acquisitions business itself -- on completing this transaction. 
Both J.P. Morgan and Citigroup officials have said privately that the pending deal is a bellwether. That is because it could illustrate how big banking institutions can use their lending muscle to offer customers one-stop shopping, thus usurping business from the other, more-traditional investment-banking institutions. 
Because the banks offered financing to Enron on short-notice to grab the advisory business, the deal has the "potential for either giving a boost to a bank's stature on the street or to sling some mud in its face," said Samuel Hayes, professor of finance at Harvard Business School. "This is a high-stakes assignment." 
And an expensive one, if the deal doesn't happen. Each bank has commitments outstanding to Enron, in the form of various loans, of roughly $700 million to $800 million, according to officials familiar with the matter, and roughly half of that is in unsecured debt. The two companies, these officials say, have also committed an additional equity investment of $250 million each so far, though there is a possibility Enron could get more. 
As mergers go, the deal is relatively small, and it has gotten smaller in recent days as investors have hammered lower Enron's stock, which at 4 p.m. yesterday stood at $4.11, up 10 cents in composite trading on the New York Stock Exchange. 
But on Wall Street, the importance of the deal goes well beyond its size, where the transaction is seen as a high-profile example of the new era of finance in which large financials exploit the crumbling walls between once-separate businesses like lending, underwriting and mergers advisory. 
Goldman Sachs Group, an investment bank that doesn't traditionally extend large loans to clients, was denied a piece of the merger business because it declined to extend the sort of loans that J.P. Morgan and Citigroup provided last week. 
Should this deal fall through, it will make Goldman look smart. "There is a lot more to this deal for the banks than just [mergers and advisory] fees," says Andy Collins, an analyst at U.S. Bancorp Piper Jaffray. 
It is also seen as well as a major test of the decision in 1999 to repeal Depression-era laws under the Gramm-Leach Bliley Act. 
For decades, the U.S. financial system effectively banned commercial banks from lending to the same clients they served as an investment bank. The thinking was that commercial banks, the federally insured guardians of deposits, shouldn't be betting in the securities markets with depositor money. 
Now with those laws repealed, some worry about risks creeping back into the system. Roy Smith, a business professor at New York University, says the banks' lending to the same clients from which they seek to win securities business could encourage banks to over-lend for the purpose of closing deals. 
"You can't believe the chairman of the bank is up at night thinking about this," says Mr. Smith. 
The banks, while conceding some exposure to Enron, decline to confirm specific amounts, citing client confidentiality. But in private conversations, banks say they regularly sell loans to companies in which they may be too exposed in an active secondary market. Moreover, they use other credit derivatives to effectively transfer the risk of loans to other investors. 
Some of the recent documentation of Enron debt suggests that much of the debt has been diversified across many investors. In May 2001, for example, Citigroup and J.P. Morgan arranged a large $2.25 billion credit facility for Enron, part of the total of approximately $13 billion in debt on Enron's balance sheet (not including commitments to other financial institutions). 
Those two banks, as lead arrangers of that financing, helped divide that loan up among 50 different banks, according to Loan Pricing Corp., a research institute the follows the lending business. Many of those banks divided their shares into even smaller pieces and sold them off to other investors. One banker familiar with the matter said that, all told, more than 100 financial institutions have exposure to Enron. 
Yet J.P. Morgan and Citigroup, who have served as the top underwriters of this debt, would rather avoid being blamed for letting Enron's debts go bad. Even more importantly, they also hold their own portion of that debt. Thus, both banks recently provided an additional credit line to Enron totaling $1 billion. 
That additional lending, while enhancing the value of existing loans to Enron, is also relatively safe because it is secured with hard assets. Should Enron default, the banks would take an interest in that collateral. "That additional credit line is bullet proof," says one banker. 
The banks, ultimately, have had a string of successes with similar strategies with other firms, though few are as high-profile as Enron. These two banks, for example, are credited with saving companies like Lucent Technologies from a financial crisis earlier this year with a similar combination of financing and investment banking advise. But speaking privately, bankers concede that a failure of the Enron deal would smart beyond what the damage might be to the banks' loan portfolio. 
"If it falls apart," says Mr. Hayes, the Harvard professor, "it will be a source of embarrassment." 
--- 
Robin Sidel contributed to this article.

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

Energy-Trading Market Survives Enron for Now
By Wall Street Journal staff reporters Peter A. McKay in New York, Chip Cummins in Washington, and Alexei Barrionuevo and Thaddeus Herrick in Houston

11/28/2001
The Wall Street Journal
C1
(Copyright (c) 2001, Dow Jones & Company, Inc.)

Enron Corp.'s precarious financial condition has unnerved investors and trading partners, but the largely invisible natural-gas and electricity trading industry that it helped build appears relatively resilient -- at least so far. 
Veteran traders say many firms began to take precautionary steps a month ago against an energy-market meltdown related to Enron, when the first tidbits of the Houston-based company's woes were reported. Trading volume has moved from the popular EnronOnline electronic platform to other venues, some traders have unwound complex financial bets, and others have simply worked around their onetime trading partner.
As a result, insiders say natural-gas prices, in particular, haven't really been affected so far by Enron's problems, and any impact is expected to be moderate. 
Unlike a traditional commodities exchange, open to all, natural gas and electricity are traded privately, with many transactions reflecting deals between two players. EnronOnline, for instance, acts as both the buyer and seller, setting the price for which it will buy or sell commodities such as natural gas or electricity. Players such as Enron, which had transformed itself from a natural-gas pipeline company, make money by buying and selling energy many times over, capturing the difference between bids from buyers and offers from sellers. But actual trading strategies are tightly kept secrets, which has made the business difficult to track and assess. 
While the energy market has held up amid Enron's woes, it remains edgy, especially given the uncertainty about what might happen if Dynegy Inc.'s agreement to acquire Enron is aborted. "Companies have stopped doing business with Enron to the best of their ability," says Art Gelber, principal of Gelber & Associates, a Houston energy-consulting and asset-management firm. But, he adds, Enron has such an enormous presence in the energy-trading marketplace that it is impossible to stop doing business with the company altogether. "We have customers with long-term commitments to Enron, and they're scared to death," Mr. Gelber notes. "If they had to start anew, it wouldn't be with Enron." 
For the most part, major natural-gas producers, such as Devon Energy Corp. of Oklahoma City, say they have made adjustments in their contracts with Enron. Devon currently has a few contracts for physical gas sales to Enron totaling less than 1% of Devon's total gas sales, said Darryl Smette, Devon's senior vice president of marketing. So far, Enron has met all its obligations. 
At the same time, other trading players have stepped in to fill the void. Those benefiting most include American Electric Power Co., Duke Energy Corp., Koch Energy Trading, Morgan Stanley, El Paso Corp. and Dynegy itself, according to traders who deal with Enron. 
"We certainly see a lot of customers calling us, more trying to revive relationships that have been dormant for a while," says one trading executive. 
The relative calm is surprising to those both inside and outside the markets, because so many of the natural-gas and electricity trades are intertwined. 
Last year, the value of energy-based contracts outstanding among the 12 big traders tracked by Swaps Monitor, a trade publication, more than tripled over 1999 to $2.19 trillion. Electricity trading accounted for $365 billion of that amount, up from just $39 billion the year before. Yet just 10 companies accounted for about 60% of the electricity traded in North America, making the companies highly dependent on each other. 
Even Enron employees have tried to head off a crisis, notes the head of power trading for one big energy-trading company, who asked not to be identified. He says Enron traders have worked for several weeks with traders at other firms to make arrangements in the event that Enron contracts need to be liquidated or the partners decide Enron isn't creditworthy enough. 
To do this, Enron traders have been pairing Enron customers up with each other. For instance, a customer who bought electricity from Enron at a certain price is being matched up with another customer who sold electricity to Enron. The three-party transaction allows two Enron customers to meet their power needs while at the same time reducing their exposure to Enron. 
"Enron has been cooperating in packaging large deals to enable people to do that," this trader explains. The traders may have a motive, he says, adding that "the people who are helping you are likely to be looking for a job in two months." 
Companies have been unwinding exposure to Enron for several weeks, adds this trader, who estimates that many companies are likely to have reduced exposure by about half by now. 
If more bad news rocks Enron, the power and natural-gas markets may move upward -- though excess supply and low prices are likely to make any sort of spike relatively insignificant, compared with the volatility of a year ago. 
Still, the perception that Enron might not be able to deliver against its positions has nudged natural-gas prices a little, says Guy Gleichmann, senior energy trader at Barkley Financial. He estimates that natural-gas prices have an "Enron premium" of about 25 cents built in; gas closed at $2.62 a million British thermal units in New York Mercantile Exchange trading yesterday. 
Even in a worst-case scenario, however, most traders assume that whoever takes control of the company's assets will probably handle delivery of commodities against its contracts, he says. 
"Enron has caused some short-term price moves, but it's not a big part of what the market is going to do in the long run," says Bill O'Neill, director of commodity research at Merrill Lynch & Co. "You have to remember that the fundamentals for energy, particularly demand, are not too good right now, because of the economy." 
Indeed, natural-gas storage is nearly full, and so far, warm fall weather hasn't helped demand any. "A growing inventory of natural gas should have a moderating effect on any transitional difficulties that might arise because of a continued downward path for Enron," says Jon Rasmussen, an economist at the Department of Energy's Energy Information Administration. 
One clear impact has been on EnronOnline, Enron's electronic trading arm that had become the dominant energy e-trading platform in recent years, accounting for as much as 25% of the country's natural-gas and electricity deliveries. The rival IntercontinentalExchange Inc. has reported a 34% jump in its weekly electricity volume since October, 13% in natural gas, and a 45% increase in crude oil. The Atlanta-based concern is owned by about 100 energy and metals traders, brokers and banks. 
Other traders have returned to doing trades over the phone, a less transparent method than pulling prices off a screen. "This is doing a lot to re-establish human contact," says one trading executive.

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

Business World: Enron Is History, Says History
By Holman W. Jenkins Jr.

11/28/2001
The Wall Street Journal
A19
(Copyright (c) 2001, Dow Jones & Company, Inc.)

Back in the mid-1980s, a pipeline executive called Ken Lay was fishing around for a name for his company, produced by a merger of Houston Natural Gas and Omaha-based InterNorth. He consulted with consultants, politicked with politicians, and came up with a moniker. The company would be called "Enteron." 
Three weeks later, fed up with the wisecracks from a press that had looked up the dictionary definition of "enteron" (n. the intestine), he changed the company's name again. Henceforth it would be known as Enron.
A columnist less devoted to high standards of decorum might be tempted to extend the metaphor of the company's misbegotten name. In recent weeks, after all, we've seen Enron's stock collapse over indigestible accounting and the emergence of dealings between the company and its senior officers that exude an odor of genuine malfeasance. The evidence is far from clear, but for the sake of Mr. Lay's reputation one hopes these missteps will prove one more case of a company fooling itself rather than setting out deliberately to defraud the markets. 
Enron grew to be much more than a pipeline hauler of natural gas, becoming the pre-eminent trader and marketer of all kinds of energy contracts and a vocal proponent of deregulation. Now, all but overnight, it's kaput, just waiting to find out if its fate will be bankruptcy or absorption by an erstwhile rival. 
We cannot help be put in mind of another commodity wunderkind in the 1970s, Phibro (short for Philipp Brothers). Hard to believe, but Phibro was once a name that made grown men quiver on Wall Street. Fattened by trading profits from the great commodity inflation of the 1970s, which some mistook for a permanent new age of scarcity, it scooped up the Street's oldest partnership, Salomon Brothers, tucking it into its back pocket and renaming the combined firm Phibro-Salomon. Here was a powerhouse of unlimited potential, investors told themselves. 
Flash ahead to California's electricity meltdown earlier this year. Enron saw its revenues quadruple partly as a result of the inflated prices being quoted in the California market. Many foresaw a new scarcity megatrend, but there was no true energy shortage. Posted prices on the California power exchange may have skyrocketed, but the effective price was zero dollars and zero cents, because the utilities had no cash to pay and politicians were thumbing their noses at piles of IOUs. 
When prices are zero, suppliers take a hike -- that's what economics teaches. But once the state government started pumping its own cash into the market, the phony posted prices plummeted and supplies became plentiful again. Now California is swimming in power and nobody talks about an "energy crisis" anymore. 
You can date the loss of investor confidence in Enron almost exactly to the moment when the California fiasco began to repair itself. Fortune Magazine put the inaugural nail in Enron's coffin in March, noting that the company's growing dependence on trading had turned it into an oil-patch version of Goldman Sachs. Goldman's stock sells at a price-earnings multiple of 17, reflecting investors' well-founded distrust of trading earnings to be reproduced reliably year after year. So why, the magazine asked, was Enron awarded a multiple of 60-plus? Mmm . . . 
Enron did yeoman service as a champion of deregulation. Boss Ken Lay, a believer in technology and the power of markets, was a true visionary, to the point of annoying people who didn't care for his air of being a man on the right side of history. The moldering pipeline he took over would certainly have been an also-ran if he had not thrown Enron headlong into trading and marketing. 
But deregulation doesn't confer permanent advantage on anybody. A deregulated environment favors constant innovation and a continual upsetting of plans and strategies. 
Add the fact that, despite the California bubble, there is no reason to believe energy prices won't continue their long-term relative decline as technology advances more quickly than the depletion of conventional resources. Add also the likelihood that information technology will continue to lower the barriers to entry to Enron's trading business, which means more competition and shrinking margins. Enron begins to look a lot like Phibro. 
The great commodity-trading machine was already running down by 1981, when it bought Salomon and Wall Street was swooning. Inflation was being quelled by Paul Volcker. The products that Phibro traders bought and sold were increasingly being traded transparently on electronic exchanges. "Four or five years ago, they used to be able to take other companies to the cleaners, because they knew where the market was and others didn't," a trader explained. "With everyone knowing, within a few cents, where the price of any product was, Phibro's ability to make a profit off its superior knowledge disappeared." 
Not only is this true of Enron, but of its would-be bottom fisher, Dynegy, run by Mr. Lay's Houston homeboy, Chuck Watson. Dynegy's proposed takeover of its former nemesis was hanging by a negotiation yesterday. 
While Enron in recent years was selling hard assets and concentrating on electronic market-making, Mr. Watson was doing the opposite. His big play in the Enron deal is to get his hands on the original HNG-InterNorth pipeline, now known as Northern Natural Gas. By having both feet planted in the real business, he claims his firm will be able to make a profitable sideline out of trading despite growing competition and transparency. 
We'll see. Dynegy and Enron were born at the same time, and of the same motive. Dynegy was originally created by six pipeline companies, a Washington law firm and Morgan Stanley to take advantage of new opportunities in deregulated natural gas. But the gnats are already circling. 
Gas producers who have claimed for years that the duo control too much of their fate now insist they shouldn't be allowed to merge. Don't listen to the fussbudgets. If this was a business in need of trustbusting, Enron wouldn't have been resorting to funny accounting to make its earnings. As Merrill Lynch's Donato Eassey has pointed out, wholesale margins have been steadily thinning as trading becomes more transparent and competitive. 
Wishful accounting has time and again proved the last refuge of companies whose dearly held "visions" were not panning out. Enron prided itself on being realistic and adaptive, but it failed to see that its own beliefs about the world needed overhauling.

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

Business/Financial Desk; Section C
THE MARKETS: Market Place
Trying to Restore Confidence in Enron to Salvage a Merger
By RICHARD A. OPPEL Jr. and ANDREW ROSS SORKIN

11/28/2001
The New York Times
Page 1, Column 2
c. 2001 New York Times Company

The Enron Corporation and Dynegy Inc. worked yesterday to find ways to bolster confidence in Enron's weakened energy-trading business as the companies' negotiators continued talks on revising the terms of their merger, executives close to the talks said. 
The renegotiated deal would cut the value of the acquisition by half, they said, to roughly $4 billion. Dynegy, they said, was also prepared to invest at least an additional $250 million in Enron, on top of the $1.5 billion cash infusion from Dynegy's biggest investor, ChevronTexaco, included in the initial deal announced Nov. 9. But Dynegy wants the new cash backed by hard assets, and the companies were trying to identify and value enough Enron holdings not already mortgaged to other creditors, the executives said.
Before a series of financial disclosures sent Enron's stock into collapse and the company into the arms of Dynegy, its Houston rival, Enron's natural gas and electricity trading floors did more business than the two largest competitors combined. They also accounted for the majority of Enron's profits by far. 
But traders and Wall Street analysts said the business had steadily deteriorated amid questions about the depths of Enron's financial straits. Many traders have curtailed dealings with Enron, and the executives close to the talks said Dynegy officials scouring Enron's books were having difficulty this week figuring out how much cash the trading operation was generating. 
The executives close to the talks said that the renegotiated terms for Dynegy's acquisition of Enron would lower the price to about 0.13 Dynegy share for each share of Enron, cutting by half the value of the deal announced Nov. 9, when Dynegy offered 0.2685 share. If a deal is struck at 0.13 Dynegy share, at yesterday's closing prices, Dynegy would be paying about $5.32 an Enron share, a 29.4 percent premium over Enron's diminished stock price. The premium was 20.6 percent over Enron's closing price on the day that the deal was announced. 
Both companies are seeking promises from Enron's bank lenders to extend debt repayment dates until after the merger closes. And they are also discussing adding provisions that could limit Dynegy's ability to back out of the combination. 
The two companies are also working to arrange a cash infusion of $500 million from J. P. Morgan Chase and Citigroup that would provide Enron with desperately needed new cash. 
But there is growing concern that the cash infusion from the banks will not calm investors' fears or reassure energy traders, leading Dynegy to seek an additional $500 million in cash for Enron. Late yesterday, the two companies were hung up over whether Enron, which has already used many of its most prized assets as collateral for loans, has enough assets left to serve as collateral for the additional money, according to executives close to the talks. 
A number of Enron assets were being examined, including some that have already been used to obtain other loans, the executives said. The assets include: Transwestern Pipeline, a major natural gas pipeline that links the gas-producing basins of Texas and the Southwest with California; Enron's stake in other gas-pipeline assets; its 9.8 percent stake, worth about $400 million, in EOG Resources, a former subsidiary that is now an independent publicly traded oil and gas company; and its indirect stake in Hanover Compressor, which manufactures equipment used to increase the pressure of natural gas and facilitate its flow on interstate pipelines. 
Yesterday, investors anxiously awaited a report by Moody's Investors Service, which like other major credit-rating firms, currently ranks Enron's debt at the lowest investment-grade level. If Enron were to lose its investment-grade status, it could be forced to repay or refinance up to $3.9 billion in debt, while other traders would probably further curtail business. But by late yesterday, Moody's decided not to issue a statement after receiving assurances from Enron and Dynegy officials that a renegotiated deal would be announced soon, the executives said. A Moody's spokesman declined comment. 
Executives close to the talks said that they hoped that new cash from Dynegy would reassure both Wall Street and the energy-trading markets that Enron's trading floor would survive and remain a valuable asset. 
But analysts and investors are having difficulty figuring how much value the trading operation has already lost, and how much the business has been reduced because of credit concerns. 
''I believe Dynegy is probably seeing that deterioration in the core business and wants to renegotiate the purchase price as a result,'' said Andre Meade, head of United States utilities research for Commerzbank Securities in New York. ''I don't think anyone can estimate the earning power of Enron over the next three to four quarters, and I'm not sure Enron has a good estimate.'' 
Mr. Meade said he did not believe that Dynegy's earlier estimate that the acquisition would add 90 cents a share to its earnings was ''reliable today, given how sharply the business seems to have deteriorated.'' By Mr. Meade's calculations, if Enron's trading volumes were to fall 50 percent next year -- even if normal volume growth levels returned in 2003 -- that would wipe out nearly all the value in the stock. 
Karen Denne, an Enron spokeswoman, said the company had experienced a decline in energy trading volume and in the number of traders doing business with it, but both stabilized yesterday. She declined to elaborate or quantify the decline. 
She also said that Enron's trading operation remained profitable, though she could not quantify it, and she also said she did not know whether the company was working on a possible bankruptcy filing or other contingency plans should its business and liquidity worsen. ''We're moving forward with the merger,'' she said. 
Dynegy officials did not return telephone calls yesterday. 
Shares of Enron rose yesterday on news of a possible revised acquisition agreement. They closed at $4.11, up 2.5 percent, or 10 cents. Shares of Dynegy closed at $40.89, up 4.2 percent, or $1.64. 
Though yesterday's gains halted a four-day slide in Enron shares, the stock is down 95 percent this year after disclosures of major losses as well as significant accounting errors that led Enron to admit it overstated profits during the last five years by nearly $600 million. 
Now, difficulties within Enron's trading operation are exacerbating the company's overall liquidity problems in three ways, according to some analysts and rival energy-trading executives. 
First, other traders are requiring Enron to put up greater margin on its trades. On top of that, in some cases Enron's traders are being forced to pay more to buy natural gas than traders at other companies. This credit premium in some transactions has ranged from 3 cents to 6 cents for every million British thermal units of gas Enron buys, these people say. 
Additionally, many traders, like the Mirant Corporation, have either scaled back or stopped doing business with Enron, hurting its trading revenue. 
Mr. Meade of Commerzbank said ''end-use customers and trading counterparties appear to be shifting their business to competitors as a result of Enron's credit concerns and are reluctant to increase their exposures to Enron.''

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

Nov. 28, 2001
Houston Chronicle
Enron, Dynegy pursue the right price 
By LAURA GOLDBERG 
Copyright 2001 Houston Chronicle 
Dynegy and Enron Corp. continued discussions Tuesday on several issues, including new terms for Dynegy's deal to buy Enron and an equity infusion for Enron, according to people familiar with the talks. 
There was no sense talks were breaking down, but instead there were a lot of pieces that needed to be put in place, the people said. 
Sources told the Chronicle on Monday that the two Houston-based energy traders were negotiating a lower exchange rate for Dynegy's stock deal to buy Enron. 
The sources also said Enron and Dynegy were working with a group of banks to reach a so-called "override" agreement to extend, until after the merger closes, maturity dates for certain Enron debt, and that the two energy companies were working to finalize terms for equity infusion into Enron of around $500 million, expected to come from J.P. Morgan Chase & Co. and Citigroup. 
Dynegy, one source said Tuesday, could also be a contributor to that $500 million. 
Under the Nov. 9 deal, Enron shareholders would receive 0.2685 share of Dynegy stock per Enron share owned. Since then, there have been increasing worries about Enron's core trading business and new troubling financial disclosures from Enron. 
The sources said Tuesday the new ratio being discussed is around 0.15. 
Dynegy spokesman John Sousa said Tuesday he could confirm only that Dynegy was in discussions with parties involved in transactions related to the deal. 
Investors appeared optimistic Tuesday that Dynegy and Enron would work out an arrangement to save the merger. Shares in Dynegy closed up $1.64 at $40.89, while shares in Enron closed up 10 cents at $4.11. 
Wall Street expects Dynegy to either cut its purchase price or walk away. That Dynegy is negotiating a lower exchange ratio shows it is very intent on keeping the deal together, said Jeff Dietert, an analyst with Simmons & Co. International in Houston. 
If the deal falls apart, Enron would likely see its credit rating cut to so-called junk status, which would trigger a series of negative consequences. Among them: Enron's ability to run its trading business would be severely hampered. In turn, Enron could quickly be forced into bankruptcy. 
Enron's trading operation, which is highly dependent upon access to cash and credit, is already suffering. Enron hopes another equity infusion will spur other traders to return the business they've taken elsewhere. 
"It appears that trading counterparties have moved significant volumes away from Enron over the past few weeks as a result of credit concerns," Andre Meade, an analyst at Commerzbank Securities in New York, wrote in a report Tuesday morning. 
That new deal terms are being discussed "confirms our fears that Enron's core trading and marketing business has been rapidly deteriorating and is worth much less today than several weeks ago," Meade said. 
Tuesday afternoon, word spread among analysts and investors that Moody's Investors Service would issue a rating report on Enron before day's end. They were waiting to see if Moody's would have soothing words on Enron or drop its credit rating to junk, but no report was released. 
Enron is expected to lay off employees this week. 


Nov. 28, 2001
Houston Chronicle
Cooperation from Enron key in probe 
By TOM FOWLER 
Copyright 2001 Houston Chronicle 
Federal officials say they are willing to be more lenient with companies that cooperate in securities fraud cases, an attitude that could help get Enron Corp. off the hook in its current SEC investigation. 
But it could also put individual executives -- including its former chief financial officer and other former employees -- in the hot seat. 
In the months since he took over as head of the Securities and Exchange Commission, Chairman Harvey Pitt has laid out policies that will give companies credit for coming forward to report misconduct such as improper accounting. The message has been that cooperation could spare companies harsher penalties. 
The SEC is so serious about its new attitude that late last month it took the highly unusual step of outlining the reasons it decided not to bring an enforcement action against Seaboard Corp. of Shawnee Mission, Kan. 
The pork processing and cargo shipping company issued misstatements in its annual and quarterly reports from December 1995 to March 2000 based on improper entries booked by a controller at a Florida division. 
In a statement, the SEC said the company's conduct was key to it avoiding the enforcement action because within a week of finding the alleged misconduct, internal auditors did a preliminary review and advised management and its board of directors, who then hired an outside law firm to do an independent review. 
Four days later the controller who covered up the problems was fired, along with two supervisors, and the public was notified of the problem. The SEC reached a settlement directly with the former controller, where she agreed not to violate securities laws in the future. 
While the Seaboard case is the only enforcement action to occur since the new policies were put in place, observers say it's likely they could be applied to Enron in the SEC investigation. 
"You won't see the SEC be easy on anyone," said Frank Velie, a former U.S. attorney and partner with New York-based Salans Hertzfeld Heilbronn Christy & Viener. "But if you have an individual, or a small group of individuals who acted illegally, and the company acts swiftly to fire them, turn over information to the SEC and cooperate, in many cases the company can escape prosecution." 
Since SEC officials began looking into a number of off-balance-sheet partnerships formed by Enron's former CFO, Andrew Fastow, the company has gone to great lengths to appear cooperative and to distance itself from anyone associated with the partnerships. 
The day after an earnings report last month revealed Enron would lose $35 million and take a $1 billion hit on shareholder equity because of the complex financing partnerships, Enron Chairman and Chief Executive Officer Ken Lay and the company's board of directors said they stood by Fastow. The board had approved all the partnerships and dealings, it was noted. 
A week later, however, on Oct. 24, the company replaced Fastow. 
On Oct. 31, the day Enron said the SEC had upgraded its review of the finances from a simple inquiry to a formal investigation, the company announced it's board of directors had created an investigation committee of its own with the power to take disciplinary action against any Enron employee, officer or director who it determined " ... improperly participated in the transactions." 
The committee took action shortly after, as several employees were fired for their involvement in the deals, a spokesman said, including Ben Glisan, a managing director and treasurer of Enron Corp., and Kristina Mordaunt, a managing director and general counsel of an Enron division. Other employees who were determined to have invested in the partnerships, including Fastow and executives Michael Kopper, Kathy Lynn and Anne Yeager, no longer work for Enron. 
In its SEC filing that outlined more details of the partnerships earlier this month, Enron again tried to distance itself from the deals by saying that it was aware of the partnerships but required that certain safeguards be put in place and that the transactions be approved and reviewed regularly. 
Painting the company as a relative innocent that fell victim to the dealings of renegade employees may make sense in the face of the SEC inquiry, but it won't ensure safe passage for Enron, says Henry Hu, a law professor at the University of Texas in Austin. 


Dynegy Completes $600 Mln Purchase of U.K. Gas Storage Assets
2001-11-28 07:37 (New York)

Dynegy Completes $600 Mln Purchase of U.K. Gas Storage Assets

     Houston, Nov. 28 (Bloomberg) -- Dynegy Inc., which is buying
rival U.S. energy trader Enron Corp., completed its acquisition of
BG Group Plc's U.K. natural gas-storage subsidiary for about
$600 million, its first purchase of energy assets in Europe.

     Dynegy used cash and short-term borrowings to pay for the
acquisition, which was announced in July. BG Storage is expected
to boost 2002 earnings, Houston-based Dynegy said in a statement.

     The purchase includes two storage terminals, Rough and
Hornsea, which are used by about half of the U.K.'s gas shippers
and can store 111 billion cubic feet, Dynegy said. The business
also has 19 miles of pipeline and an onshore gas-processing plant
in Easington, England. BG Storage's 260 workers will become
employees of Dynegy.

     Dynegy, which trades gas in Germany, the Netherlands,
Switzerland and Scandinavia, has said it needs physical energy
assets in Europe to support its trading business. Dynegy is in
talks to lower the price of its acquisition of Enron, the biggest
energy trader, from its current $23 billion in stock and assumed
debt.

     Shares of Dynegy rose $1.64 to $40.89 yesterday. They have
fallen 27 percent this year. Enron, also based in Houston, rose 10
cents to $4.11. The stock has plunged 95 percent this year.

--Mark Johnson in the Princeton newsroom (609) 750-4662

Natural Gas, Electricity Trading Appears Resilient, WSJ Reports
2001-11-28 06:32 (New York)


     Houston, Nov. 28 (Bloomberg) -- Despite Enron Corp.'s
precarious financial condition, the natural gas and electricity
trading industry appears relatively resilient and prices haven't
yet been affected, the Wall Street Journal said.

     Trading companies, which began to take precautionary steps a
month ago when news about Enron's woes were first reported, have
moved trading from EnronOnline to other venues, the paper said.
Some traders have unwound complex financial bets, while others
have simply worked around Enron.

     Unlike a traditional commodities exchange, open to all,
natural gas and electricity are traded privately, often with
contracts between two parties, the Journal said. EnronOnline acts
as a buyer and seller, setting the price for which it will buy or
sell commodities.

     However, the energy market remains concerned given the
uncertainty of what might happen if Dynegy Inc.'s purchase of
Enron falls through. Companies that would benefit from a potential
trading void include American Electric Power Co., Duke Energy
Corp., El Paso Corp. and Morgan Stanley Dean Witter & Co.


J.P. Morgan, Citigroup Have Stakes in Enron Purchase, WSJ Says
2001-11-28 05:53 (New York)


     New York, Nov. 28 (Bloomberg) -- J.P. Morgan Chase & Co. and
Citigroup Inc., as of late yesterday, were looking for new terms
in Dynegy Inc.'s planed purchase of Enron Corp. in order to
maintain their banking stature, the Wall Street Journal said.

     The banks, which have put hundreds of millions of dollars
into completing the purchase, have also placed their reputations
in the mergers and acquisitions business on this transaction, the
paper said. The banks are also trying to avoid a credit downgrade
that could scrap the transaction.

     Officials at both banks, whom the Journal didn't name, said
the pending transaction is a bellwether because it shows how banks
like J.P. Morgan and Citigroup can use their lending ``muscle'' to
offer one-stop shopping.

     Each bank has committed $700 million to $800 million in the
form of various loans, the paper reported, citing officials
familiar with the matter. Half of that amount is unsecured debt.
The banks also have committed $250 million each.


Enron's 401(k) Savings Plan Was Set Up for a Fall: David Wilson
2001-11-28 06:02 (New York)

Enron's 401(k) Savings Plan Was Set Up for a Fall: David Wilson

     (Commentary. David Wilson is a columnist for Bloomberg News.
The opinions expressed are his own.)

     Princeton, New Jersey, Nov. 28 (Bloomberg) -- Enron Corp.
employees participating in a company-sponsored savings plan were
more vulnerable than usual to this year's 95 percent plunge in its
share price.

     Common and convertible preferred shares of Enron, the largest
energy trader, increased as a percentage of the plan's assets last
year for the first time since 1994, according to filings submitted
to the U.S. Securities and Exchange Commission.

     The stock amounted to 62 percent of assets in the so-called
401(k) plan, designed to help people save for retirement, at the
end of 2000. That figure was the highest in six years; in both
1998 and 1999, it had been less than a majority.

     Participants in the plan, which had $2.14 billion in assets
available for benefits, could only do so much to diversify their
investments. Enron, like many other companies, uses stock rather
than cash to match employee contributions and restricts sales of
the shares.

     And they could only guess at the year-end makeup of the
plan's assets until the end of June, reflecting SEC disclosure
standards for savings plans. By that time, the stock's drop was
already well under way.

                         Trio of Lawsuits

     Enron has since reported $1.01 billion in third-quarter
charges; ousted Chief Financial Officer Andrew Fastow, who ran
partnerships that accounted for some of the charges; restated its
results since 1997; become the target of an SEC investigation into
its accounting; and accepted a takeover bid from Dynegy Inc., its
biggest rival.

     The company's shares, which ended last year at $83.13, fell
as low as $3.83 yesterday amid concern that Dynegy might abandon
its offer for the Houston-based company. They closed at $4.11.

     In response to the plunge, employees in the 401(k) plan --
which allows workers to defer part of their pay and build tax-free
savings, and takes its name from a section of the Internal Revenue
Service code -- have filed three lawsuits against Enron.

     The suits allege, among other things, that Enron prevented
employees from shifting investments within the plan between Oct.
17, the day after its disclosure of the charges, and Nov. 19 as
the company made administrative changes.

     All three seek class-action status on behalf of the plan's
participants. The most recent filing came from the Gottesdiener
Law Firm, based in Washington, on Monday. It covers the longest
time period: November 1995 to now.

                        Falling Percentages

     Enron shares accounted for 64 percent of the savings plan's
assets at the end of 1994, the year before the period associated
with the Gottesdiener suit began. The figure reflected a one-time
contribution of preferred stock, and rose from 62 percent in 1993.

     Each preferred share has a face value of $100 and is
convertible into 27.304 common shares. This translates into a
conversion price of $3.66 a share, about 12 percent lower than
yesterday's closing price.

     The plan also owned a stake in Enron's former oil and gas
unit, which became EOG Resources Inc. after gaining independence
in 1999. Add in those shares, and company stock represented about
two-thirds of the 1994 assets.

     Enron's common and preferred shares fell to 60 percent of
401(k) assets available for benefits in 1995, 58 percent in 1996
and 53 percent in 1997 as the U.S. stock market rallied, lifting
the value of participants' investments in equity mutual funds.

     The shares represented 49 percent of the plan's assets in
1998. The proportion hit bottom at 46 percent in 1999, when the
assets more than doubled -- exceeding the 56 percent increase in
Enron's share price that year -- to $1.62 billion.

                         How Much Choice?

     Then came last year, when the common stock recorded its best
performance in more than two decades even as U.S. stocks stumbled.
Enron rallied 87 percent amid soaring electricity and natural gas
prices, while the Standard & Poor's 500 Index, a market benchmark
that includes the company, fell 10 percent.

     Company shares in the plan rose in value by $652.7 million,
according to an SEC filing. The total includes shares bought and
sold throughout the year. By contrast, mutual-fund holdings fell
by $47 million and ``other investments'' rose by just $134,000,
the filing said.

     At year-end, the 401(k) plan owned 13.9 million Enron common
shares and 70,000 preferred shares, valued at $1.32 billion. This
total encompasses not only Enron's matching contributions to the
plan, but also employees' investments with their own money.

     The company generally provides a 50 percent match, in stock,
for the first 6 percent of pay that goes into the plan. Employees
can't sell the shares and move the proceeds into other investment
choices until they reach the age of 50.

     About 11 percent of the plan's stock holdings came from the
contributions, said Karen Denne, an Enron spokeswoman. The figure
suggests participants invested more heavily in their company than
usual for 401(k) participants.

                         Waiting for Data

     For the average U.S. plan account, company stock amounted to
19 percent of assets at the end of last year, according to a study
done by the Employee Benefit Research Institute and the Investment
Company Institute and published last week.

     In any case, Enron's approach to matching ensures that as
much as one-third of the contribution to an employee's account
takes the form of shares that they can't sell right away.

     Anyone who wanted to gauge how this approach, and Enron's
stock performance, affected the plan's financial position last
year had to wait until June 27. That's when the filing cited
earlier arrived at the SEC.

     Employee savings and stock-purchase plans, such as 401(k)
plans, don't have to submit annual reports until 180 days after
their fiscal year ends. They can even get a 15-day extension of
the deadline if they need one.

     By the time Enron's plan made its annual report, it was
already a bit too late to act on the information. The company's
shares dropped 44 percent between the end of 2000 and the date of
the submission. As the filing demonstrated, employees looking to
save for retirement had been set up for a fall.

--David Wilson in the Princeton newsroom (609) 750-4546 


Enron Receives Proposal for $1 Billion Investment, FT Says
2001-11-28 00:01 (New York)


     New York, Nov. 28 (Bloomberg) -- Enron Corp. has received a
proposal from a group of investors willing to provide the energy
trader with more than $1 billion, the Financial Times reported,
citing an unidentified person close to the talks.

     The funding would be provided through an equity investment in
the Houston-based company, the Financial Times reported. The
investment could assure Dynegy Inc. that Enron can survive for the
nine months it may take for Dynegy to acquire the company, the
paper reported.

     The new proposal is believed to be different from Enron's
efforts to secure $500 million in financing from J.P. Morgan and
Citigroup Inc., the paper reported. It is not clear who is
involved in the new consortium, whether Enron will accept the
proposal or on what terms it was made, the Financial Times
reported.

     Karen Denne, a spokeswoman for Enron, told the paper that the
company was trying to secure $500 million to $1 billion worth of
equity financing and to restructure its debt, the paper said.



GLOBAL INVESTING - Enron faces lawsuits over handling of pension plan ENERGY TRADER'S EMPLOYEES ALLEGE ...
By ELIZABETH WINE.

11/28/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

GLOBAL INVESTING - Enron faces lawsuits over handling of pension plan ENERGY TRADER'S EMPLOYEES ALLEGE ASSETS WERE FROZEN. 
Enron, the troubled energy trading company, is facing four lawsuits for its handling of its employee retirement plan, one of which claims $850m in losses. Enron employees allege that the company froze the plan's assets, stopping them from selling company shares they held in the plan as the stock price plunged.
The third suit, filed on Monday night by the Washington, DC-based Gottesdiener Law Firm, also claims Enron breached its fiduciary duty over the retirement plan when it sold employees company stock knowing the share price was artificially high. Enron shares have fallen from a high of $90 in August 2000 to a 52-week low of $4.01 as of Monday's close. Its shares began a rapid fall from about $30 in mid-October on news of improper accounting practices. 
Between October 17 and November 19, Enron "locked down" the retirement plan, barring employees from selling their shares. From the market's close on October 16 to November 19, Enron shares lost 73 per cent of their value. Eli Gottesdiener, Gottesdiener's principal, said that his claim of $850m was based on the drop in the value of the company stock in the pension fund from $1.3bn at the start of the year to about $100m today. 
Enron shares accounted for about 60 per cent of the $2.1bn plan's assets at the end of 2000, according to another of the lawsuits, filed by the law firm Campbell Harrison last week. 
That amount was far too high for prudent diversification of investment, Mr Gottesdiener said. This was in addition to his objection to Enron's "lockdown", which forced employees to watch as their retirement savings plunged while the fund underwent administrative changes. "We allege a breach of fiduciary duty under the circumstances," he said. "Knowing that people would want to sell their stock, and realising that Enron was not the company they thought it was, under those circumstances, to lock people in, was grossly negligent and a violation of Enron's duty." 
The lawsuits raise several issues, such as a company's fiduciary duty in offering its own shares to employees in a retirement plan, and its right to ban employees from selling shares. 
Defined contribution plans such as Enron's, in which employees allocate their retirement money from a menu of choices including mutual funds and company stock, are regulated by the Labor Department. They are not overseen by the Securities and Exchange Commission, which oversees traditional mutual funds. 
No regulation limits companies' ability to start such "lockdowns", beyond basic fiduciary duty. As a result, there is little day-to-day oversight of the management of the investments, said Geoff Bobroff, a former SEC attorney and financial services industry consultant. 
An older type of employee retirement plan - a defined benefit plan - has a 10 per cent limit on the amount of company stock that can be held in the pension fund because these plans are administered entirely by the company. But the legislation does not extend to defined contribution plans. Mr Gottesdiener said part of the reason he was bringing the lawsuit was to push for legislation to place the same 10 per cent cap on company stock in defined contribution plans that exists for defined benefit plans. 
He added that when a company matched the employee contribution with its own stock alone, it pushed employees to buy more company stock, forsaking prudent diversification. "As long as companies match their employees' contributions in their own stock, people take that as implicit investment advice." 
Enron's only matching contributions were in company stock. 
(c) Copyright Financial Times Ltd. All rights reserved. 
http://www.ft.com.

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

COMPANIES & FINANCE THE AMERICAS - Enron works to save Dynegy bid.
By ANDREW HILL and SHEILA MCNULTY.

11/28/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

Enron was yesterday locked in negotiations with Dynegy, its energy trading rival, about reworking the details of Dynegy's rescue bid. 
Dynegy is understood to be considering halving the value of the all-stock bid in the light of Enron's deepening financial crisis.
John Sousa, spokesman for Dynegy, said: "I can confirm that we are in discussions with the parties involved in the transaction related to the structure of the deal." 
Dynegy's bid, launched on November 9, is worth $11 a share - or $9.4bn - but the Enron shares were trading yesterday morning at $4.12. 
Enron's fate still depends on Dynegy's commitment to the deal, lenders' willingness to restructure their loans, and credit ratings agencies' decision not to downgrade Enron debt to junk status. 
A downgrade by the large rating agencies would trigger a series of collateral calls by trading counterparties. It would also oblige Enron to repay about $3.3bn of bonds. Karen Denne, Enron spokeswoman, said: "We're still working on an equity infusion of $500m to $1bn. And we're still working on restructuring our debt." 
The most likely investors are JP Morgan Chase and Citigroup, which have already extended a $1bn secured credit line to Enron and are the energy group's principal advisers on the Dynegy deal. 
"You have five moving parts: Dynegy, Chevron-Texaco (which owns 26 per cent of Dynegy), Enron, Citigroup and Chase. All these people are horse trading," said John Olson, of Sanders Morris Harris, a Houston-based investment banking and securities firm. 
People close to the negotiations said Enron was seeking further guarantees from Dynegy that it would not pull out of the deal. Enron is also seeking further cash on top of the $1.5bn Dynegy has already committed with the backing of ChevronTexaco. 
Andre Meade, an analyst with Commerzbank Securities, said that even if the deal were completed "the underlying earnings associated with Enron's trading and marketing business may be significantly lower than Dynegy anticipates". Creditsights, a credit research group, said the mounting shareholder and employee litigation against Enron risked triggering a clause that allows Dynegy to walk away if potential liabilities exceed $3.5bn. 
(c) Copyright Financial Times Ltd. All rights reserved. 
http://www.ft.com.

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

WORLD STOCK MARKETS - Black clouds of pessimism hang over Wall Street AMERICAS.
By MARY CHUNG.

11/28/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

US stocks posted sharp losses in morning trading as unexpectedly weak consumer confidence data sparked a broad sell-off on Wall Street. 
By midsession, the Dow Jones Industrial Average was off 111.26 at 9,871.49 while the S&P 500 index had given up 11.33 at 1,146. The Nasdaq Composite lost 27.91 at 1,913.32.
After overcoming the previous session's gloomy news that the economy is officially in recession, investors turned decisively pessimistic after the consumer confidence index dropped for the fifth consecutive month. 
Technology stocks were hit the hardest. Intel fell 2 per cent to $31.28, Microsoft 3.4 per cent at $62.94 and 
Cisco Systems shed 1.3 per cent at $19.67. 
Online retailers, that saw sharp gains following the Thanksgiving weekend as optimism grew for a surge in online holiday sales, lost momentum. Amazon dropped 6.4 per cent at $11.43 and Ebay shed 3 per cent at $63.13. 
"We had weaker-than-expected confidence data, which spurred some profit taking," said Bryan Piskorowski, a market commentator for Prudential Financial. "But all said and done, we had a nice run and it's not surprising to see the market give back some ground." 
Telecommunications stocks slid after Nokia, the world's largest mobile phone maker, downgraded estimates for worldwide handset sales for 2001 and painted a cautious picture for 2002. Motorola retreated 2.2 per cent at $17.56. 
A US court issued an injunction preventing Rambus from asserting some of its patents against Infineon, the German memory chip maker. Rambus shed 7 per cent at $9.40. 
Retail stocks were lower as Kmart dropped 5.4 per cent at $6.48 after the discount retailer reported a heavier quarterly loss than a year ago. Wal-Mart slipped 0.6 per cent at $55.40 and Home Depot gave up 5 per cent at $43.35 and was the biggest loser on the Dow. 
Dow components were all trading lower with American Express off 1.7 per cent at $34.51 and Exxon Mobil down 0.3 per cent at $37.57. 
Enron, the embattled energy trading company, dipped 0.2 per cent to $4, weighed down by talk of renegotiations with Dynegy. 
Toronto edged lower in early trading as the weak opening for US equities sparked technology stock selling and countered the day's good news story - a 50 basis points cut for interest rates by the Bank of Canada. 
By midsession the S&P 300 composite index was off 0.1 per cent at 7,457.70. Nortel Networks shed 16 cents at C$12.57 and Celestica came off 75 cents at C$66. Talisman Energy overcame concerns about crude oil prices, adding 22 cents at C$55.60. 
(c) Copyright Financial Times Ltd. All rights reserved. 
http://www.ft.com.

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

California; Metro Desk
Enron's Many Victims

11/28/2001
Los Angeles Times
Home Edition
B-12
Copyright 2001 / The Times Mirror Company

Enron, the Houston energy company that helped throw California into crisis last year, spirals downward. Its stock has fallen from a high of near $85 to $4 Tuesday. A planned rescue-merger is being renegotiated, and Enron's executives are disgraced. 
The only shame in this is that 15,000 Enron employees have seen their retirement accounts tank right along with the company stock. We can only wish them luck in their lawsuit filed this week against the company, which urged them right up until the stock crashed to keep buying Enron, then froze the retirement fund so employees couldn't sell their stock while the price skidded. The freeze was billed as an administrative necessity while plan managers were being changed.
Considering that Enron Chairman Kenneth L. Lay made about $145 million on his stock options in 2000 and the first few months of 2001 alone, maybe he'll volunteer to cover some of the $890 million in retirement plan losses. Fat chance. Ditto the nearly $60 million that former Enron President Jeffrey K. Skilling cleared on his options in 2000. It was Skilling's August resignation that helped trigger Enron's decline--that and disclosures that its executives had formed off-the-books partnerships that essentially concealed company debt. 
Enron's employees aren't the only ones holding the bag. Enron and its chairman, Lay, essentially invented market trading in electric power. Lay was also a chief energy advisor to President Bush, as he had been to Bush's father. Along with a handful of other companies, Enron profited so handsomely from deregulation that California consumers, except those in areas with municipal power like Los Angeles, will pay the price in higher electric bills for years. Pacific Gas & Electric declared bankruptcy, and Southern California Edison nearly did. The state itself is deeply in debt for the power it was forced to buy. Major shareholders in Enron, including the state employee pension fund, got burned. There is a lot of blame to pass around--after all, Edison itself was a main cheerleader for deregulation--but Enron remains a fat target. 
Lay's tendency to fulminate at the state and its officials at the height of the electricity crisis for not getting onto the free-market bandwagon deepened the wounds. When the price bubble fell victim to this year's cool summer, a declining economy and the state's purchase of long-term power contracts, the damage was done. 
Californians can hope that the Securities and Exchange Commission will require companies to disclose the sorts of shenanigans that concealed Enron's debt. Voters can ask themselves whether state legislators' inexperience, a product of term limits, helped produce such a shoddily constructed deal on deregulation. 
Nothing will bring back the ordinary shareholders' lost money. At least the Enron employee lawsuit stands a chance of recovering some percentage of the retirement fund loss, even if not a penny comes from Kenneth Lay's $145 million.

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

Financial
Dynegy Asks Enron for New Terms
Peter Behr
Washington Post Staff Writer

11/28/2001
The Washington Post
FINAL
E01
Copyright 2001, The Washington Post Co. All Rights Reserved

Dynegy Inc. is insisting on steeply cutting the price of the $23 billion rescue offer it made to energy trading competitor Enron Corp., as the companies' executives yesterday continued to hash out financial and legal issues standing in the way of a new agreement. 
Dynegy confirmed that it was pressing Enron for new terms, following the latest collapse of Enron's stock price after the companies' original Nov. 9 acquisition agreement.
Neither company would discuss the parameters of a new deal. Dynegy is believed to be seeking a reduction of about 45 percent in its original offer, which involved a stock swap and assumption of about $15 billion in Enron debt. 
More critical than the stock exchange ratio, however, is how Enron will raise more cash and capital to stay solvent over the six to nine months that regulators are expected to take to review a Dynegy-Enron deal, analysts said. Enron has $7 billion in debts that come due over the next 12 months. 
Under the original deal, Enron shareholders would receive about $10.50 a share -- more than twice the stock's current market value. Enron shares closed yesterday at $4.11, up 10 cents, while Dynegy closed at $40.89, up $1.64. 
The New York Times and Wall Street Journal reported details of the negotiations on Monday. 
Enron has little if any leverage, analysts said, predicting that a breakdown in the negotiations could trigger a series of events that would force the nation's largest energy trading firm and champion of deregulation into bankruptcy reorganization. 
"I don't think they have a choice," said Ralph Pellecchia, a credit analyst with the Fitch Inc. bond-rating service. 
Enron's stock -- which traded as high as $84 earlier this year -- plummeted after a chain reaction of shocks over the past month tied to Enron's disclosures that some executives were involved in investment partnerships whose debts were kept off Enron's balance sheet. The Securities and Exchange Commission launched an investigation of Enron's finances and Enron had to make a $1.2 billion reduction in shareholders' equity and acknowledge a $586 million reduction in earnings for the past four years. 
Ratings services have withheld new assessments of Enron's creditworthiness while the companies attempt to restructure their deal. 
The ratings assessments are critical because Enron's debt is now rated just one step above junk bond status. If it sinks to that level, lenders could begin demanding repayment on more than $3 billion in Enron debt, precipitating what would likely be a fatal cash drain, analysts said. 
"Enron's investment grade rating is based in great part on the expectation that the merger with Dynegy will go forward," Pellecchia said. 
Growing concerns about Enron's survival have stymied attempts by its bankers, J.P. Morgan Chase & Co. and Citigroup Inc., to raise as much as $2 billion for Enron over the past two weeks. The two banks are prepared to advance $250 million each and are trying to find other lenders willing to advance up to $1.5 billion more, according to sources familiar with the plan. 
Meanwhile, some companies have avoided selling energy to Enron's trading operation, fearing they won't be paid. 
Investors and lenders urgently need a clear signal that Dynegy is determined to proceed, on new terms, Pellecchia and other analysts said. The combination of the two companies would create a dominant trading operation in energy products and related financial instruments, but regulatory reviews are likely to extend for six months or more, and investors want to see whether Dynegy is prepared to stay that course. 
Another ongoing issue is the mounting lawsuits against Enron by shareholders and employees. Under the merger agreement, Dynegy can walk away if it judges that the successful claims against Enron from such suits will exceed $3.5 billion. 
Several Enron employees have filed suit claiming that the company mismanaged its 401(k) employee retirement plan, which, combined with concealment of its financial problems, has devastated employees' savings. 
The suit cites Enron's policy that the company's matching contributions would be made only in Enron stock, and that employees could not sell these shares until they reached age 50. 
Additionally, Enron froze the retirement accounts from the close of trading Oct. 26, about the time when the depth of its problems was becoming clear, until the morning of Nov. 13, in order to make a planned change in the management of the account, a company spokesman said. (The employee lawsuit contends that the freeze covered a slightly longer period.) During the freeze, employees could not sell Enron shares that they had purchased as their retirement contribution. 
"The message to employees [investing in Enron stock] was, everything was going great," said Washington lawyer Eli Gottesdiener, who represents the employees in the suit.


http://www.washingtonpost.com 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Business; Financial Desk
Dynegy Refigures Enron Offer Takeover: Buyer lowers price; energy trader's stock stabilizes. Rating agencies show restraint.
THOMAS S. MULLIGAN
TIMES STAFF WRITER

11/28/2001
Los Angeles Times
Home Edition
C-3
Copyright 2001 / The Times Mirror Company

NEW YORK -- 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.

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



Ratings agencies agree to hold off on ratings move on Enron for now - WSJ

11/28/2001
AFX News
(c) 2001 by AFP-Extel News Ltd

NEW YORK (AFX) - Representatives of Moody's Investors Service Inc, Standard & Poor's Corp and Fitch Inc yesterday agreed to hold off on making any ratings move on the long-term debt of Enron Corp, which is currently just one notch above junk status, the Wall Street Journal reported citing people close to the talks. 
The ratings agencies yesterday met with executives of Enron and Dynegy Inc, which is trying to buy Enron, as the companies continued talks aimed at salvaging their two-week old deal.
A downgrade to junk status would be critical for the troubled Enron, as it would trigger payment obligations on a large part of its debt, which totals about 13 bln usd, 9 bln usd of which is due by the end of next year. 
The company may find itself on the hook for an additional 7 bln usd in off-balance-sheet debt and another 3.9 bln usd in potential liabilities, related to troubled investment partnerships, if its credit rating drops to below investment grade, Fitch analyst Ralph Pellecchia said, according to the paper. 
It would also make it more expensive for the company to raise the financing needed to keep its trading operations alive. 
Enron yesterday informally agreed to a new share-exchange ratio of 0.12 shares of Dynegy for each Enron share owned, down more than 50 pct from the original ratio of 0.2685 Dynegy shares for each Enron share owned, the paper said. 
But the new ratio, which values Enron at 4.91 usd a share, or a total of 4.17 bln usd, compared with the original value of 10.98 usd a share, or a total of 9.33 bln usd, has not been officially agreed upon, and talks -- which are reported to be tense -- are set to continue. 
The talks began at the weekend, sparked by a steep decline in Enron's share price in the past two weeks following revelations of new liquidity problems in a filing to the SEC last week. 
cl/jad

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


Dynegy Completes BG Storage Ltd Buy

11/28/2001
Dow Jones News Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

HOUSTON -(Dow Jones)- Power holding company Dynegy Inc. (DYN) closed the acquisition of BG Storage Ltd. from BG Group PLC (BRG) for about $600 million cash. 
In a press release Wednesday, Dynegy said BG Storage -whose assets include 30 wells, five offshore platforms and 19 miles of natural gas pipelines - should be accretive to earnings in 2002 and beyond.
Dynegy used cash on hand and short-term borrowings to pay for the acquisition, which was announced in July. 
The company expects to close its acquisition of Enron Corp. (ENE) by the end of the third quarter. 
The Wall Street Journal reported that Enron's board late Tuesday informally agreed to lower the initially proposed share-exchange ratio by more than 50%, to value the deal at about $4.17 billion. Talks were still fluid as of late yesterday, the Journal said. 
-Pamela Tate; Dow Jones Newswires; 201-938-5400

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

Dynegy Completes Acquisition of UK Natural Gas Storage Assets

11/28/2001
Business Wire
(Copyright (c) 2001, Business Wire)

HOUSTON--(BUSINESS WIRE)--Nov. 28, 2001--Dynegy Inc. (NYSE:DYN) today announced the completion of the previously announced acquisition of BG Storage Limited (BGSL) and its natural gas storage facilities and related assets in the United Kingdom. The transaction has been approved by The Gas and Electricity Markets Authority and The Department of Trade and Industry and has been cleared by the Competition Minister following advice from the Director General of Fair Trading in the UK. Dynegy Europe Limited and BG Group plc (NYSE:BRG.N) originally announced the signing of a definite agreement with respect to the transaction on July 16, 2001. 
The acquisition of BGSL's 30 wells with five offshore platforms, nine salt caverns, approximately 19 miles (32 kilometers) of pipelines and an onshore natural gas processing terminal establishes the cornerstone of Dynegy's European physical energy convergence presence. BGSL's 260 employees will remain employed under its new name of Dynegy Storage Limited.
"This acquisition strengthens our competitive position in the UK and is a significant step toward our long-term goal to replicate our North American energy delivery network throughout Europe," said Chuck Watson, chairman and chief executive officer of Dynegy Inc. "When combined with our marketing, risk management and logistics capabilities in the UK, these assets will support the creation of even greater value for our customers and our shareholders." 
Rough and Hornsea, two of the facilities included in the transaction, are key providers of physical storage space in the UK natural gas market and are used by approximately half of the UK's natural gas shippers. The deliverability rate of Rough, an offshore depleted natural gas field, is 1.5 billion cubic feet per day (455 GWh/day). The deliverability rate of Hornsea, an onshore salt cavity installation, is 620 million cubic feet per day (195 GWh/day). The two facilities are capable of storing 111 billion cubic feet (Bcf) of natural gas. 
As part of this transaction, Dynegy also acquired the Easington natural gas processing terminal. The facility processes Rough and third-party natural gas streams and delivers into the UK natural gas transportation network. BGSL previously announced plans to develop the Aldbrough storage facility, a salt cavern with an expected storage capability of 6 Bcf and deliverability rate of 600 MMcf/day (185 GWh/day). Dynegy Europe will examine the feasibility of Aldbrough's development plans in the future. 
Dynegy Europe has already consulted with existing and potential customers on enhancements and additions to the storage services and has established an e-mail address (storage.consultation@dynegystorage.co.uk) to allow customers to provide further views. To request information about storage services, customers can also contact Dynegy at inquiry@dynegystorage.co.uk. 
"We are committed to providing flexible and innovative products to meet the special requirements of our new and existing storage customers," said Gary Cardone, president of Dynegy Europe. "We are also committed to working with our customers and incorporating their insight on essential storage needs into our comprehensive product development portfolio." 
Under the terms of the purchase agreement, Dynegy paid approximately $600 million (421 million pounds) for BGSL and its assets. Dynegy used a combination of cash on hand and short-term borrowings to complete the purchase. The ownership of BGSL is expected to be accretive to earnings in 2002 and beyond. 
Dynegy Inc. is one of the world's premier energy merchants. Through its global energy delivery network and marketing, trading and risk management capabilities, Dynegy provides innovative solutions to customers in North America, the United Kingdom and Continental Europe. 
Through Dynegy Europe, Dynegy has been an active participant in UK energy markets since 1994 when it became a leading player in the development of a liberalized natural gas market. In 1999, Dynegy Europe entered the UK and Nord Pool electricity markets. With offices in Austria, Switzerland, Holland, Italy and Spain, Dynegy Europe is one of Europe's largest energy marketers and traders and is a significant participant in the communications marketplace. 
Dynegy Inc. and Enron Corp. recently announced the execution of a definitive agreement for a merger of the two companies. Upon completion of the merger, which is expected by the end of the third quarter 2002, the new Dynegy is expected to have revenues exceeding $200 billion and $90 billion in assets. In addition, the new Dynegy's delivery network will include more than 22,000 megawatts of generating capacity and 25,000 miles of pipelines. 

Certain statements included in this news release are intended as "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. These statements include assumptions, expectations, predictions, intentions or beliefs about future events. Dynegy cautions that actual future results may vary materially from those expressed or implied in any forward-looking statements. Some of the key factors that could cause actual results to vary from those Dynegy expects include changes in commodity prices for energy or communications products or services; the timing and extent of deregulation of energy markets in the U.S. and Europe; the timing of required approvals for the Dynegy/Enron merger and the success of integration and cost savings measures relating to the merger; the effectiveness of Dynegy's risk management policies and procedures and the creditworthiness of customers and counterparties; the liquidity and competitiveness of wholesale trading markets for energy commodities, including the impact of electronic or online trading in these markets; operational factors affecting Dynegy's power generation or Dynegy's midstream natural gas facilities; uncertainties regarding the development of, and competition within, the market for communications services in the U.S. and Europe; uncertainties regarding environmental regulations or litigation and other legal or regulatory developments affecting Dynegy's business; general political, economic and financial market conditions; and any extended period of war or conflict involving the United States or Europe. Moreover, Dynegy's expectation that the acquisition will be accretive to earnings in 2002 and beyond is based upon achieving certain sales projections, meeting certain cost targets and successfully integrating the acquired assets. More information about the risks and uncertainties relating to these forward-looking statements are found in Dynegy's SEC filings, which are available free of charge on the SEC's web site at http://www.sec.gov.


CONTACT: Dynegy Inc. Media: U.S. John Sousa or Steve Stengel, 713/767-5800 or Europe David Keane, 020 8334 7266 or Analysts: Margaret Nollen, Arthur Shannon or Katie Pipkin, 713/507-6466 
06:10 EST NOVEMBER 28, 2001 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

INDIA: India's ONGC says rejects BG offer on fields.

11/28/2001
Reuters English News Service
(C) Reuters Limited 2001.

BOMBAY, Nov 28 (Reuters) - India's Oil and Natural Gas Corporation (ONGC) has rejected a bid by British energy giant BG Plc to become the operator of three prized oil and gas fields off India's west coast, an ONGC spokeswoman said on Wednesday. 
The decision could jeopardise the British oil and gas producer's $388-million deal to buy a 30 percent stake in the fields from U.S. energy firm Enron Corp .
The deal, signed in October, was conditional on BG becoming the operator of the fields with full control over day-to-day management. 
The ONGC board, which met late on Tuesday evening, decided that BG's offer was not "sufficiently responsive" for it to become the operator of the fields, the spokeswoman told Reuters. She did not elaborate on the reasons for rejecting the BG bid. ONGC's move could also affect Enron, which desperately needs cash to stave off a mounting debt crisis in the United States. The Houston-based energy trader needs at least $1 billion cash to shore up its balance sheet and keep rating agencies from junking its debt. 
The spokesman for BG was not immediately available for comment. 
The Panna, Mukta and Tapti fields, considered one of India's prized discoveries in the last two decades, were being jointly owned by ONGC, Enron Oil and Gas India Ltd, wholly-owned unit of Enron Corp, and Reliance Industries Ltd , the country's biggest petrochemicals maker. 
The Panna-Mukta oilfields have recoverable reserves of 184 million barrels of oil and oil equivalent gas. They are proposed to be expanded to 214 (MMBOE). The Tapti gas field has reserves of 96.3 billion cubic metres of gas equivalent. 
Enron, with 30 percent stake, was the sole operator, and BG wanted that situation to continue after the buyout. 
But this was opposed by ONGC and Reliance. Both companies staked their own independent claims, saying that they had the expertise to manage the fields on their own. 
BG then tried to solve the dispute by offering ONGC the right to operate another field in Brazil if it withdrew its claim for Panna, Mukta and Tapti.

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

AUSTRALIA: Pacific Hydro to select wind turbine maker.

11/28/2001
Reuters English News Service
(C) Reuters Limited 2001.

MELBOURNE, Nov 28 (Reuters) - Renewable power generator Pacific Hydro Ltd said on Wednesday it expected to select a wind turbine company to set up Australian manufacturing for its proposed A$300 million Portland wind farm by mid-January. 
Pacific Hydro managing director Jeff Harding said the company had shortlisted Danish company NEG Micon and a consortium of Enron Corp and Siemens .
"We will select them within the next six to eight weeks or so, but the manufacturing will only go ahead if we get approval for the project," he said. 
The selected manufacturer would initially provide turbines for the Portland project, but Harding said it was expected to provide the base for other wind project manufacturing. 
A number of companies are looking at boosting wind generation in Australia as a result of a Federal Government target to boost renewable energy use by two percent by 2010. 
Pacific Hydro's Portland project would comprise 120 wind generators with a capacity of about 180 MW, and is expecting to gain environmental approvals around April next year. 
The company, which also has a range of hydro projects in Australia and Asia, has identified 2,991 MW of potential Australian wind generation projects. 
"We expect to have a minimum of 500 MW operational within three to four years," Harding said. 
Pacific Hydro is a joint venture partner with Aboitiz in the Phillipines 70 MW Bakun hydro project which started operation during the past financial year. 
Work on the second stage of Bakun, which will boost output by 50 percent, is due to start in 2002, with Pacific Hydro and Aboitiz, also planning another hydro project. 
Pacific Hydro reported a net profit after tax and abnormals of A$26.9 million for the year ended June 30, up from A$8.8 million the year previously due to the start of Bakun and an abnormal foreign exchange benefit. 
Harding said the profit growth would slow this financial year, with the Portland project not likely to make its first contribution until 2002/03. 
"It will be slightly ahead of last year but we won't have that quantum jump which we had this last year, that reflected the completion of Bakun," he said. 
Pacific Hydro shares ended Wednesday up seven cents at A$4.30, while the broader market was down 0.1 percent.

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

InPlay
Dynegy confirms it's renegotiating Enron deal

11/28/2001
The Daily Deal
Copyright (c) 2001 The Deal LLC

Enron Corp. - Dynegy Inc. 
Houston energy firm Dynegy Inc. confirmed Tuesday it is renegotiating its acquisition of crosstown rival Enron Corp. Dynegy spokesman Steve Stengel said the company is in discussions with the parties involved in the transaction "in relation to the structure of the deal." He would not elaborate. Enron did not return calls seeking comment. Sources close to the transaction said Monday the two were back at the negotiating table after a steep drop in Enron's stock price, and analysts said Dynegy was pushing for $5.25 per share. The Wall Street Journal said the two were discussing a valuation haircut of about 40%, from $10.41 per share, or a total of $9 billion, to less than $6 per share, or a total of about $5 billion. -Claire Poole www.TheDeal.com


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

Business
Dynegy confirms move to renegotiate Enron takeover
From Tribune news services

11/28/2001
Chicago Tribune
North Sports Final ; N
3
(Copyright 2001 by the Chicago Tribune)

The high-profile deal to merge energy marketers Enron Corp. and Dynegy Inc. has gone back to the drawing board. 
Meanwhile, Enron reportedly has made progress securing more than $1.5 billion in new cash to keep its business stable while it renegotiates with Dynegy.
Dynegy confirmed Tuesday that it is in talks to renegotiate its $9 billion deal to buy its larger but troubled rival. 
The disclosure sent Enron shares up 2.5 percent, apparently easing some investors' concerns that the deal would fall through. 
In trading on the New York Stock Exchange, Enron shares rose 10 cents to close at $4.11--a stark contrast to days of double-digit declines. Dynegy shares rose $1.64, to $40.89. 
"There are discussions occurring related to the structure of the transaction," said Dynegy spokesman Steve Stengel. 
While news that the two Houston-based companies were renegotiating temporarily appeased investors, observers said they won't be confident about the deal's future until they hear details about new cash infusions to help keep Enron afloat. 
"Putting more money into the deal to shore up Enron's credit situation, that would be a sign that Dynegy would be committed to the deal going through," said analyst Mike Heim of A.G. Edwards & Sons. 
Late Tuesday, The Financial Times of London reported on its Web site that a consortium of investors is proposing a $1 billion equity investment in Enron, citing a person close to the talks. The newspaper didn't identify these investors, but said an agreement could be announced Wednesday. 
Separately, The Wall Street Journal reported on its Web site that J.P. Morgan Chase & Co. and Citigroup Inc.'s Citibank, which are advising on the Dynegy buyout, have agreed to invest $500 million in the merged company and have said they would consider increasing that amount if they fail to find additional outside investors for the deal. 
The Journal, citing people close to the discussions, also said Dynegy and Enron have tentatively agreed to cut the value of the all- stock deal in half. Under the new deal, Enron shareholders would get 0.12 Dynegy share for each Enron share held. 
That would value Enron at $4.17 billion. The original deal, valued at $9 billion, was based on an exchange rate of 0.2685 Dynegy share for each Enron share.

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

USA: UPDATE 6-Enron, Dynegy hammer away at new merger deal.
By C. Bryson Hull and Arindam Nag

11/27/2001
Reuters English News Service
(C) Reuters Limited 2001.

HOUSTON, Nov 27 (Reuters) - Energy trader Dynegy Inc. and floundering rival Enron Corp. hammered away at new terms for their proposed merger late Tuesday, and sources said talks included a buyout offer half the original price and fervent efforts to secure financing to stave off a credit downgrade. 
The sources familiar with the negotiations said investment banks J.P. Morgan and Citigroup, who are advisors and have already loaned Enron a total of $1 billion, may have to step up with a combined $500 million to help save the deal.
This follows several rebuffs of Enron by prominent private equity firms, although a source said the Houston company was entertaining an offer of $1 billion from outside investors. 
Dynegy had planned to buy its Houston rival for $9 billion in stock and is currently in a "due diligence" examination of Enron's complex financial records that began before the Thanksgiving holiday last Thursday. 
The first buyout offer, finalized Nov. 9, would have had Dynegy paying about $10.41 for each share of Enron, but Enron's shares have since cratered to near $4, stoking investor fears the merger will not go through. 
It is abundantly clear that the deal will be changed if it is to proceed. Sources close to the negotiations said the stock exchange ratio is likely to fall into the range of 0.12 to 0.15 Dynegy shares for each Enron share, about half of the originally proposed valuation of 0.2685 to 1. 
Enron had tentatively accepted the lower end of that range, but a source cautioned that the talks were still very active and the terms very fluid. 
Also on the table were negotiations to extend maturation of Enron's debt past the close of the merger, expected in the third quarter of 2002, as another move against a credit cut. 
OUTSIDE OFFER ENTERTAINED 
As for the outside offer of $1 billion, a source said the investment is designed to shore up Enron's balance sheet and keep rating agencies from junking its credit. A credit downgrade would cause some $3.9 billion in obligations to become due immediately. 
"It's all about getting money to protect assets and intellectual property," the source told Reuters. 
An announcement could come as early as Wednesday, but it could take longer, the source said. 
The source declined to identify the parties, and would neither confirm or deny that Goldman Sachs was among them. Sources close to the investment bank have told Reuters recently that Goldman is looking at ways to be part of Enron's power trading business. 
Dynegy spokesman John Sousa declined to comment on what he termed speculation about parties to the deal. 
Enron's shares bounced slightly on Tuesday after Dynegy confirmed the restructuring talks. Shares closed up 13 cents at $4.14 on the New York Stock Exchange. Dynegy's shares gained 4.2 percent or $1.64 to $40.89 on the NYSE. 
Another set of clouds darkening Enron's sky is the fact that its pursuit of private equity financing has found few takers among the more prominent private equity firms. 
Three New York-based buyout firms, Blackstone Group, Clayton Dubilier & Rice and Warburg Pincus LLC have all passed on Enron, according to people familiar with Enron's efforts. 
And Washington, D.C.-based Carlyle Group, another major private equity firm, is also not interested in Enron, Carlyle spokesman Chris Ullman said. 
Some private equity executives who have looked at Enron say too much remains unclear about Enron's financial condition to commit funds in the near future. 
One certainty is that layoffs are in Enron's future. Three sources confirmed to Reuters that Enron's equity trading unit is being closed and that the roughly 60 employees there are being laid off. An Enron spokesman would not comment on the cuts. 
Those layoffs, part of broader job cuts expected as part of the Dynegy buyout, point to an acute problem for Enron - the loss of volume in its trading franchise, the crown jewel most coveted by Dynegy. Enron's trading partners have been cutting back transactions with North America's largest energy trader because of credit concerns. 
"This business is hugely dependent on volumes and volume growth. It is the principal reason that Dynegy is making the deal. If it's worth a lot less, then Enron is worth less. It's vital to stop the bleeding in its core trading and marketing business," said Commerzbank analyst Andre Meade. 
(Nag reported from New York. Additional reporting by Jeff Goldfarb, Dane Hamilton, Janet McGurty and Jonathan Stempel in New York).

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

New negotiations for Dynegy purchase of Enron sends shares higher
By JUAN A. LOZANO
Associated Press Writer

11/27/2001
Associated Press Newswires
Copyright 2001. The Associated Press. All Rights Reserved.

HOUSTON (AP) - The high-profile deal to merge energy marketers Enron Corp. and Dynegy Inc. has gone back to the drawing board. 
Meanwhile, Enron reportedly has made progress securing more than dlrs 1.5 billion in new cash to keep its business stable while it renegotiates with Dynegy.
In a move that sent Enron shares higher after days of double-digit declines, Dynegy confirmed Tuesday that it is in talks to renegotiate its dlrs 9 billion deal to buy its larger but financially troubled rival. 
The disclosure that the two companies are revisiting the terms sent Enron shares up 2.5 percent, apparently easing some investors' concerns that the deal would fall through. 
"There are discussions occurring related to the structure of the transaction," said Dynegy spokesman Steve Stengel, who declined to elaborate. 
While news that the two Houston-based companies were renegotiating temporarily appeased investors, observers said they won't be confident about the deal's future until they hear details about new cash infusions to help keep Enron afloat. 
"Putting more money into the deal to shore up Enron's credit situation, that would be a sign that Dynegy would be committed to the deal going through," said Mike Heim, an analyst with A.G. Edwards & Sons. 
Late Tuesday, The Financial Times of London reported on its Web site that a new consortium of investors is proposing making a dlrs 1 billion equity investment in Enron, citing a person close to the talks. The newspaper didn't identify these investors, but said an agreement could be announced as soon as Wednesday. 
Separately, The Wall Street Journal reported on its Web site that J.P. Morgan Chase & Co. and Citigroup Inc.'s Citibank, which are advising on the Dynegy buyout, have agreed to invest dlrs 500 million in the merged company and have said they would consider increasing that amount if they fail to find additional outside investors to take part in the deal. 
The Journal, citing people close to the discussions, also said Dynegy and Enron have tentatively agreed to cut the value of the all-stock deal in half. Under a deal informally agreed to by Enron's board, Enron shareholders would get 0.12 Dynegy share for each Enron share held. 
That would value Enron at dlrs 4.17 billion. The original deal, valued at dlrs 9.3 billion, was based on an exchange rate of 0.2685 Dynegy share for each Enron share. 
As a condition of the reduced price, Enron executives were seeking more control of the combined company, the Journal said. 
Raymond James analyst Jon Kyle Cartwright said the buyout will hinge on Dynegy's ability to reinvigorate Enron's trading operation, which has been hurt as some energy companies have stopped selling it power and natural gas for fear they won't be paid. 
Many energy traders who have shied away from doing business with Enron worry that the company will go bankrupt, said Charlie Sanchez, energy markets manager for Gelber & Associates, a Houston-based energy trading firm. 
Restoring customer and investor faith "is not impossible. But it's more of an issue of gradually rebuilding (Enron's) confidence and legacy and developing confidence in the new legacy under Dynegy. It's just going to take time," he said. 
But Fadel Gheit, an analyst with Fahnestock & Co. Inc. said Enron is a bad investment and that Dynegy underestimated its potential liabilities after it announced Nov. 9 that it would buy the company at a price valuing Enron at about dlrs 10 per share. Under the terms of the deal, Dynegy also would assume dlrs 13 billion in Enron debt. 
"Chasing Enron is like trying to catch a falling knife," Gheit wrote Tuesday in a research note to investors. 
Stengel, the Dynegy spokesman, declined comment when asked if an announcement of renegotiated terms is expected soon. Enron spokesman Vance Meyer said the company had no comment about any discussions related to the merger and that Enron expected the deal to be completed. 
In trading on the New York Stock Exchange, Enron shares rose 10 cents to close at dlrs 4.11 - a stark contrast to trading a day earlier that saw Enron shares dip to an all-time low of dlrs 3.76 before closing down 15 percent at dlrs 4.01. Dynegy shares rose dlrs 1.64 to dlrs 40.89 on the NYSE. 
Enron's stock has plummeted more than 95 percent from its February 52-week high of dlrs 84.87, after a series of disclosures relating to the company's complicated finances raised concerns about its financial viability. 
Enron last month revealed that partnerships run by its executives had allowed the company to keep about half a billion in debt off its books and allowed the executives to profit from the arrangements. Enron's dealings with those partnerships are now the subject of a Securities and Exchange Commission investigation. 
The company ousted its top financial officer in October, and several weeks ago restated its earnings back to 1997 - eliminating more than dlrs 580 million in reported income. 
--- 
On the Net: 
http://www.enron.com 
http://www.dynegy.com

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

USA: Enron woes bite into its energy trading.
By James Jelter

11/27/2001
Reuters English News Service
(C) Reuters Limited 2001.

SAN FRANCISCO, Nov 27 (Reuters) - Former energy trading giant Enron's financial straits and plunging share price are drying up its core business as other market players seek out safer trading partners. 
While most U.S. utilities and trading houses say they are still striking deals with Enron, they also admit now to slashing their financial exposure to the battered company.
"We haven't stopped trading with Enron," said Terry Francisco, a spokesman for rival Duke Energy . 
"We will continue to closely monitor the situation and make prudent adjustments when necessary in accordance with our credit policies," he added. 
For Enron, those policies are starting to sting. 
The company has seen its credit rating cut to just above "junk" status following disclosure of off-balance sheet dealings by a senior officer and a downward revision of its earnings for the past four years. 
Enron, which until recently handled 20 percent of the North American electricity and natural gas market, has seen its share price plummet from a year high of $84.88 to close today at a mere $4.14 on the New York Stock Exchange. 
Cross-town rival Dynegy Inc. agreed earlier this month to buy Enron in a stock deal valued at $10.55 a share. 
But given Enron shares' continued slump, Dynegy said Tuesday it was seeking to renegotiate the deal. 
DEARTH OF SELLERS 
Amid all this bad news, energy traders said they were now reluctant to sell energy to Enron. 
This, in turn, has raised concerns Enron might have a hard time securing enough power and gas to meet its long-term sales commitments, though there so far has been no evidence it has missed any deliveries or failed to pay for what it buys. 
Nevertheless, Mirant Corp. , another of the nation's top energy trading houses, confirmed Tuesday it was no longer willing to sell energy products to Enron. 
"Right now, we're just purchasing from them," Mirant spokesman Chuck Griffin said. 
This cautionary approach was also confirmed at several municipal and federal power companies, including the mighty Bonneville Power Administration (BPA) in Portland, Oregon. 
"We have severely limited our business with Enron," said Stephen Oliver, vice president of power marketing for BPA, which sells wholesale electricity from a string of huge dams along the Northwest's Columbia River. 
Oliver said BPA, which has done business with Enron for six years, owes the company money but he declined to say how much. 
"We have zeroed out their credit limit, and any business going forward with Enron would be within the amount of money owed to them," he said. 
PAYMENT UP FRONT 
Enron's shaky financial status has prompted some traders to demand payment up front, a move taken by the Western Area Power Administration (WAPA), which markets hydroelectricity from 56 federal dams for the U.S. Department of Energy. 
WAPA spokeswoman LaVerne Kyriss said some of their regional offices have halted spot market dealings with Enron and are seeking to renegotiate a 10-year deal to buy power from Enron. 
"We are working to protect our utility customers and the federal government," Kyriss said. 
Traders throughout the utility industry said they had curbed or dropped long-term trades with Enron, which involve deals lasting anywhere from a week to several years. 
As Enron's financial woes deepen, traders said they are searching for "sleeves", or middlemen, to provide a financial buffer in brokered spot market deals with the company. 
In such a deal, a utility, for example, will offer to sell its surplus electricity or gas through a broker, trusting the broker to line up the best anonymous bid in the market. 
If the top bidder turns out to be Enron, many utilities will turn down the deal unless they have a middleman willing to take ownership and guarantee payment of the energy being sold. 
This allows a utility trader to indirectly conduct business with Enron while staying within the utility's credit limits. 
TAKING A TOLL 
The toll all this is taking on Enron's business is hard to measure. 
Enron, like most trading houses, does not disclose its market positions or how much of its activity is wrapped up at any given time in natural gas or electricity - its two biggest markets - or its other energy and financial transactions. 
"We don't break things out by type of product," Enron spokesman Eric Thode said. 
Thode said the company had seen a drop in trading volume, about 60 percent of which is conducted over its prized EnronOnline Internet trading system and 40 percent in the over-the-counter market. 
But the company's 30-day rolling trade average showed Enron was doing about 5,400 transactions a day, with a daily notional value of $2.8 billion, which is well within its daily average of 4,700 to 5,700 transactions this year. 
"Certainly, our volumes have dropped below our 30-day rolling average ... but confidence is still being shown by the great majority of our trading partners," Thode said.

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

Business
Enron/Dynergy Renogotiate MergerCNNfn
Bruce Francis, Kathleen Hays

11/27/2001
CNNfn: Markets Impact
(c) Copyright Federal Document Clearing House. All Rights Reserved.

BRUCE FRANCIS, CNNfn ANCHOR, MARKETS IMPACT: Well, some on Wall Street doubt that Enron (URL: http://.www.enron.com/) can survive until the merger. And our next guest is one of them. 
KATHLEEN HAYS, CNNfn ANCHOR, MARKETS IMPACT: Brian Youngberg is a utilities analyst at Edward Jones. He`s joining us now from St. Louis. Welcome.
BRIAN YOUNGBERG, UTILITIES ANALYST, EDWARD JONES: Thank you for having 
me. 
HAYS: Well, we`re happy to have you here, Brian. 
But this unhappy situation with Enron, this is like a soap opera that just gets worse and worse by the day. And you`re -- you are 
then fairly pessimistic that anything`s going to come of this. 
YOUNGBERG: Well, I think they may announce some sort of restructuring. You know, the problem I have right now is really the time frame. You know, you`re 
talking of having the company, Enron, surviving for another nine months or so on its own. It`s struggled to survive these last two weeks since the original deal was announced. 
So, you 
know, Dynegy (URL: http://www.dynegy.com/) has to decide, you know, how much more capital they want to put into Enron to help shore up the company before they get to closing. So, you know, even if they 
do announce a restructuring, it`s still not a done deal. 
FRANCIS: Could it be clear to Dynagy at this point that there are assets at Enron that are worth accept -- taking on 
all that risk? 
YOUNGBERG: Well, I think Dynagy, you know, has to be evaluating that. You know, the thing they`re buying here as far as assets is really -- are really the people and the trading 
floor. The pipelines they`re acquiring, which are good pipelines, but they have a lot of debt against them. 
So, you know, they have to decide, you know, is this worth continuing to pursue, or let it 
go by the wayside and move forward on their own. You know, Dynagy in general is viewed as a very solid company, whether or not they acquire Enron or not. 
HAYS: So -- and I guess besides 
the debt they would take on, we were just -- Casey Wian in Houston just talking to an attorney who`s getting all kinds of clients who feel they were betrayed, and obviously 
there`s, you know, legal ramifications. I guess that`s another liability that Dynagy has to assess in whether or not it makes this transaction. 
YOUNGBERG: Right. I think Dynagy has already looked at -- you know, they assume that 
there will be some significant litigation, you know, issues and losses, possibly, as far as shareholder lawsuits and so forth. And I think they`ve already built that into it. 
The question is, you know, is there something 
more out there that we don`t know, and maybe even Dynagy itself doesn`t know? 
FRANCIS: Is there another potential acquirer out there, or is Dynagy the acquirer of the last resort for (inaudible)... 
YOUNGBERG: I really 
do believe that Dynagy is really the only party that`s really that interested in Enron at this point in time. You know, there`s just too much hanging over the company right 
now with an SEC investigation, possible further losses, a declining share in mar -- in energy trading and so forth, liquidity issues. 
There`s just too much for, I think, most other companies to really take on. And if 
any company knows the insides of Enron, I think it would probably be Dynagy at this point in time. 
HAYS: (inaudible), you know, this is -- I can`t think of anything to offset any of 
this, because everything you say, it`s hard to find an argument against. 
In fact, if anything, you`d think Dynagy would be better off to wait until they`re in bankruptcy proceedings and then buy 
whatever pieces of the company are on the block. 
FRANCIS: Or just steal the customers. 
HAYS: Yes. 
YOUNGBERG: Well, I think the problem with waiting for them to go into bankruptcy, and Dynagy has to weigh this 
also, is that you get in that situation, you don`t know what the bankruptcy judge could decide in those situations. There could be other parties that, you know, partake in the bidding 
for the pipelines, for example. You know, they may not get all the assets they really do want. 
So they do have to make some very tough decisions. And I think that`s why they`re -- they`ve 
taken this past weekend, they`ve taken at least a couple more days here, and they really want to make sure, you know, their next step is the right one for 
them. And, you know, we`ll just have to wait and see, you know, what comes of this. 
You know, our view is, we are recommending individual investors that hold shares of Enron to sell, move on. There`s plenty of 
other better companies in the sector that have better track records, better outlooks, and really just overall better fundamentals at this point in time. 
FRANCIS: Brian Youngberg, thank you for joining us, we 
appreciate it. 
YOUNGBERG: Thank you. 
KATHLEEN HAYS, CNNfn ANCHOR, MARKETS IMPACT: 

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

Enron Board Agrees to Lower Dynegy Purchase Price, Paper Says
2001-11-27 23:43 (New York)


     Houston, Nov. 27 (Bloomberg) -- Enron Corp.'s board agreed to
a reduced Dynegy Inc. purchase offer that values the energy
trader's equity at $4.17 billion, less than half of the original
price, the Wall Street Journal reported, citing a personal
familiar with the plan.

     The new exchange ratio of 0.12 share of Dynegy for each Enron
share would value Enron at $4.91 a share, the Journal said. That's
19 percent above Enron's closing stock price today and down from
the original ratio of 0.2685. The agreement isn't final, the paper
said.

     Enron and Dynegy executives are trying to save the
transaction amid growing concern about Enron's cash-flow problems.
Enron shares have fallen 95 percent this year as investors
questioned whether the company was using affiliated partnerships
to hide losses and debt, and some lenders stopped providing Enron
with cash.

     In exchange for a lower purchase price, some at Enron are
seeking more control over the combined company, the Journal said.

     Dynegy is prepared to invest at least $500 million in Enron,
on top of the $1.5 billion in cash from Dynegy investor
ChevronTexaco Corp., the New York Times said, citing executives
close to the talks. Dynegy wants the cash backed by assets, and
the companies are having a hard time finding enough Enron holdings
that aren't already mortgaged to creditors, the paper said.


Enron Finding It Harder to Trade, Competitors Say (Update2)
2001-11-27 19:32 (New York)

Enron Finding It Harder to Trade, Competitors Say (Update2)

     (Adds Magnum Hunter comment in 21st-23rd paragraphs.)

     Houston, Nov. 27, (Bloomberg) -- Enron Corp. is finding it
harder to buy natural gas or power because some trading partners
have lost confidence the company will have the cash to pay bills,
spokesmen for other energy companies say.

     Mirant Corp. traders won't sell natural gas or power to
Enron, though the Atlanta-based energy trader will buy from the
company, said James Peters, Mirant spokesman. Aquila Inc.'s
business with Enron also is ``all on the buy side,'' said Al
Butkus, an Aquila spokesman.

     Dynegy is in talks to lower the price of its acquisition of
Enron from its current $23 billion in stock and assumed debt. The
talks are a sign that the trading operations, which provide more
than 90 percent of Enron's revenue, are in trouble, analysts say.

     ``If they are renegotiating, it confirms our fears that
Enron's crown jewel -- its marketing and trading business -- is
deteriorating,'' said Andre Meade, an analyst with Commerzbank
Securities.

     Enron spokesman Eric Thode said Enron's trading operations
remain strong. Volume on EnronOnline, the company's Internet-based
trading site, has averaged 5,400 transactions a day with a value
of $2.8 billion over the last 30 days. EnronOnline handles about
60 percent of the company's trading business, Thode said.

                      Paying Higher Premiums

     Companies that continue to do business with Enron are forcing
it to pay premium prices, said Arthur Gelber, president of Gelber
& Associates Corp. in Houston, which advises 18 producers on their
trading strategies.

     Companies are charging Enron about $1.72 for a million
British thermal units of natural gas, where they would charge a
buyer with better credit $1.70, Gelber said.

      Profit margins on energy sales are slim, and ``it's very
difficult'' for Enron's traders to turn a profit if they have to
pay more than competitors, Gelber said.

     Other sellers are requiring Enron to provide large letters of
credit showing it has the cash to complete a deal, Gelber said. A
typical natural gas deal, such as a delivery of 10 billion British
thermal units a day for a month, might require a letter of credit
for as much as $690,000.

     Competitors don't face some of the problems that Enron does
guaranteeing trades, analysts said, because they have their own
power plants and natural gas supplies to meet commitments. Enron
has few such assets, and must purchase most of its supplies.

     ``We're seeing the repercussion of Enron's strategy that had
been so unorthodox -- for them to not rely on physical generation
assets,'' said Will McNamara, director of electric industry
analysts at consultant Scientech Inc.

      ``Because they don't have their own assets to rely on,
they've got to go out and get the power from somebody else,''
which is becoming more difficult and expensive because of the
company's credit problems, McNamara said.

                         Lowering Exposure

     Some partners have long-term contracts with Enron and don't
want it to fail until they can find alternative suppliers or hedge
existing contracts, traders say.

     ``Most people want Enron to survive for a certain amount of
time to get their exposure down,'' said Mike Loya, president of
Vitol SA, a closely held energy company with offices in Houston.
``We continue to trade with Enron cautiously.''

     Companies that are buying from Enron may be doing so to
offset agreements to sell back to the company later, a technique
for reducing the potential losses if a partner fails to meet its
obligations, traders said.

                          Shares Declined

     Enron shares have fallen 95 percent this year as the
investors questioned whether the company was using affiliated
partnerships to hide losses and debt, and some lenders stopped
providing Enron with cash.

     Enron shares rose 13 cents to $4.14 today, down from a high
of $84.63 on Dec. 28. Dynegy rose $1.64 to $40.89, down 4.3
percent from Nov. 9 when the merger was announced. Shares of
ChevronTexaco, which owns 26 percent of Dynegy, rose 42 cents to
$85.62.

     In October, the company said shareholder equity was lowered
by $1.2 billion because it used stock to pay off a partnership's
debt. On Nov. 8, the company lowered earnings back to 1997 by $586
million to reflect losses incurred by the partnerships.

    Last week, Enron said it may be forced to pay a $690 million
note owed by one of the partnerships and may write off $700
million in the fourth quarter to reflect a debt it is backing for
another partnership with stock.

                               Debt

    Enron is trying to renegotiate more than $9 billion in debt
payments owed before the end of 2002, as well as secure as much as
$2 billion from outside investors who will take a stake in the
company. Without more money, Enron may run short of cash it needs
to guarantee trades, analysts say.

     Credit concerns prompted Magnum Hunter Resources Inc., an oil
and natural gas producer in Irving, Texas, to stop selling gas to
Enron from the largest producing property it controls in the Gulf
of Mexico.

     The company is still selling gas to Enron from two smaller
properties, with the purchases backed by letters of credit,
because Enron was one of the few companies willing to give small
companies credit a few years ago, when oil and gas prices were
low.

     ``We have always appreciated them standing by us when
commodity prices were low,'' said Magnum Hunter Chief Financial
Officer Chris Tong.

     Some large industrial natural gas and electricity users are
avoiding signing long-term contracts with Enron, industry
consultants said.

     ``Why would you go with a supplier where there's uncertainty,
when you can go with one where there's certainty?'' asked Mark
Boyer, chief operating officer of Summit Energy Services Inc. in
Louisville, Kentucky, which advises metals, chemical and paper
companies on their energy-purchasing decisions.

--Eileen O'Grady in Houston, (713) 353-4876