A full list of articles will be sent on Monday, but here is some initial coverage from yesterday and today...


IN THE MONEY: Enron - From Energy Trader To Spinmeister
By Carol S. Remond

11/23/2001
Dow Jones News Service 
(Copyright (c) 2001, Dow Jones & Company, Inc.) 

A Dow Jones Newswires Column 

(This column was originally published Wednesday.) 

NEW YORK -(Dow Jones)- With the value of its stock continuing to plummet, Enron Corp. (ENE) tried to put on a good face Wednesday by issuing a press release touting, among other things, increased liquidity.
The problem is that most of the so-called news was three days old, recycled from the company's latest quarterly filing. 
And investors weren't fooled by the release. Although the stock of the embattled Houston energy trader regained some ground immediately after the release, climbing to $5.35 a share from $4.60, it quickly gave up most of its gains. One hour after the release, Enron stock was back trading at $4.98 a share, down more than 28% on the day. 
"They had to say something, but really didn't have any new news. It's quite incredible," said a Wall Street analyst covering Enron. 
Amid mounting fears that Enron's credit woes could thwart its plan to merge with rival Dynegy Inc. (DYN), a merger that many see as the only way for Enron to avoid possible bankruptcy, Enron began its press release by announcing that "it has closed on the remaining $450 million of a previously announced $1 billion in secured credit lines..." 
Great news, given the way Enron has been burning through cash. Except that investors who took time to read Enron's filing with the Securities and Exchange Commission on Monday already knew that "on November 19, 2001, Enron closed a $450 million new secured line of credit, which will mature in the fourth quarter of 2002." Readers of the company's 10-Q also knew that the $450 million credit was secured by the assets of Enron's Northern Natural Gas Co. 
Meanwhile, the real news everyone was waiting for, an announcement about whether a $690 million loan due next Tuesday had been extended, has yet to be finalized. 
Enron said in its release that it expected that an extension to mid-December would be formalized soon. 
Separately, people familiar with the matter said J.P. Morgan Chase & Co. and Citigroup Inc. continue to work with Enron to extend the maturity of the syndicated loan, which contains a clause that, unbeknownst to many, was triggered by Enron's ratings downgrade to "BBB-" by Standard & Poor's Corp. earlier this month. The clause stipulated that Enron would have to repay the $690 million note on November 27 if it didn't post collateral. 
Those people said that the syndicated loan, which is built inside a structured vehicle used to finance minority interests in power and energy sectors around the world, would likely be extended to the middle of 2002 when other bank loans to Enron come due. About $1.75 billion of Enron's $3.5 billion in syndicated bank loans come due in May 2002 and will likely need to be restructured. 
About $250 million of the assets securing the $690 million loan are in the process of being sold and will be used to pay down the loan, reducing the outstanding portion of the loan that will need to be restructured, according to the people familiar with the terms. 
Meanwhile, Dynegy also tried to rally, although somewhat halfheartedly, investors around its plan to acquire Enron's stock. Dynegy said it was encouraged by reports that Enron closed on its remaining $450 million credit facility and news of the extension of the $690 million loan. Under the terms of the acquisition, Enron holders would receive 0.2685 Dynegy share for each Enron share. 
Investors, however, remain more circumspect, unmoved by the whopping 104% risk premium currently attached to the merger. (That's how much investors buying Enron shares would make if the deal was closing Wednesday.) 
Aside from continued worries about how much bad news may still come, analysts and traders appear particularly concerned with Enron's liquidity, or lack thereof, going forward. 
"We're having a hard time believing that this new credit infusion (from the banks), even with the $1.5 billion from Dynegy, will provide enough liquidity for Enron," one risk arbitrageur at a New York hedge fund said. 
As part of the merger agreement between Dynegy and Enron, Chevron Texaco, which owns 26% of Dynegy, already injected $1.5 billion into Enron. Another $1 billion is expected upon closing of the deal. 

Carol S. Remond, Dow Jones Newswires; 201-938-2074; carol.remond@dowjones.com

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USA: Houston economy seen weathering major layoffs.
By Ellen Chang

11/23/2001
Reuters English News Service 
(C) Reuters Limited 2001. 

HOUSTON, Nov 23 (Reuters) - Houston's economy, buffered by a broad and diverse tax base, should be able to weather thousands of layoffs from some of the city's major corporations, including energy powerhouse Enron Corp., economists and analysts said. 
Financially ailing Enron Corp. , which has 21,000 employees worldwide and is in talks to be bought by Houston-based rival Dynegy Inc. , is the third major employer in the city to announce severe financial problems in recent months. Analysts expect layoffs if the merger occurs.
Continental announced a layoff of 3,000 employees after the Sept. 11 attacks and Hewlett-Packard Co.'s plan to buy Compaq Computer Corp. will, if finalized, result in 15,000 layoffs at the two companies. Compaq also announced 8,000 layoffs worldwide in July. 
"It's fair to say that the potential layoffs at Enron and the layoffs at Continental, taken alone, are negative factors, although probably small in the grand scope of the Houston economy," said Phil Scheps, director of Houston's finance and administration department. 
Since last month when Enron became a target of a Securities and Exchange Commission investigation into financial dealings with partnerships, the energy giant's market share has steadily eroded. 
While neither Enron nor Dynegy have given any indication of the number of layoffs that could hit Houston, Barton Smith, director of the Institute for Regional Forecasting at the University of Houston, said the layoffs "will be spread out over a long period of time and will not be excessive." 
Robin Kapiloff, an analyst at Moody's Investors Service, said the city's efforts to diversify its economy over the past decade will protect its revenue collections, even as some of the city's biggest employers suffer. "We're watching to see where things go now," she said. 
Alex Fraser, a director at Standard & Poor's, said the ratings agency isn't concerned about Houston's credit position at this point. "While Enron is certainly a large player and prominent corporation, we're unclear on what the impact would be." 
While the fourth largest city in the country experienced a bit of a slowdown since the Sept. 11 attacks, Houston has outperformed the rest of the nation. 
With a tax base of $87.3 billion in 2001, Houston is also buffered by the Texas Medical Center, the city's largest employer. Next year the city's tax base is estimated to grow to $95 billion. 
Still, the national recession, energy price weakness in general, and the initial loss of consumer confidence related to the attacks has caused the city to reduce its estimate of sales tax growth to 1.5 percent from 5 percent. That revised estimate equals a $13 million reduction in the city's $1.4 billion budget. 
But the city's property tax revenue has not been affected. Only a small change in property tax collections is expected in 2002 because valuations are based on Jan. 1 data and for most of 2001, real estate growth was very large, Scheps said. 
While recent economic indicators appear positive, and consumer confidence has quickly rebounded, a better read on the strength of Houston's tax revenue collections will be available in February when the city receives data for the December holiday season, Scheps said.

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Meeting in Singapore to discuss Enron's arbitration proceedings against Indian state

11/23/2001
Associated Press Newswires 
Copyright 2001. The Associated Press. All Rights Reserved. 

NEW DELHI, India (AP) - A panel of arbitrators will meet in Singapore on Saturday to discuss legal action by Enron Corp. against the western Indian state of Maharashtra, an Enron official said. 
The Houston-based company has a 65 percent stake in the Dabhol Power Project in western India, and is locked in a dispute with the Maharashtra State Electricity Board over unpaid electricity charges.
The Singapore meeting is likely to be followed by arbitration in a London court, Dow Jones Newswires reported, quoting an unidentified Enron official on Friday. 
The company suspended operation of the power plant in May and now plans to withdraw from India. 
Enron has invested about dlrs 1 billion in equity of the 2,184 megawatt of power project, the largest ever foreign investment in India. 
Enron sold electricity produced from naphtha to its sole customer, the government-owned power utility in Maharashtra, which found the costs too high. 
The company also served notice to the federal government for not honoring a contract that required the government it to cover the Maharashtra state power utility's unpaid dues. 
Earlier this year, Enron's chairman Kenneth Lay wrote to Indian Prime Minister Atal Bihari Vajpayee threatening to sue the government for up to dlrs 5 billion if it did not resolve the dispute. 
Dabhol Power Co. initiated arbitration against the state government for not honoring guarantees on power bills due for December 2000 and January, this year. 
The panel, which has been appointed by the Dabhol Power Company and the Maharashtra state government, includes an independent observer. 
(dj-rkm, ng-kh)

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Enron SEC filing contained information Dynegy was unaware of - report

11/23/2001
AFX News 
(c) 2001 by AFP-Extel News Ltd 

NEW YORK (AFX) - Monday's SEC filing by Enron's Corp contained information that proposed buyer Dynegy Inc had not known about, the Wall Street Journal quoted a person familiar with the merger plans as saying. 
Dynegy representatives plan to work through the weekend evaluating the importance of this new information as part of the company's due diligence on Enron, the source said, without specifying what the new information was. 
In the filing, Enron disclosed hundreds of millions of dollars of potential additional write-offs as well as the possibility that its weakening financial condition could force it to repay more than 2 bln usd in loans by the end of the year.
Dynegy announced Wednesday that it is working to accelerate regulatory approvals required to complete the acquisition in accordance with the previously announced agreement. 
The Journal quoted analysts as saying Dynegy is coming under increasing pressure to renegotiate or walk away from the deal. 
It also cited Fitch director Ralph Pellecchia as saying that, without the Dynegy acquisition and continued support from its bankers and customers, an Enron bankruptcy-court filing "is highly possible". 
jms For more information and to contact AFX: www.afxnews.com and www.afxpress.com

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Dynegy's Decision to Buy Enron Hits Crossroads Amid Rising Financial Woes

11/23/2001
Dow Jones Business News 
(Copyright (c) 2001, Dow Jones & Company, Inc.) 

Even as it reiterated its intention to purchase Enron Corp., Dynegy Inc. is coming under increasing pressure to renegotiate or walk away from the multibillion-dollar deal, Friday's Wall Street Journal reported. 
The pressure is stemming from the continuing slide in the price of Enron (ENE) shares and the mounting financial problems at the Houston energy-trading company, the nation's biggest marketer of electricity and natural gas. During the past month, Enron has taken a $1 billion write-off of assets, revised downward the earnings of the past several years and taken a $1.2 billion reduction in shareholder equity.
The problems have been due largely to dealings Enron had with private partnerships, run by some of its own executives, under investigation by the Securities and Exchange Commission. In an SEC filing Monday, Enron disclosed hundreds of millions of potential additional write-offs as well as the possibility that its weakening financial condition could force it to repay more than $2 billion in loans by the end of the year. 
As of 4 p.m. Wednesday in New York Stock Exchange composite trading, Enron shares fell $1.98, or 28%, to $5.01 each after having dropped 23% Tuesday. In excess of 115 million shares traded Wednesday, more than four times the volume of any other Big Board stock. Enron's bonds also again traded sharply lower, market observers said. 
The turmoil spilled over to Dynegy's stock, which also was among the most actively traded on the New York Stock Exchange. As of 4 p.m. Wednesday, Dynegy (DYN) shares fell $1.94 to $39.76 each. 
On Wednesday, Dynegy issued a statement in which Chairman and Chief Executive Chuck Watson said his company was working "to accelerate the regulatory approvals required to complete the merger in accordance with the previously announced agreement" though it continued to perform "due diligence" on Enron. 
Under the merger agreement, Dynegy has opportunities to renegotiate or walk away from the deal if Enron's financial and legal problems become severe enough. However, some observers said it can be difficult to invoke these so-called material adverse change clauses. They point to a decision earlier this year by a Delaware Chancery Court judge who forced Tyson Foods Inc. to complete a planned purchase of IBP Inc. even though Tyson, a Springdale, Ark., food-products company, had wanted to cancel the transaction because of a drop in IBP's earnings and accounting problems at an IBP unit. 
Dynegy officials didn't return calls seeking comment. To complete the deal, two-thirds of Dynegy shareholders and a majority of Enron shareholders would have to give their approval. No dates for those votes have been set. 
One person familiar with the merger plans said the SEC filing Monday by Enron contained information Dynegy hadn't known about. Dynegy representatives planned to work through the weekend evaluating the importance of this new information as part of the company's due diligence, this person said. It couldn't be determined what the new information was. 
The merger agreement, announced Nov. 9, calls for Dynegy to exchange 0.2685 share for each of Enron's roughly 850 million fully diluted shares, giving the purchase a value of about $9 billion at Dynegy's current stock price. However, from a price standpoint, the deal is appearing less attractive to Dynegy. 
On the day of the merger announcement, Enron shares were trading at about $8.63 each, or about 83% of the purchase price under the exchange ratio. As of Wednesday, Enron's market price was only about 47% of the merger-formula price. Such a sharp deterioration is unusual following a merger announcement, when the stock price of the company being acquired generally begins trading relatively close to the offering price. 
Sentiment among Wall Street analysts also is turning against the merger. Initially, many analysts lauded the merger as a move that would rescue Enron and provide a major boost to Houston-based Dynegy. Dynegy and Enron officials have predicted that the merger, supposed to be completed late next year, would significantly and immediately increase Dynegy's earnings. 
Now analysts are challenging that assumption. Ron Barone, managing director at UBS Warburg LLC, said he believes that because of Enron's financial problems, a combined company would actually have lower earnings next year than Dynegy would have by itself. Mr. Barone said he thinks a "likely scenario" is that the merger formula will be renegotiated sharply down to about 0.15 Dynegy share for each Enron share. 
Copyright (c) 2001 Dow Jones & Company, Inc. 
All Rights Reserved.

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Financial Post Investing
Enron casts pall on analysts: 'Everyone had a buy on the stock' all the way down
Steve Maich
Financial Post, with files from news services

11/23/2001
National Post 
National
IN1 / Front
(c) National Post 2001. All Rights Reserved. 

For thousands of people burned by Enron Corp.'s spectacular implosion, it must have been tough to feel thankful yesterday. 
Over the past month, the Houston-based company has admitted its earnings reports going back four years are useless, written down billions in worthless investments, and fired its chief financial officer in a failed bid to shore up its plunging stock.
The slide in Enron's stock (ENE/NYSE) has already wiped out US$67-billion in shareholder wealth. Now it may lose its last lifeline, a US$7.93-billion takeover offer from Dynegy Inc. 
Enron's fall is proving to be more than just a cautionary tale about sketchy accounting. The case is raising serious questions about the responsibility of analysts who strongly recommended a stock that many now admit they never really understood. 
"The public isn't going to trust stock analysts for awhile," said Scott Preston, a San Francisco-based analyst with Research Capital Corp. who does not cover Enron. "Every analyst had a buy on the stock. And it's not like there was only one little issue there. It's a mess and big brokerages were coming out as it was on the way down saying put this thing in your Grandmother's [RRSP]." 
But Wall Street's embarrassment pales next to the pain of shareholders, including Enron employees whose pensions were loaded with the stock. 
"I have lost my savings, my plans for the future, everything," Roy Rinard, a long-time Enron staffer, said this week as he announced that employees have banded together for a class-action lawsuit against the company. 
Several analysts have acknowledged that Enron's financial statements were routinely incomprehensible. But with brokerages vying for the millions of dollars in equity and bond underwriting business Enron provided every year, many analysts chose to focus on the company's growth, and failed to ask tough questions about its books. 
Critics say the red flags were waving long ago. 
The first clear sign of trouble came Aug. 14, when Jeffrey Skilling quit the CEO job he took over just seven months earlier, citing personal reasons. Former chief executive Kenneth Lay reclaimed the job. "Our business is strong and our growth prospects have never been better," Mr. Lay said at the time. 
In fact, cracks were already appearing in the business. Enron's plan to start trading capacity on fibre optic networks was a costly failure, and the company was locked in a prolonged dispute with the Indian government over energy purchases in the region. 
In October, Enron surprised investors by reporting its first quarterly loss in more than four years, due in large part to the writedown of US$1-billion in bad investments. Within a week, the U.S. Securities and Exchange Commission started investigating Enron's finances. 
The company soon admitted major accounting errors dating back to 1997. Its profits had been overstated by US$586-million, or 20%. The company revealed that some of the investments it had written off were limited partnerships headed by CFO Andrew Fastow -- a serious breach of good corporate governance. Mr. Fastow was fired, but it didn't stop Enron's descent. 
The pain may be far from over. 
Facing a year of regulatory hearings to approve the merger, and a rapidly devaluing asset in Enron, many fear Dynegy will walk away from the deal. If that happens, Enron may be doomed. 
The stock closed Wednesday at US$5.01, down 93% this year. Dynegy closed at US$39.76, valuing the Enron offer at US$10.67 a share. The fact that Enron's stock is trading so far below the offer price is a sure sign that investors doubt it will proceed, at least not at the current offer price. 
All this has left investors wondering how so many could have been so wrong, about so much. And how can so many continue to endorse the stock? 
Of the 18 analysts that cover the stock, 10 still rate it a "buy." Goldman Sachs analyst David Fleisher removed Enron from his recommended list this week, but only after his firm was excluded from the banking syndicate arranging the Dynegy deal. 
Carol Coale, an analyst at Prudential Securities, dropped Enron from "buy" to "sell" this week, citing its long history of spotty disclosure, and often evasive answers to questions. She acknowledged to clients that her downgrade is "too little, too late" for many.

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Financial Post: World
Enron looking for US$1.5B boost to balance sheet: Expects cash from buyout firms, private equity investors
Robert Clow
Financial Times

11/23/2001
National Post 
National
FP12
(c) National Post 2001. All Rights Reserved. 

NEW YORK - Officials working to shore up Enron Corp.'s balance sheet said yesterday the struggling energy trader hoped to receive capital injections of more than US$1.5-billion as early as next week. 
Enron is in talks about investments of US$250-million with JP Morgan Chase and Citigroup and is also hoping to raise at least US$1-billion from private equity investors.
People close to Enron declined to comment on which buyout firms might wish to invest in Enron, but the Blackstone Group, which was reported to be talking to the company before Dynegy Inc. made its US$9-billion rescue bid, is understood not to be talking to Enron any longer. 
Members of the 20-strong bank lending group, led by JP Morgan Chase and Citigroup, are being asked to defer the maturities of their upcoming debt until after completion of the merger. 
The move comes as reports from Goldman Sachs & Co. and Fitch, the credit rating agency, raised questions about the company's cash flow and its medium-term viability. 
David Fleischer, a Goldman Sachs analyst, argued that cash balances were inadequate to meet US$2.8-billion of debt obligations falling due before the end of the year. People close to Enron say that nearly US$1-billion of that debt has already been restructured. 
The Fitch report said that if the Dynegy deal was not completed Enron would struggle to meet US$9-billion of obligations, due before the end of next year. 
People close to Enron insisted Dynegy remained committed to the merger and played down talk of renegotiation. 
Dynegy would shortly issue a statement reasserting its commitment to the deal, they predicted. 
But bankers acknowledged the fate of the Dynegy deal was largely irrelevant in terms of the company's immediate liquidity problems. 
The company has raised about US$7-billion in cash, enough to cover its operating costs since a US$1.2-billion writedown of shareholder equity plunged it into crisis on Oct. 16. 
However, the company's cash flow is being squeezed. The computer screens in front of energy traders at Enron's London headquarters still glow, even if they are doing much less business following the U.S. group's financial woes. 
The Belgravia offices house Europe's biggest electricity trader, which accounts for about a fifth of all European power contracts, worth roughly (ps)70-billion ($158-billion) last year in British, Nordic and other European markets. 
Fears over Enron's credit rating have prompted a sharp fall in its European electricity trading. Nonetheless, some companies that had previously withdrawn from buying and selling power with Enron have resumed trading with it in the short-term market. 
Few want to risk trading further than a week or two ahead, however, given continuing doubts over the company's finances.

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Report on Business: The Wall Street Journal
WHAT'S NEWS
United States
Wall Street Journal

11/23/2001
The Globe and Mail 
Metro
B9
"All material Copyright (c) Bell Globemedia Publishing Inc. and its licensors. All rights reserved." 

Two Enron Corp. workers are suing the company, claiming it endangered their retirement funds. The lawsuit, filed in Houston under the Employee Retirement Income Security Act, alleges that Enron encouraged the employees to invest more heavily in company stock just before the stock tanked. The lawsuit was filed by Portland, Ore., utility lineman Roy Rinard and co-worker, Steve Lacey. Enron shares have plunged more than 90 per cent over the past several months after an accounting controversy that eventually caused it to restate its earnings since 1997, eliminating more than $580-million (U.S.) of reported income.


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COMPANIES & FINANCE THE AMERICAS - Enron 'awaiting' capital injections, say officials.
By ROBERT CLOW.

11/23/2001
Financial Times 
(c) 2001 Financial Times Limited . All Rights Reserved 

Officials working to shore up Enron's balance sheet yesterday said the struggling energy trader hoped to receive capital injections of more than $1.5bn as early as next week. 
Enron is in talks about $250m investments with JP Morgan Chase and Citigroup and is also hoping to raise at least $1bn from private equity investors.
People close to Enron declined to comment on which buyout firms might wish to invest in Enron. However, the Blackstone Group, which was reported to be talking to the company before Dynegy made its $9bn rescue bid, is understood no longer to be doing so. 
Members of the 20-strong bank lending group, led by JP Morgan Chase and Citigroup, are being asked to defer the maturities of their upcoming debt until after the completion of the merger. 
The moves comes as reports from Goldman Sachs and Fitch, the credit rating agency, raised questions about the company's cash flow and its medium-term viability. 
David Fleischer, a Goldman Sachs analyst, argued that cash balances were inadequate to meet $2.8bn of debt obligations falling due before the end of the year. 
People close to Enron say that nearly $1bn of that debt has already been restructured. 
The Fitch report said that if the Dynegy deal was not completed, Enron would struggle to meet $9bn of obligations due before the end of next year. 
People close to Enron insisted that Dynegy remained committed to the merger and played down talk of renegotiation. 
Dynegy would shortly issue a statement reasserting its commitment to the deal, they predicted. 
(c) Copyright Financial Times Ltd. All rights reserved. 
http://www.ft.com.

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Dynegy's Bid for Enron Appears Less Appealing --- Merger Deal Loses Luster as Shares Tumble --- Acquisition Target Faces Numerous Earnings Problems
By Rebecca Smith and John R. Emshwiller
Staff Reporters

11/23/2001
The Wall Street Journal Europe 
4
(Copyright (c) 2001, Dow Jones & Company, Inc.) 

Even as it reiterated its intention to purchase Enron Corp., Dynegy Inc. is coming under increasing pressure to renegotiate or walk away from the multi-billion-dollar deal. 
The pressure is coming from the continuing slide in the price of Enron shares and the mounting financial problems at the Houston energy-trading company, the biggest marketer of electricity and natural gas in the U.S. In the past month, Enron has taken a $1 billion (1.1 billion euros) write-off of assets, restated downward the past several years of earnings and taken a $1.2 billion reduction in shareholder equity. The problems owe largely to dealings Enron had with private partnerships run by some of its own executives now under investigation by the U.S. Securities and Exchange Commission. In documents filed with the SEC on Monday, Enron disclosed hundreds of millions of potential additional write-offs as well as the possibility that its weakening financial condition could force it to repay more than $2 billion in loans by the end of the year.
On the New York Stock Exchange Wednesday, Enron shares were down 28% at $5.01 each, after having dropped some 23% on Tuesday. There was no trading Thursday. More than 115 million shares changed hands Wednesday, more than four times the volume of any other Big Board stock. Enron's bonds also fell, traders said. 
The turmoil spilled over to Dynegy's shares, which were also among the most actively traded on the New York Stock Exchange. Dynegy shares were at $39.76 each on Wednesday, down $1.94. 
Dynegy Chairman and Chief Executive Chuck Watson said his company was working "to accelerate the regulatory approvals required to complete the merger in accordance with the previously announced agreement" though it continued doing due diligence review on Enron. Under the merger agreement, Dynegy has opportunities to renegotiate or walk away from the deal if Enron's financial and legal problems become severe enough. 
Dynegy officials didn't return calls seeking comment. To consummate the deal, two-thirds of Dynegy shareholders and a majority of Enron shareholders would have to give their approval. No dates for those votes have been set. 
The merger agreement, announced Nov. 9, calls for Dynegy to exchange 0.2685 of its shares for each of Enron's roughly 850 million fully diluted shares, giving the purchase a value of about $9 billion at Dynegy's current stock price. 
However, from a price point of view, the deal is looking ever less attractive to Dynegy. 
On the day of the merger announcement, Enron shares were trading at about $8.63 a share, or about 83% of the purchase price under the exchange ratio. As of Wednesday, Enron's market price was only about 47% of the merger-formula price. 
Such a sharp deterioration is unusual following a merger announcement, when the stock price of the company being acquired generally begins trading relatively close to the offering price. 
Sentiment among Wall Street analysts is also turning against the merger. Initially, many analysts lauded the merger as a move that would rescue Enron and provide a major boost to Dynegy. Dynegy and Enron executives have predicted that the merger, which is supposed to be completed late next year, would significantly and immediately increase Dynegy's earnings. 
Now analysts are challenging that assumption. Ron Barone, managing director at UBS Warburg LLC, said that because of Enron's financial problems a combined company would actually have lower earnings next year than Dynegy would have by itself. Mr. Barone said a "likely scenario" is that the merger formula will be renegotiated sharply lower to about 0.15 Dynegy shares for each Enron share. 
Such a move wouldn't be without precedent. According to a person familiar with the merger negotiations, Dynegy reduced the exchange formula at least once prior to the Nov. 9 announcement because of Enron's rapidly sinking stock price, which at the beginning of this year was above $80 a share. 
In perhaps the most significant sign of the turning tide on Wall Street, Goldman Sachs analyst David Fleischer lowered his ratings on Enron and Dynegy. A longtime Enron fan, Mr. Fleischer issued a report expressing doubts that the merger would help Dynegy's earnings and whether Enron could "recover the significant business that has been lost" in its energy trading operations. "The Enron machine continues to sputter," wrote Mr. Fleischer. 
Some observers say that if Dynegy walked away from the deal or tried to significantly renegotiate the terms, Enron might be pushed into bankruptcy. Without the Dynegy acquisition and continued support from its bankers and customers, an Enron request for bankruptcy protection from creditors "is highly possible," said Ralph Pellecchia, a senior director at Fitch, a credit-ratings agency. On Wednesday, Fitch maintained its credit rating on Enron at just one notch above noninvestment grade, or "junk" status. But Fitch also said that Enron's trading partners had made "significant cash collateral calls" in recent days that are "well in excess of previous expectations," contributing to liquidity pressures. 
Among the advisers Enron has hired during its current crisis is the law firm of Weil, Gotshal & Manges, which has a specialty in bankruptcy and corporate restructuring. One energy trader said Wednesday that some colleagues had even started a betting pool about the timing of a possible Enron bankruptcy filing. But he quickly added that he had no knowledge that the company has contemplated such a step. 
Asked about a possible bankruptcy filing, an Enron spokeswoman said the company expects the Dynegy deal to go through and therefore doesn't expect to have to look at alternatives to the merger. Since the merger announcement, Enron Chairman Kenneth Lay has said that his company had alternatives to the Dynegy deal, but he has declined to identify them. 
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Thaddeus Herrick in Houston contributed to this article.

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Enron Europe carries on trading.
By ANDREW TAYLOR, UTILITIES CORRESPONDENT.

11/23/2001
Financial Times - FT.com 
(c) 2001 Financial Times Limited . All Rights Reserved 

The screens in front of energy traders at Enron's London headquarters are still glowing, even if they are doing much less business following the US group's financial woes. 
The Belgravia offices house Europe's biggest electricity trader, which accounts for about a fifth of all European power contracts, worth roughly GBP70bn ($99bn) last year in UK, Nordic and other European markets.
Fears over Enron's credit rating have prompted a sharp fall in its European electricity trading. Nonetheless, some companies which had previously withdrawn from buying and selling power with Enron have resumed trading with it in the short-term market. 
Few want to risk trading further than a week or two ahead, however, given continuing doubts over the company's finances. Whether Enron can survive depends on the commitment of Dynegy, the rival US energy group, to its $9bn rescue takeover announced two weeks ago. 
John Sherriff, president and chief executive of Enron Europe, was anxious on Thursday to show that it was still "business as usual" for his energy traders. 
He estimates they are transacting about 70 per cent of the number of contracts they would normally expect, but only about 40 per cent by volume. Rival traders believe volumes may have fallen much further. 
Contracts ranging from a day ahead to many years hence are used as a hedge to protect generators and retailers from risks of sudden price changes. 
As financial instruments they are traded many times over. As a result, the total value of the transactions is much higher than the cost of the actual electricity delivered. However, the transactions play an increasingly important role in oiling competitive electricity markets. 
Rival European power companies and traders are anxious that Enron should not fail. 
Brian Senior, director of trading and asset management at Innogy, the UK arm of the demerged National Power, said recent transactions had shown there was sufficient liquidity in European markets to cope if Enron disappeared. 
Traders were more concerned that Enron might not be able to honour existing long-term contracts. "This could have a domino effect, putting pressure on other companies," said Mr Senior. 
US power companies failed in similar circumstances after the Ohio-based Federal Energy defaulted on power contracts in 1998, he said. 
Martin Stanley, president of European energy trading for TXU, another large US energy group, said: "We are watching the situation carefully and would want to do nothing to add to Enron's problems by making unhelpful comments about their current position." 
Mr Sherriff said: "Counter-parties are generally being very supportive." 
Innogy said it had resumed limited trading with the US group but was "watching the situation carefully". TXU said: "We are still trading with Enron in the short-term market but less than we were." 
The Nordic market is one of the most active for power trading. US groups such as Enron, TXU and Dynegy have helped to expand the UK market, while Enron has a strong base in Germany. 
(c) Copyright Financial Times Group. 
http://www.ft.com.

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What's News
Business and Finance
Business and Finance

11/23/2001
The Wall Street Journal 
A1
(Copyright (c) 2001, Dow Jones & Company, Inc.) 

DYNEGY IS COMING under increasing pressure to renegotiate or walk away from its deal to acquire Enron, due to the slide in the price of Enron shares and the mounting financial problems at the energy-trading company. Separately, Enron has been sued by members of its employee-retirement plan, which has suffered losses because of Enron's plunging stock price. In trading Wednesday, Enron shares tumbled 28% to $5.01. 
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The economy could be declared officially in recession as early as today. The move comes amid signs that the recession already may be bottoming out, with initial jobless claims declining. 
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Norway offered to cut its oil production, becoming the latest independent exporter to succumb to OPEC's wishes in an effort to prop up world oil prices. 
--- 
WMC rejected a $6 billion takeover bid from Alcoa. The Australian mining company said it plans to spin off part of the firm in hopes of fetching a higher price. 
--- 
Retail Brand is set to buy Brooks Brothers from Marks & Spencer for about $225 million, less than a third of what the U.K. firm paid in 1988 for the men's retailer. 
--- 
The FDA approved Lilly's drug Xigris to treat septic infections, a medicine Wall Street believes could produce sales of more than $1 billion annually. 
--- 
Argentina extended by one week a deadline for institutional investors to tender their holdings in a giant debt swap. 
--- 
UFJ and Sumitomo Mitsui announced a combined $24 billion in write-offs, as investors pressure Japanese banks to purge their balance sheets of bad loans. 
--- 
Archer-Daniels, Cargill and Riceland agreed to sell about $25 million of farm goods to Cuba, the first commercial food deal by the U.S. and Havana in 40 years. 
--- 
Microsoft's general counsel said he plans to retire at the end of the fiscal year. William Neukom will be succeeded by Brad Smith, deputy general counsel. 
--- 
Goldman Sachs could slash as many as 1,000 jobs due to the Wall Street slump, a Merrill Lynch analyst said. 
--- 
CIBC agreed to pay at least $297.8 million to acquire Merrill's Canadian brokerage and asset-management operations. 
--- 
NTT reported a $2.13 billion loss for its fiscal first half, due to the Japanese company's losses on overseas investments and domestic restructuring costs. 
--- 
South Korea's economy grew by 1.8% in the third quarter, showing a surprising resilience during the global slump. 
--- 
CSX tentatively settled litigation from a 1987 chemical-car fire that had led to an initial $2.5 billion judgment against the firm. 
--- 
Markets -- 
Stocks: NYSE vol. 1,021,074,890 shares, Nasdaq vol. 1,556,321,162. Dow Jones industrials 9834.68, off 66.70; Nasdaq 1875.05, off 5.46; S&P 500 index 1137.03, off 5.63. 
Bonds:(2pm) 10-yr Treas off 25/32, yld 4.954%; 30-yr Treas off 21/32, yld 5.351%. 
Commodities: Oil futures $18.96 a barrel, off $0.19; Dow Jones-AIG futures index 89.862, off 0.069; DJ spot index 96.62, up 0.42. 
Dollar: 123.08 yen, up 0.56; 2.2246 marks, up 0.0092; euro 87.92 cents, off 0.37.

..................................................................................................................................... 

Enron Faces Suits by 401(k) Plan Participants
By Theo Francis and Ellen Schultz
Staff Reporters of The Wall Street Journal

11/23/2001
The Wall Street Journal 
C1
(Copyright (c) 2001, Dow Jones & Company, Inc.) 

Enron Corp., the embattled Houston energy and trading company, has been sued by members of its employee-retirement plan, which has suffered losses because of Enron's plummeting stock price. 
Two separate lawsuits, filed in federal court in Houston, allege Enron misled participants in its 401(k) retirement plan about the risks of investing in the company's shares and note that the company forced the employees to remain invested in its stock even as the shares fell. Amid growing disclosures of financial problems in recent weeks, the company "locked down" the retirement plan from Oct. 17 to Nov. 19 to make administrative changes, which prevented employees from selling Enron shares as the share price collapsed.
Enron, which recently agreed to be acquired by Dynegy Inc., Houston, because of mounting financial problems, has seen its stock price fall to $5.01 on Wednesday from a peak of nearly $90 a share last year. The decline has been costly to participants in Enron's retirement plan because more than 60% of the 401(k) assets were invested in Enron shares at the end of last year, according to one of the suits. 
The first suit was filed Nov. 13 on behalf of plan participants by Campbell Harrison & Wright LLP, a Houston law firm, and the second was filed Tuesday by Seattle-based Hagens Berman LLP. Both seek class-action certification. 
Enron said its corporate policy is not to comment on pending lawsuits. A spokeswoman also said the company's 401(k) plan offers participants 18 investment choices, one of which is company stock. 
The company's stock has fallen amid mounting losses and disclosures that it had extensive off-balance-sheet dealings with a web of partnerships headed by former company officials. The Securities and Exchange Commission has launched a formal investigation into the company's accounting, and Enron has said it will restate years of financial information. 
The suits against Enron are the latest of a series of suits filed against companies over losses in the company-stock portion of their 401(k) plans. The suits allege the plan trustees breached their fiduciary duties by continuing to offer company stock, even after they became aware of serious business problems that would hurt the stock price. All the suits are pending. 
As with most of these companies, Enron matches employee contributions to the 401(k) with shares of Enron stock, and also offers Enron stock as an investment choice, in addition to a variety of mutual funds. About $1.3 billion of the plan's $2.1 billion in assets was invested in Enron shares at the end of 2000, according to the suit filed by Campbell Harrison. 
Pamela Tittle, a participant in the 401(k) plan who worked in the finance department and a named plaintiff in the Enron suit filed by Campbell Harrison & Wright, had roughly 2,000 shares of Enron stock in her retirement account and has suffered losses of about $140,000 as a result of the stock's decline. The suit alleges that the trustees of the Enron 401(k) plan violated their fiduciary duties by not informing plan participants that the company stock was in peril. 
The suit filed by Hagens Berman, also alleges that the company failed to warn participants about risks of remaining invested in Enron stock. In addition, it accuses Enron of systematically misrepresenting its financial results since 1998 in connection with the partnerships under investigation by the SEC. 
Roy E. Rinard, a lineman for Enron in Oregon who is a named plaintiff in the suit filed by Hagens Berman, has seen the value of his retirement plan fall to $70,000 from $470,000, largely as a result of the decline in Enron's stock. "I feel like I have been betrayed," Mr. Rinard said in press release issued by his lawyers. "I lost my savings, my plans for the future, everything." 
Under federal pension law, companies are allowed to offer their own stock in retirement plans, and are allowed to force employees to hold onto the stock. Enron doesn't let employees diversify out of shares they receive as matching contributions to the 401(k) plan until age 50. 
However, plan trustees are supposed to operate the plan in the best interests of the participants, which includes choosing prudent investments. Generally, to prove that the plan's administrators breached their fiduciary duties, employees must show that the trustees knew the stock was a bad investment. This presents a high hurdle, so it is not surprising that prior lawsuits over losses in company stock in 401(k) plans have generally come in the wake of allegations of accounting irregularities. 
Lynn Sarko, one of Ms. Tittle's attorneys with Seattle's Keller Rohrback LLP, is also co-lead counsel in a similar lawsuit against Lucent Technologies Inc., Murray Hill, N.J. Another firm representing Ms. Tittle is Dalton Gotto Samson & Kilgard PLC, which is lead counsel in a similar suit against Ikon Office Solutions Inc., Malvern, Pa. The two law firms are representing Ms. Tittle with Campbell Harrison & Wright. 
The suits against Lucent and Ikon, like the suit against Enron, allege that then-current plan trustees kept offering company stock in the plan despite knowing of serious business problems that would hurt the stock price. Representatives for Ikon and Lucent say their companies didn't require employees to invest in the company stock, and educated employees about the need for diversification. 
The suit in which Mr. Rinard is plaintiff notes that on Oct. 17, a day after Enron announced the company was taking a nonrecurring charge totaling $1.01 billion in the third quarter, Enron "locked down" the 401(k) plan's assets, preventing participants from selling Enron shares. (A "lock-down" occurs when a retirement plan is transferred from one administrator to another, and generally lasts several weeks, during which time participants can't make changes in their investment choices). 
The lock-down was lifted on Nov. 19. In the interim, on Nov. 8, Enron announced it would be forced to restate downward its reported financial results from 1997 through 2000. By the time the lock-down was lifted, as a result of all the negative news the shares had fallen to below $9 a share from $32.20 on Oct. 17, when the lockup started, Hagens Berman attorney Karl Barth said. 
"They were locked into it right when Enron knew it was going to be announcing some really bad news," Mr. Barth said. "Mr. Rinard's looking at having no retirement savings now. It's a horrible thing to have to start over in your 50s."

..................................................................................................................................... 

Enron says sorry as shares keep falling.

11/23/2001
Energy Compass 
(c) 2001 Energy Intelligence Group. All rights reserved 

Investors in Enron must be wondering when their luck will change. The company's shares were sent tumbling again this week after the company revealed that its credit crunch was worse than many investors thought. The news spurred talk that rival energy trader Dynegy may have to inject more cash under its plan to buy Enron - or could even walk away from the deal. 
In a quarterly filing with the Securities and Exchange Commission, Enron said it must pay down a $690 million note by Nov. 27 because of the recent downgrade of its credit rating. Unless Enron repays the note or posts a letter of credit, the unidentified creditor can start liquidating Enron assets. These include CEG Rio, a gas distribution company in Brazil that Enron is already in the process of selling to pay down other debt.
At the market close on Tuesday, Enron shares stood at $6.99/share, about 39% below Dynegy's bid price of $11.60/share, and a fraction of the $90.75 peak reached in August 2000 when the company was in its asset-light pomp. 
At least Enron is trying to say sorry - sort of. In a conference call with analysts and investors last week, chairman and chief executive Kenneth Lay indicated regret for the series of bad investments in non-core businesses that has nearly bankrupted the big energy trading company. "In hindsight, we made some very bad investments in some non-core businesses," Lay acknowledged. "I could not have ever contemplated the events we as a company and you as a stakeholder have faced over the last several weeks. This has resulted in a complete loss of investor confidence." 
And, via the Dynegy deal, a complete loss of Enron independence, although even that is not cut and dried. If Enron fails to settle the $690 million debt repayment next week, its credit rating would likely be reduced to sub-investment or "junk" status. And if that happened, it would qualify as a "material adverse change," allowing Dynegy to pull out of the merger if it wanted to. Analysts doubt things will get this bad, still giving the deal a 70-90% chance of going through.

..................................................................................................................................... 

Business/Financial Desk; Section C
From Sunbeam to Enron, Andersen's Reputation Suffers
By FLOYD NORRIS

11/23/2001
The New York Times 
Page 1, Column 2
c. 2001 New York Times Company 

THIS has been the worst year ever for Arthur Andersen, the accounting firm that once deserved the title of conscience of the industry. The Securities and Exchange Commission filed civil fraud complaints against the Andersen partner who audited Sunbeam and against the firm itself in the Waste Management case. 
Now Enron has repudiated the financial statements that were certified by Arthur Andersen, in the process shaving more than half a billion dollars from the company's reported profits in recent years.
All of which raises the question: Has Arthur Andersen become the black sheep of the accounting industry? 
It is not an easy question to answer, and not everyone is willing to rush to judgment. ''If you want to attack Andersen for Enron, you need to know more than we know,'' Arthur Levitt, the former chairman of the Securities and Exchange Commission, said this week. 
But if there is a thread connecting what is known about the three cases, it is materiality. In all three cases, Andersen auditors spotted bad accounting but were persuaded it was immaterial and therefore allowed it to go ahead. 
Materiality is one of those flexible concepts that can get accountants into trouble. The idea is that it doesn't much matter if a few little things were gotten wrong. But they can add up. 
At Enron, however, they did not add up to that much -- a total of $93 million over four years. The biggest restatement of Enron profits concerns a related party that Enron now says should have been consolidated. It is not clear if Andersen had the facts needed to make that decision at the time. 
To those who treasure the role of auditors, the humiliation of Andersen is painful. Back in the 1950's, it was Leonard Spacek, Andersen's managing partner, who warned that ''the profession's existence is in peril'' because it was not showing enough independence. His public prodding was crucial in making the industry do a better job. Two decades ago, when the issue on the table was pension accounting, Andersen was the only major accounting firm to break with clients and push for good rules. 
Now Andersen's backbone is open to question. It was evidence that senior people at Andersen repeatedly gave in to pressure from Waste Management that led the S.E.C. to bring that suit, which the firm chose to settle without admitting it had done anything wrong. The partner that the S.E.C. says looked the other way at Sunbeam is fighting the accusations, and Andersen says he acted properly. 
Lynn Turner, who was chief accountant of the S.E.C. at the time and is now director of the Center for Quality Financial Reporting at Colorado State University, says what is happening to Andersen now is reminiscent of what happened to Coopers & Lybrand when he was a partner there and the firm had a series of highly publicized blown audits. 
''We got bludgeoned to death in the press,'' he said. ''People did not even want to see us at their doorsteps. It was brutal, but we deserved it. We had gotten into this mentality in the firm of making business judgment calls.'' By that he meant that the firm paid too much attention to not offending clients and not enough to good accounting. 
For Andersen to avoid that fate, its relatively new chief executive, Joseph Berardino, who declined to be interviewed for this column, will need to set a tone inside the firm making clear that he expects auditors to show the backbone that Mr. Spacek epitomized. And then he will have to convince the public of that.

..................................................................................................................................... 

Dynegy Deal To Buy Enron Hits Crossroads
By Rebecca Smith and John R. Emshwiller
Staff Reporters of The Wall Street Journal

11/23/2001
The Wall Street Journal 
A3
(Copyright (c) 2001, Dow Jones & Company, Inc.) 

Even as it reiterated its intention to purchase Enron Corp., Dynegy Inc. is coming under increasing pressure to renegotiate or walk away from the multibillion-dollar deal. 
The pressure is stemming from the continuing slide in the price of Enron shares and the mounting financial problems at the Houston energy-trading company, the nation's biggest marketer of electricity and natural gas. During the past month, Enron has taken a $1 billion write-off of assets, revised downward the earnings of the past several years and taken a $1.2 billion reduction in shareholder equity.
The problems have been due largely to dealings Enron had with private partnerships, run by some of its own executives, under investigation by the Securities and Exchange Commission. In an SEC filing Monday, Enron disclosed hundreds of millions of potential additional write-offs as well as the possibility that its weakening financial condition could force it to repay more than $2 billion in loans by the end of the year. 
As of 4 p.m. Wednesday in New York Stock Exchange composite trading, Enron shares fell $1.98, or 28%, to $5.01 each after having dropped 23% Tuesday. In excess of 115 million shares traded Wednesday, more than four times the volume of any other Big Board stock. Enron's bonds also again traded sharply lower, market observers said. 
The turmoil spilled over to Dynegy's stock, which also was among the most actively traded on the New York Stock Exchange. As of 4 p.m. Wednesday, Dynegy shares fell $1.94 to $39.76 each. 
On Wednesday, Dynegy issued a statement in which Chairman and Chief Executive Chuck Watson said his company was working "to accelerate the regulatory approvals required to complete the merger in accordance with the previously announced agreement" though it continued to perform "due diligence" on Enron. 
Under the merger agreement, Dynegy has opportunities to renegotiate or walk away from the deal if Enron's financial and legal problems become severe enough. However, some observers said it can be difficult to invoke these so-called material adverse change clauses. They point to a decision earlier this year by a Delaware Chancery Court judge who forced Tyson Foods Inc. to complete a planned purchase of IBP Inc. even though Tyson, a Springdale, Ark., food-products company, had wanted to cancel the transaction because of a drop in IBP's earnings and accounting problems at an IBP unit. 
Dynegy officials didn't return calls seeking comment. To complete the deal, two-thirds of Dynegy shareholders and a majority of Enron shareholders would have to give their approval. No dates for those votes have been set. 
One person familiar with the merger plans said the SEC filing Monday by Enron contained information Dynegy hadn't known about. Dynegy representatives planned to work through the weekend evaluating the importance of this new information as part of the company's due diligence, this person said. It couldn't be determined what the new information was. 
The merger agreement, announced Nov. 9, calls for Dynegy to exchange 0.2685 share for each of Enron's roughly 850 million fully diluted shares, giving the purchase a value of about $9 billion at Dynegy's current stock price. However, from a price standpoint, the deal is appearing less attractive to Dynegy. 
On the day of the merger announcement, Enron shares were trading at about $8.63 each, or about 83% of the purchase price under the exchange ratio. As of Wednesday, Enron's market price was only about 47% of the merger-formula price. Such a sharp deterioration is unusual following a merger announcement, when the stock price of the company being acquired generally begins trading relatively close to the offering price. 
Sentiment among Wall Street analysts also is turning against the merger. Initially, many analysts lauded the merger as a move that would rescue Enron and provide a major boost to Houston-based Dynegy. Dynegy and Enron officials have predicted that the merger, supposed to be completed late next year, would significantly and immediately increase Dynegy's earnings. 
Now analysts are challenging that assumption. Ron Barone, managing director at UBS Warburg LLC, said he believes that because of Enron's financial problems, a combined company would actually have lower earnings next year than Dynegy would have by itself. Mr. Barone said he thinks a "likely scenario" is that the merger formula will be renegotiated sharply down to about 0.15 Dynegy share for each Enron share. 
Such a ratcheting down wouldn't be without precedent in the deal. According to one person familiar with the merger negotiations, Dynegy reduced the exchange formula at least once prior to the Nov. 9 announcement because of Enron's rapidly sinking stock price, which at the beginning of this year was above $80 a share. 
In perhaps the most significant sign of the turning tide on Wall Street, Goldman Sachs analyst David Fleischer lowered his ratings on Enron and Dynegy. A longtime Enron fan, Mr. Fleischer issued a report expressing doubts that the merger would help Dynegy's earnings and whether Enron could "recover the significant business that has been lost" in its giant energy-trading operations. "The Enron machine continues to sputter," Mr. Fleischer wrote. 
Some observers say that if Dynegy walked away from the deal or tried to renegotiate the terms significantly, Enron might be pushed into a bankruptcy-law filing. Without the Dynegy acquisition and continued support from its bankers and customers, an Enron bankruptcy-court filing "is highly possible," said Ralph Pellecchia, a senior director at Fitch, a credit-ratings agency. On Wednesday, Fitch maintained its credit rating on Enron at just one notch above noninvestment-grade, or "junk," status. But Fitch also said it believed Enron's trading partners had made "significant cash collateral calls" in recent days that are "well in excess of previous expectations," contributing to "liquidity pressures." 
Among the advisers Enron has hired during its current crisis is the law firm of Weil, Gotshal & Manges, which specializes in bankruptcy and corporate-workout situations. Asked about a possible bankruptcy filing, an Enron spokeswoman said the company expects the Dynegy deal to go through and therefore doesn't expect to have to look at alternatives to the merger. Since the merger announcement, Enron Chairman Kenneth Lay has said his company had alternatives to the Dynegy deal but he has declined to identify them. Enron said it made some progress improving its financial position. The company said it reached a final agreement with units of J.P. Morgan Chase & Co. and Citigroup Inc. on the remaining $450 million of a previously announced $1 billion in secured credit lines. Enron said lenders had agreed to extend repayment of an existing $690 million note to mid-December from next week. The spokeswoman said a restructuring of that obligation is expected to be completed next month so that repayment wouldn't be required this year. 
--- 
Thaddeus Herrick and Robin Sidel contributed to this article.

..................................................................................................................................... 

Options Report
Premiums Stay High on Enron's Near Options, And `Doubling Up' Date Looms for Tax Losses
By Kopin Tan
Dow Jones Newswires

11/23/2001
The Wall Street Journal 
C11
(Copyright (c) 2001, Dow Jones & Company, Inc.) 

NEW YORK -- Volatility and premiums on Enron's near-month options remain extremely high. It is a sign that investors are willing to pay a rich price for option protection and expect the stock to be unsettled as the Houston company sorts through its credit and debt problems and seeks to calm frazzled investors. 
Enron near-month defensive puts traded heavily in an otherwise quiet session Wednesday, as investors bought them to hedge. The December 5 puts traded more than 10,000 contracts and jumped 45 cents to $1.10 at the Chicago Board Options Exchange. The stock closed down $1.98, or 28%, to $5.01, as of 4 p.m. in New York Stock Exchange composite trading.
Enron's calls traded actively as some investors sold them to generate income. Traders noted some call buying -- especially after Enron procured a three-week extension on a $690 million note -- as some hopeful investors bet on Enron pulling through its troubles and proceeding with its merger with Dynegy Inc. Enron's December 5 calls traded more than 14,500 contracts, compared with open interest of 710, as they fell $1.45 to $1.15 at the CBOE. 
For investors who want to book a tax loss on beaten-down stocks, the "wash sale" rule can be a hurdle, because it essentially prevents taxpayers from selling stock or securities at a loss and then reacquiring "substantially identical" securities within a 30-day period before or after that loss. This poses a problem for those who want to book a loss yet own stocks whose prices now make them attractive "buy" candidates. 
In addition, the Internal Revenue Service has taken the position that the wash-sale rule will disallow a loss if the investor sells an in-the-money put, because there is a strong likelihood that stock will be put to or acquired by the investor. 
So investors typically get around the wash-sale rule by "doubling up": buying additional stock or options, waiting at least 31 days, and then selling the original stock to book the loss. Investors double up by buying calls, which locks a price to buy stock and achieves the same effect as buying additional stock.

..................................................................................................................................... 

INDIA PRESS: Enron May Sell Dabhol Stake For $500 Mln

11/22/2001
Dow Jones International News 
(Copyright (c) 2001, Dow Jones & Company, Inc.) 

NEW DELHI -(Dow Jones)- Enron Corp. (ENE) may be forced to sell its stake in Dabhol Power Co. for around $500 million, half of the asking price of $1 billion, reports the Business Standard, quoting the New York Times. 
According to the report, Tata Power Co. (P.TPW) and BSES Ltd. (P.BSX) - the Indian bidders for Enron's 65% stake in the 2,184 megawatt Dhabol plant - were reportedly willing to pay only half of the asking price. If the lenders and prospective buyers adopt a take it-or-leave it posture, Enron may have little choice but to accept their offer and take a huge loss, the newspaper said.
Dabhol, located in the western Indian state of Maharashtra, is India's largest single foreign investment at $2.9 billion. 
Newspaper Web site: www.business-standard.com 

-By Himendra Kumar; 91-11-461-9426; himendra.kumar@dowjones.com

..................................................................................................................................... 

Lawsuit claims Enron led workers astray, hurt retirement funds%)

11/22/2001
Associated Press Newswires 
Copyright 2001. The Associated Press. All Rights Reserved. 

HOUSTON (AP) - Two Enron Corp. workers are suing the company, claiming it endangered their retirement funds. 
The lawsuit, filed in federal court in Houston under the Employee Retirement Income Security Act, asserts that Enron encouraged the employees to invest more heavily in company stock just before the stock tanked. The lawsuit was filed by Portland, Ore., utility lineman Roy Rinard and co-worker, Steve Lacey.
Enron shares have plunged more than 90 percent over the past several months after the departure of the company's chief executive and an accounting controversy that eventually caused it to restate its earnings since 1997, eliminating more than $580 million of reported income. 
Steve Berman, managing partner for the law firm of Hagens Berman in Seattle, said Enron touted the value of its stock and encouraged employees to put their entire portfolio into Enron stock. 
Enron officials didn't emphasize the risk and instead painted the situation as positive, especially when the company's stock began to slide, said Berman, who is hoping to get the suit certified as a class-action case. 
Berman wants to prove that the 401(k) plan executives failed to act responsibly when they knew about serious business problems. He's also hoping to break new legal ground with his case. 
The lawsuit is patterned after a case against Lucent Technologies in which Lucent employees sued their employer this summer for matching their 401(k) contributions with company stock that later tanked. That case is still in litigation. 
Earlier this year 54-year-old Rinard had $472,000 in his 401(k) plan, which had been growing for 21 years. Today, the plan is worth about $40,000. Enron gives its employees their 401(k) match in company stock. 
In January, Enron was trading for $84.87. Wednesday it closed at $5.01 a share. 
The problem was compounded when many employees, including Rinard, saw Enron's stock doing so well that they decided to put their entire account into Enron stock. 
Enron executives were talking about how the stock price was poised to climb above $100 a share, he told the Houston Chronicle for Thursday's editions. 
Another troubling feature of the Enron 401(k) plan was that employees were not allowed to make trades for about a month. The lockdown began Oct. 17, the day after Enron surprised the market that it was taking a $1.01 billion after-tax third-quarter charge to get out of bad investments. 
Enron officials, who could not be reached, have said they had planned the lockdown for several months because it was changing plan administrators.

..................................................................................................................................... 

Enron Workers Sue, Claim Troubled Energy Company Endangered Retirement Funds

11/22/2001
Dow Jones Business News 
(Copyright (c) 2001, Dow Jones & Company, Inc.) 

Associated Press 
HOUSTON -- Two Enron Corp. workers are suing the company, claiming it endangered their retirement funds.
The lawsuit, filed in federal court in Houston under the Employee Retirement Income Security Act, alleges that Enron encouraged the employees to invest more heavily in company stock just before the stock tanked. The lawsuit was filed by Portland, Ore., utility lineman Roy Rinard and co-worker, Steve Lacey. 
Enron (ENE) shares have plunged more than 90% over the past several months after the departure of the energy company's chief executive and an accounting controversy that eventually caused it to restate its earnings since 1997, eliminating more than $580 million of reported income. 
Steve Berman, managing partner for the law firm of Hagens Berman in Seattle, said Enron touted the value of its stock and encouraged employees to put their entire portfolio into Enron stock. 
Enron officials didn't emphasize the risk and instead painted the situation as positive, especially when the company's stock began to slide, said Mr. Berman, who is hoping to get the suit certified as a class-action case. 
Mr. Berman wants to prove that the 401(k) plan executives failed to act responsibly when they knew about serious business problems. He's also hoping to break new legal ground with his case. 
The lawsuit is patterned after a case against Lucent Technologies Inc. (LU) in which Lucent employees sued their employer this summer for matching their 401(k) contributions with company stock that later tanked. That case is still in litigation. 
Earlier this year 54-year-old Mr. Rinard had $472,000 in his 401(k) plan, which had been growing for 21 years. Today, the plan is worth about $40,000. Enron gives its employees their 401(k) match in company stock. 
In January, Enron was trading for $84.87. Wednesday it closed at $5.01 a share. 
The problem was compounded when many employees, including Mr. Rinard, saw Enron's stock doing so well that they decided to put their entire account into Enron stock. 
Enron executives were talking about how the stock price was poised to climb above $100 a share, he told the Houston Chronicle for Thursday's editions. 
Another troubling feature of the Enron 401(k) plan was that employees weren't allowed to make trades for about a month. The lockdown began Oct. 17, the day after Enron surprised the market by saying it was taking a $1.01 billion after-tax third-quarter charge to get out of bad investments. 
Enron officials, who couldn't be reached, have said they had planned the lockdown for several months because it was changing plan administrators. 
Copyright (c) 2001 Dow Jones & Company, Inc. 
All Rights Reserved

..................................................................................................................................... 

Enron's Japan subsidiary reviewing its business

11/22/2001
Associated Press Newswires 
Copyright 2001. The Associated Press. All Rights Reserved. 

TOKYO (AP) - The Japanese subsidiary of Enron Corp., the beleaguered U.S. energy trading company, is reviewing its business here and hopes to conclude its findings in the next few weeks, a company spokeswoman said Thursday. 
Earlier this month, rival Dynegy Inc. said it plans to acquire Enron. Enron has begun an assessment of its global operations.
Enron Japan Corp., a wholly owned subsidiary of the Houston-based company, began its own assessment about a week ago, said spokeswoman Mika Watanabe. 
Enron Japan's business includes E Power Corp., a venture set up in Japan by Enron and Orix Corp., a leasing company, which had been studying possible electric power plants. 
Shares of Enron plummeted another 28 percent Wednesday even though it reached a critical agreement to extend a $690 million debt payment. 
Analysts continued to question, however, whether Dynegy's planned $8.9 billion acquisition of its larger rival Enron will survive, particularly as some traders are limiting business with Enron because they don't know if more negative revelations are coming. 
Enron shares have plunged more than 90 percent over the past several months following the departure of the company's chief executive and an accounting controversy that eventually caused it to restate its earnings since 1997, eliminating more than $580 million of reported income. 
Its latest round of woes started Monday, after Enron filed a document with the Securities and Exchange Commission saying it would have to repay $690 million in debt by Nov. 26 because of decreased credit ratings. 
Enron Japan was established in April 2000 and employs about 60 people, and had hoped to eventually break into Japan's power industry, which is gradually growing more open.

..................................................................................................................................... 

Major Enron Unit Stake May Be Sold For Under $700M-Source

11/22/2001
Dow Jones International News 
(Copyright (c) 2001, Dow Jones & Company, Inc.) 

NEW DELHI -(Dow Jones)- The foreign-owned 85% stake in India's $2.9 billion Dabhol Power Co. may be sold for under $700 million, a senior Indian government source told Dow Jones Newswires Thursday. 
"The two prospective buyers for Dabhol's foreign equity, BSES Ltd. (P.BSX) and Tata Power Co. (P.TPW) have currently suggested a price which is below $500 million. During the final purchase negotiations, their take-it-or-leave-it offer may go up to as high as around $700 million," said the official.
U.S. energy company Enron Corp. (ENE) owns a controlling 65% stake in the 2,184-megawatt Dabhol power project, located in the western Indian state of Maharashtra. 
Enron wants to sell its stake because of payment defaults by its sole customer - the Maharashtra State Electricity Board - and the Indian federal government's failure to honor payment guarantees. In August, the U.S. company said it was willing to sell its stake at cost. MSEB owns 15%, while General Electric Co. (GE) and Bechtel (X.BTL) own 10% each in Dabhol Power. 
Tata and BSES were expected to complete their due diligence on the Dabhol project by end January 2002 at the latest. After the due diligence is completed, price negotiations will start and thereafter, the transfer of shares and transfer of ownership will take place, said the official. 
He said India's state-owned utility National Thermal Power Corp. (P.NTP) was keeping a close eye on DPC's negotiations with BSES and Tata and there was a possibility that at some stage it may quote its price to buy a stake in Dabhol. 
"NTPC might join the race at some stage. They have the financial resources and the core competence in the power sector. There's a possibility that NTPC may make its price offer just about the time the final price negotiations of BSES and Tata with Dabhol Power Co. start," said the official. 
-By Himendra Kumar, Dow Jones Newswires; 91-11-461-9426; himendra.kumar@dowjones.com

..................................................................................................................................... 

JAPAN: Shock waves from Enron crisis felt in Japan.

11/22/2001
Reuters English News Service 
(C) Reuters Limited 2001. 

TOKYO, Nov 22 (Reuters) - The shock waves from the crisis at Enron Corp are being felt in Japan, where the stressed energy group has about 60 billion yen ($486.9 million) of bonds outstanding, money market dealers said on Thursday. 
Dealers said most of Enron's yen-denominated bonds are believed to be held by Japanese investors.
In the U.S. bond market, Enron's 6.4 percent dollar-denominated notes maturing in 2006 were selling at a deep discount of 62 cents on the dollar on Wednesday. 
The price of Enron's yen bonds are also under pressure, but because the Japanese market is far less liquid than the U.S. market it is virtually impossible to quote a price. 
"Even if you want to sell them, there's no one is out there to buy," said a market source, who declined to be identified. 
Some investors holding Enron's bonds put on brave face. 
"Enron's core business is still doing fairly good. And we have bonds due next May. So we have concluded that there won't be grave concerns for its redemption," said Yasushi Inoue, manager at UFJ Partners Asset Management. 
Some in the market are concerned, however, that some money management funds (MMFs) have Enron bonds in their portfolio. 
MMFs, seen as an alternative to bank deposits, generally invest in safe assets in order to secure stable fixed income. 
But because the Bank of Japan has been guiding short-term rates to near zero since last March, some funds are allocating money to riskier bonds, or commercial paper, to raise returns. 
Five MMFs run by four asset management companies hold Enron bonds totaling about 38.5 billion yen nominal value. 
DEFAULT WORRY 
Should Enron default on the yen bonds, the price of those MMFs would fall below their purchase price, meaning some funds would be unable to fully pay back the money entrusted to them. 
Although MMFs technically do not guarantee principle, they are widely regarded be almost as safe as deposits. 
"If the MMF prices fall below purchase price, investors may lose confidence in MMFs, which could trigger an exodus of funds out of MMFs," said the market source. 
That would force fund managers of MMFs to sell a large part of assets in their funds, which could in turn push up short-term interest rates. 
"I could not rule out such possibility," said the source. 
Separately on Thursday, Enron said it was reviewing operations in Japan, including an option to sell the business to a third party. 
"Enron Corp is reviewing its operations in Japan ... considering every possibility including retaining the operations or selling a part of it," a spokeswoman in Tokyo said. 
The company will likely finalise its plans within five or six weeks, she said. 
Enron gained its first foothold in Japan in 1999, when it established affiliate E Power Corp, hoping to benefit from Japan's deregulation of the retail power market. 
In April last year, it set up Enron Japan Corp, which has so far introduced electricity trading and marketing and other financial instruments. The company has 70 employees in Japan. 
Shares of Enron closed down 28.33 percent at $5.01 on the New York Stock Exchange on Wednesday. ($1=123.22 yen).

..................................................................................................................................... 

Enron's Wessex Water unit faces possible bid from institutions - report

11/22/2001
AFX News 
(c) 2001 by AFP-Extel News Ltd 

LONDON (AFX) - At least four financial institutions are circling Wessex Water PLC as possible bidders for the south-west of England water company that Enron, the struggling US energy group, needs to sell, according to the Financial Times. 
The newspaper did not name its source, but said Royal Bank of Scotland PLC, Candover Investments, WestLB and Barclays Capital are understood to have expressed an interest in buying Wessex, which provides water and sewage services to 2.4 mln people.
Nomura, the Japanese investment bank, has previously expressed an interest in Wessex. 
Enron, which bought Wessex in 1998 for 1.36 bln stg revealed on Monday that it must repay 6.35 bln stg of debt by the end of next year. 
The newspaper said a purchase is likely to be complicated. 
Enron -- subject of a 9 bln usd bid from Dynegy, its smaller US energy rival -- could be faced with a charge of 650 mln usd if the combined value of Azurix, which controls its water interests, falls to 1.95 bln usd or 25 pct below its book value, the newspaper said. ml/rn For more information and to contact AFX: www.afxnews.com and www.afxpress.com

..................................................................................................................................... 

Asia Energy Watch:PlattsDirect To Launch In Rough Waters
By Jeremy Bowden

11/22/2001
Dow Jones International News 
(Copyright (c) 2001, Dow Jones & Company, Inc.) 

A DOW JONES NEWSWIRES COLUMN 

SINGAPORE -(Dow Jones)- Credit concerns at Enron Online and repeated delays to the launch of eNymex have dramatically altered the outlook for online energy trading over recent months.
The big-oil backed Internet site, Intercontinental Exchange, or ICE, has so far been the main beneficiary of its competitors' problems, with recent trade volumes jumping sharply. But its growing hegemony may soon be challenged by a very different online trading system, run by Platts, a unit of publisher McGraw-Hill Cos. (MHP). 
Aware of sensitivity to its role in oil markets from within the industry, Platts is approaching electronic trading with a very different business model from existing commission-based sites. 
Platts sources say its new system, dubbed PlattsDirect, is designed - initially at least - as a "communication device" to enhance its existing role of assessing and publishing benchmark energy prices. Its current telephone-based systems, they say, can't cope with rising liquidity, all of which must be factored in when making its price assessments. 
They hope PlattsDirect will develop as a "master exchange," providing a "neutral base" for other exchanges to feed pricing information, in order to compliment Platts leading role as price benchmark assessor and publisher. 
PlattsDirect is more likely to charge a subscription fee than commissions, sources said, although a final decision has yet to be made. Unlike some other systems, PlattsDirect will offer no clearing or counterparty service. 
While a launch date hasn't been fixed, Platts hopes PlattsDirect will be up and running in early 2002. Nymex by contrast, is without a launch date for its eNymex Internet system, which has suffered repeated delays since its original launch date of October 2000. 
Is Nymex Leaving It Too Late? 

Some oil traders suggest Nymex has "missed the boat" in its efforts to develop electronic trading, bogged down by its desire to keep local floor traders happy. 
In September, Nymex President J. Robert Collins said the launch of eNymex had been delayed by factors including the bankruptcy of one of the system's developers, Globalview Software Inc., according to industry publications Oil and Gas Journal and Petroleum Intelligence Weekly. 
But several months later, Globalview continues to be alive and well, despite legal action taken against it by Nymex, and has posted a 25% increase in sales so far this year. A senior Globalview official said his company is countersuing, without providing further details. 
ICE invited Nymex to join it last year, but Nymex rejected the offer, preferring to focus on its own electronic system. In June, ICE acquired London's International Petroleum Exchange, which plans to scrap floor trading and adopt electronic trading for all its products. 
Enron Corp.'s (ENE) Enron Online faces even more serious problems than Nymex. Oil trading sources say it has seen a sharp reduction in trade volume over recent weeks as counterparties grow increasingly wary over the company's financial position. The system Enron designed to reduce credit risk - where Enron itself acts as a counterparty to every online trade - appears to have backfired. 
Even if the system is successfully transferred to Dynegy Inc. (DYN) - which has agreed to take over Enron, pending legal objections - trading sources say counterparties are likely to be wary of placing so much risk with a single company again, leaving the Enron Online trading model at a disadvantage. 
They added that unless the Dynegy takeover is quick, Enron Online liquidity could dry up completely. Enron itself has warned that reduced trading activity will hit fourth-quarter earnings. 
Platts' Independence, Physical Trade Advantageous 

While it doesn't appear keen to compete with other systems head-on initially, PlattsDirect has several advantages which could persuade traders to use its system. A possible absence of commissions is of concern to Singapore brokers and probably other online sites too. 
Platts sources claim the site's independence and resulting objectivity is also a major advantage over other sites. But the concern for Platts is that that very independence also means it has no guaranteed support from within the trading community. 
ICE, by contrast, was developed and is owned by a selection of companies involved in the trading of oil, including oil majors BP PLC (BP), Total Fina Elf SA (TOT) and Royal Dutch/Shell Group (RD), and enjoys IPE support. 
PlattsDirect is also able to offer physical trade - unique so far among on-line energy trading sites. Some traders say Platts' existing role as a publisher of benchmark oil price assessments - particularly in Asia - is bound to attract trade to the new system. 
"Some companies will want to trade on PlattsDirect because prices from the system will be used when assessing benchmarks," said one trader. The majority of physical oil trade is priced against benchmarks rather than on a spot basis, and most over-the-counter derivative products are also settled against Platts' benchmark assessments - including Nymex Brent and many on ICE. 
Platts claims physical and derivative products worth US$10 billion are traded against its benchmark quotes everyday, and this makes influencing those quotes a priority for traders. 
Platts also plans to use the prices of oil derivative trades from PlattsDirect to improve the accuracy of its daily assessments of forward prices. 
However, Platts must be careful. It not only faces wariness from existing industry-driven sites, it can't afford to undermine the independence of its parent company, credit rating agency Standard & Poor's, a unit of McGraw-Hill. 
Part of the loss of faith in Enron's creditworthiness came as Moody's and Standard & Poor's downgraded Enron's credit rating to Baa3 and BBB, respectively - just above junk bond status. However justified the downgrade, Standard & Poor's can't be seen to gain competitive advantage for a unit through a change in a client's credit assessment. 
ICE is also considering the introduction of physical trade, and could eventually publish competing benchmark assessments. But without an existing presence in the energy benchmark publishing business, ICE would face an uphill struggle. And its owners' involvement in trading could also be seen as compromising its objectivity when assessing benchmarks, say trading sources. 
-By Jeremy Bowden, Dow Jones Newswires; 65-415-4062; Jeremy.bowden@dowjones.com

..................................................................................................................................... 

Enron stock free-fall continues
By KRISTEN HAYS
Associated Press Writer

11/22/2001
Associated Press Newswires 
Copyright 2001. The Associated Press. All Rights Reserved. 

HOUSTON (AP) - Shares of embattled Enron Corp. continued their rapid decline as analysts and investors expressed more doubt that the once-mighty energy trader could recover lost business and investor confidence. 
Analysts are questioning whether Dynegy Inc.'s planned dlrs 8.9 billion acquisition of Enron will survive.
Enron shares fell 23 percent Tuesday, then slid another 28 percent Wednesday, to close down dlrs 1.98 at dlrs 5.01 on the New York Stock Exchange. 
Shares of Dynegy fell dlrs 1.94 to dlrs 39.76 on the NYSE. 
In a report issued Wednesday morning, Goldman Sachs & Co. analyst David Fleischer became the latest to question Enron's future, saying a Securities and Exchange Commission filing by the Houston-based company earlier this week "raised new issues about liquidity and the ability of the company to even finance itself over the next several months." 
Documents that Enron filed with the SEC late Monday restated the company's third-quarter earnings and said the company may have to repay a dlrs 690 million debt by next week because of its decreased credit ratings. 
Fleischer said Enron's Nov. 16 cash balance of dlrs 1.2 billion is inadequate to meet remaining debt obligations. 
Fleischer acknowledged, however, Enron's efforts to renegotiate next week's due date for the dlrs 690 million debt. He said there were indications that Enron's banks may be willing to restructure the debt. 
Michelle Foss, director of the Energy Institute at the University of Houston, said this latest round of troubles had to raise concerns about whether the Dynegy-Enron deal will be pulled off. 
"It doesn't look like it's going to be able to happen," Foss said. "It did look like a decent idea when they proposed the merger, but today I'm sure they'll look at it and see if they can salvage their attempt to buy Enron." 
Representatives of Enron and Dynegy did not immediately return telephone calls for comment Wednesday. 
Enron agreed to be bought after its stock price plunged about 80 percent in the weeks after disclosing a dlrs 1.2 billion reduction in shareholder equity related to partnerships run by company officers. The arrangements allowed Enron to keep about half a billion dollars in debt off its books. 
Those partnerships are being investigated by the SEC. 
Earlier this month, Enron said it overstated earnings from 1997 through the first half of 2001 by dlrs 586 million and revised its debt upward by dlrs 628 million. 
--- 
On the Net: 
Enron: http://www.enron.com 
Dynegy: http://www.dynegy.com

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Business
Enron seeks to stave off collapse
Chris Ayres in New York

11/22/2001
The Times of London 
News International 
Final 4
30
(Copyright Times Newspapers Ltd, 2001) 

DIRECTORS of Enron, the US energy group with close ties to President Bush, will spend today's Thanksgiving holiday locked in emergency negotiations to save the company from collapse, after a 44 per cent plunge in its share price over two days. 
Investors were increasingly worried last night that rival Dynegy's $8.9 billion (Pounds 6 billion) all-stock rescue bid will fall apart over the holiday period. As part of the deal, ChevronTexaco, which owns a quarter of Dynegy, will inject $1.5 billion of emergency funding into Enron.
Enron, which has admitted to huge accounting errors amid a Securities and Exchange Commission inquiry, said on Monday that it could be forced to pay back $690 million of debt because of its deteriorating creditworthiness. In a crucial concession, that payment was yesterday delayed to mid-December. It will have to pay another $9.1 billion by the end of 2002. 
Enron is being investigated by the SEC for allegedly making complex investment deals that kept billions of dollars of debt off the company's books.

..................................................................................................................................... 

Enron may have to sell stake in Dabhol plant at half price

11/22/2001
Press Trust of India Limited 
(c) 2001 PTI Ltd. 

Washington, Nov 22 (PTI) Embattled US power major Enron may be forced to sell its stake in the Dabhol power plant at around half a billion dollars instead of the asking price of a billion dollars, a report here said. 
Tata Power and BSES, the Indian bidders for Enron's stake in the 2184 MW Dhabol power plant were reportedly willing to pay only half of the asking price which stood over a billion dollars, the New York Times reported.
If the lenders and prospective buyers adopt a take it or leave it line, Enron may have little choice but to accept their offer and swallow a huge loss on a controversial project which one gleamed with promise, it said. 
"It is bound to be a distress sale," one banker told the paper. 
Though Enron's chairman and chief executive Kenneth L Lay was earlier quoted as saying that India would have to face economic sanctions if the government did not create a favourable climate for the sale of Enron's stake, the paper said "Enron now will find little lobbying traction in either Washington or New Delhi". 
"The coalition-building diplomacy of the war in Afghanistan makes it unlikely that the Bush administration would agree to press India on Enron's behalf," the paper said. 
(THROUGH ASIA PULSE) 22-11 2001

..................................................................................................................................... 

Business
Enron joins list of bookkeeping rogues
AP FILE PHOTO

11/22/2001
The Toronto Star 
Ontario
C15
Copyright (c) 2001 The Toronto Star 

IT'S BEEN FOREVER long since a juicy accounting scandal hit the business press, so a big hearty thanks to Enron Corp. of Houston for making up for lost time. 
Who knew that the largest energy company in the United States - one of the biggest in the world, in fact - would suddenly be keeping company with such disgraceful accounting debacles as Waste Management Inc., the garbage-hauling company that overstated earnings by $1.43 billion (U.S.), Safety-Kleen Corp. ($534 million), Sunbeam Corp., Cendant Corp., and, lest we forget, Boston Chicken Inc., which made a tasty bucket-of-cluck but kept losses off its balance sheet until it went bankrupt and shareholders were wiped out.
Back to Enron. In the past decade and a half, the company, under the leadership of Kenneth Lay, was remade from an uninspiring regional pipeline called Houston Natural Gas into what Lay called an "energy store" branded with a jazzy name. Enron and its CEO drew much laudatory press for virtually creating wholesale markets for electricity and natural gas just when deregulation allowed for open market competition. Moving into online energy trading was inspired - the company laid claim to being the world's largest e-commerce concern. One-stop shopping for all your energy needs! Revenues were enormous. Profits nudged $1 billion. Its place in the business firmament was secured when the Houston Astros' quarter-billion-dollar retractable roof ballpark was named Enron Field. 
Now we know that the transformation was more magical than anyone imagined. 
The first clue was the company's announcement that it was restating earnings going back four years plus a few quarters. Call it five years. Now that just might be a record. 
It's never good news when a company says it will be rethinking its profit numbers. They never seem to go up as a result. Sure enough, in the case of Enron approximately $590 million was erased from the earnings line starting in '97, when the company should have netted $96 million less than it previously claimed, through to last year, in which it should have taken a $132 million haircut to its earnings. 
For Enron, it has been a long, if swift, fall for a firm once voted by Fortune magazine as more innovative than either Intel Corp. or Microsoft Corp. The Securities and Exchange Commission is investigating. The stock once traded at $80. It closed yesterday at $5.01 on the New York Stock Exchange. 
This week, a former accountant with the SEC pronounced that the Enron disaster, added to the accounting messes that have gone before, make for investor losses to rival the savings and loan fiasco. The company's debt rating is barely investment grade and its survival strategy - delivering itself to a takeover by the much smaller Dynegy Inc. - is in jeopardy. In a securities filing Monday, Enron said that a ratings downgrade will force it to meet a debt obligation of $690 million before month's end, an obligation that it may not be able to meet. Yesterday the company said it had bought some breathing room on that debt, to mid-December. Any more "ratings events," that is, another downgrade, will cause the company to "repay, refinance or cash collateralize" another $3.9 billion. Short story: the company's unravelling. 
Did it have to come to this? Judging from the off-balance sheet shenanigans at the company, the answer to that question is a clear yes. We need only consider the moment in 1999 when Enron's board endorsed a move by none other than its own chief financial officer to head up a couple of wholly-owned subsidiaries that would do business with the principal company. The results of the subsidiaries would not be consolidated on Enron's balance sheet. A sprinkling of insiders constituted the review and approval team that would oversee the transactions. 
Andrew Fastow was the lucky CFO. Lucky is an apt description, as Enron has now disclosed that Fastow earned more than $30 million from a host of management and investment activities through both the subsidiaries and related partnerships called JEDI and Chewco. (Yes, they were named in honour of the Star Wars movies.) 
Enron always had a reputation for being fast and entrepreneurial. Investors just never knew how fast and entrepreneurial the company was. Fastow was pushed out the door three weeks ago. The company's treasurer and its general counsel were fired. Both had participated in a limited partnership that had purchased interests in affiliated subsidiaries of the Fastow subsidiaries. It's as simple as that. 
Some of the Fastow transactions, involving investments in power projects from Poland to Brazil or call options on gas turbines, are as clear as mud. Others are more transparent. Example: in December, 1999, Enron sold an equity investment in Enron Nigeria Barge Ltd., providing "seller financing" to the purchasing investment bank. Seven months later, LJM2, one of the Fastow-managed subsidiaries, purchased the investment and assumed the seller-financed note from Enron. When LJM2 subsequently sold the investment it repaid the Enron note and pocketed a $700,000 profit. 
There are plenty of conflict of interest examples. Plus numerous losses that should have accrued to Enron as a result of the subsidiaries' activities, losses that the company thought it would rather not recognize. 
Chastened, Enron has established a special committee to study all such transactions. It won't help investor confidence that the investigation may identify even more bad news. It's doubtful that the proposed merger with Dynegy can take place any more. 
JP Morgan Chase and Salomon Smith Barney, which have acted as advisers to Enron on the merger, have financed $1 billion in loan assistance to help the company through the critical period ahead. An analyst at Goldman Sachs called it "another win for the bank/broker model." Here's a different way to look at it: Morgan and Citigroup, Salomon's parent, share a wide range of exposures within the Enron empire and are desperate to see the deal done. 
If the merger fails, Enron will have to pay a $297.5 million breakup fee to Dynegy and a further $52.5 to ChevronTexaco Corp., which has 26 per cent of Dynegy. 
Investors can't see a win anywhere in the story. Their stock is in the basement. Multiple class-action suits have been launched, citing fraud, material misrepresentation, breach of duty of disclosure, unjust enrichment. A separate lawsuit aims to enjoin the merger. 
And what of Enron's auditors? On Monday, Michigan Democratic Representative John Dingell called for an investigation into Arthur Andersen LLP for the work it did for both the energy company and, years ago, for Waste Management. (In July, without admitting or denying any fraud allegations in the Waste Management affair, the Big Five accounting firm paid a $7 million fine to the SEC.) 
The Public Oversight Board, which oversees the accounting profession in the United States, now says that any scrutiny of Andersen's work is a job for the SEC. The numbers mess will predictably spur more criticism of the role of the auditor and an examination of how impartial any auditor can hope to be when it's being paid both for accounting work and for consulting services, as Andersen was. Did Andersen ever argue for more conservative accounting? Or how about this: how is it that all these "special purpose entities" - JEDI, etc. - were kept off the balance sheet when they did not qualify for non-consolidation treatment? Isn't the auditor supposed to know that? 
For the moment, Kenneth Lay is wearing the most laundry. It was on Lay's watch that the web of off-balance sheet business was established. The Missouri-born son of a Baptist minister retired in February, then stepped back into the job in August when his replacement announced he was leaving for personal reasons, something to do with a new marriage and a big house being built. "There's nothing to disclose," said Jeffrey Skilling on his way out the door. "The company's in great shape." 
The company is in dreadful shape. The news gets worse with every passing minute.

AP FILE PHOTO WINNING SMILES: Federal Reserve Board chairman Alan Greenspan, left, accepts a public service prize from Enron CEO Kenneth Lay last week in Houston. 
..................................................................................................................................... 

Financial Post: World
Enron tops up US$1B credit line: Secures US$450-million: Skepticism high firm can last long enough for Dynegy merger
C. Bryson Hull
Reuters

11/22/2001
National Post 
National
FP10
(c) National Post 2001. All Rights Reserved. 

HOUSTON - Enron Corp. said yesterday it secured the remaining US$450-million of a new US$1-billion credit line, but the news did little to reassure investors it can stay afloat long enough to complete its merger with rival Dynegy Inc. 
Shares of the Houston-based energy giant were off 26%, despite the announcement in which Enron also said it had pushed back the deadline for repaying a US$690-million debt to mid-December from a deadline of next Tuesday.
Enron's shares fell 23% on Tuesday after it raised credit concerns in a filing with the Securities and Exchange Commission. 
"The Dynegy deal will take a long time and a lot of things could happen over that time period," said Michael Barbis, a Fulcrum Global Partners analyst. "Dynegy did their homework, but if they missed anything, they have a number of exit opportunities." 
In yesterday's statement, Enron said it is in feverish talks with its other lenders to restructure its debt obligations and reaffirmed its commitment to the Dynegy deal, tagged at US$9-billion in stock. 
"We continue to believe that this merger is in the best interests of our shareholders, employees, and lenders," said Ken Lay, Enron's chairman and chief executive. 
Enron was the most actively traded issue on the New York Stock Exchange for the second day in a row. 
Chuck Watson, Dynegy's chairman and chief executive, said he is encouraged by the new US$450-million loan and the debt extension for the US$690-million. 
"We are continuing our confirmatory due diligence and working to accelerate the regulatory approvals required to complete the merger in accordance with the previously announced agreement," he said. 
Mr. Watson said ChevronTexaco Corp., which owns 26% of Dynegy, reiterated its "full confidence in Dynegy's disciplined management approach to complete the merger and to build a new company into an industry leader." 
Privately, analysts were calling the odds of a successful merger lower in the wake of new negative news made in a U.S. Securities and Exchange filing. Most analysts called the chances of success even, whereas most had called the odds of success at 60% to 70% earlier. 
Wall Street analysts said Enron is losing market share because of credit concerns by its trading partners and questions over Dynegy's takeover offer. 
"Enron is definitely losing market share on credit concerns. Cash needs to run the business have now increased. The market perceives Enron as needing more cash," said Mr. Barbis. 
Goldman Sachs & Co. downgraded Enron and Dynegy to "market perform" on Tuesday, and took both off its recommended list. It said the cash infusion from Dynegy -- US$1.5-billion -- "appears inadequate to restore the confidence of Enron customers." 
The bad news in Monday's filing with the SEC included the acceleration of the US$690-million debt because of a credit downgrade on Nov. 12, a new reduction in third-quarter earnings, word that Enron has only about US$1.5-billion cash on hand after new infusions of US$5.5-billion over the past few weeks and an admission that trading volumes had dropped. 
The trading business, Enron's crown jewel and the part most coveted by Dynegy, relies on volume for profitability, and Enron said it was possible the lower volumes would hamper fourth-quarter earnings. 
Its trading partners, now more publicly than before, on Tuesday said they were treading carefully. 
"We've been scaling back for some time, but we're still dealing with Enron. Everyday, our credit people are watching," said Al Butkus, a vice-president with Kansas City-based Utilicorp United. 
Cinergy, a Cincinnati-based energy firm, said through a spokesman that it continued to trade with Enron but was keeping a close eye on its health. 
An indicator of Enron's shape was the fact its bonds are being quoted by price, like junk bonds, rather than how much extra yield they carry over U.S. Treasuries, like investment-grade bonds.

..................................................................................................................................... 

City - Enron moves.

11/22/2001
The Daily Telegraph 
P39
(c) Telegraph Group Limited, London, 2001 

DYNEGY, the energy company, said it was continuing due diligence for its proposed merger with Enron. Enron earlier had been granted an extension until mid-December of a $690m ( #490m) debt payment that had been due next week.


..................................................................................................................................... 

Business
Enron crisis deepens, bankruptcy looms The crisis of confidence ...

11/22/2001
The Star-Ledger Newark, NJ 
FINAL
084
(c) 2001. The Star-Ledger. All rights reserved. 

Enron crisis deepens, bankruptcy looms The crisis of confidence ravaging cash-strapped Enron Corp. deepened yesterday amid mounting concerns that a proposed rescue by rival Dynegy Inc. could fall through, threatening the energy trading giant with bankruptcy. While the Houston-based energy giant said it secured the remaining $450 million of a new $1 billion credit line and pushed back the deadline for repaying a $690 million debt, its shares fell a further 28 percent, after falling 23 percent Tuesday. 
Enron's shares fell $1.98, or 28 percent, to close at $5.01. It was the most actively traded issue on the New York Stock Exchange for the second day in a row. FDA moves on sepsis The government approved a drug that could save tens of thousands of lives a year from sepsis - the first treatment to directly attack these overwhelming bloodstream infections.
Doctors call Xigris a breakthrough, and Eli Lilly & Co. pledged to ship the medicine to hospital intensive-care units within days. 
The Food and Drug Administration approved Xigris as a treatment for the most severe sepsis patients, those deemed least likely to survive. When given to such people, the drug can cut the chances of death by 13 percent. Jobless claims down For four weeks in a row, fewer Americans filed new claims for state unemployment benefits, suggesting the steep increase in layoffs after the terrorist attacks may be abating. 
However, economists warn that the country is still in for a period of rising unemployment. 
The Labor Department reported for the work week ending Nov. 17, new jobless claims dipped by a seasonally adjusted 15,000 to 427,000. That followed a drop of 10,000, according to revised figures, an even bigger decline than the government previously estimated. Too many coins A surplus of coins, perhaps compounded by Americans emptying their change jars in the softening economy, has prompted the U.S. Mint to begin layoffs. 
Instead of 23 billion new pennies, nickels, dimes and quarters next year, mint officials now believe they'll need only 15 billion. The mint already had made too many coins during the past year. The mint has begun laying off 357 workers nationwide, including major coin-production plants in Philadelphia and Denver. 
Cuban deal In the first such deals in 40 years, several food companies, including Archer Daniels Midland Co. and Cargill Inc., have agreed to sell Cuba grains and soybeans. The move was prompted by the recent devastation caused by Hurricane Michelle. 
A joint venture of ADM and Kansas City, Mo.-based Farmland Industries Inc. will sell hard, red winter wheat to Cuba, ADM Vice President Larry Cunningham said. 
Minneapolis-based Cargill will sell corn, wheat and soybean oil, while Stuttgart, Ark.-based Riceland Foods Inc., which donated rice to Cuba last year, will be selling rice to Cuba for the first time since an embargo was imposed. 
The shipments are expected to begin arriving early next year. Health insurance merger Maryland insurance regulators expect to spend as long as a year evaluating the proposed $1.3 billion purchase of CareFirst BlueCross BlueShield by California-based WellPoint Health Networks Inc., the state's insurance commissioner said. 
Microsoft loses lawyer Microsoft's bow tie-wearing top lawyer, who lost the company's landmark antitrust case against the Justice Department, but helped the company escape a government-ordered breakup and other tough penalties, will retire in June. William Neukom, executive vice president of law and corporate affairs, announced he will leave Microsoft to concentrate on philanthropy and to spend more time with his grown children. Neukom started working with the company when it was little more than a dozen employees in 1979, while a partner at the Seattle-area law firm of the father of Microsoft Chairman Bill Gates. He joined the company full time in 1985. 
Brad Smith, Neukom's deputy, will succeed Neukom as a senior vice president and general counsel. Credit card payments stable Americans kept up payments on their credit card bills in September, despite a deteriorating jobs market and the Sept. 11 hijacked airplane attacks, bond rating service Standard & Poor's said. 
But Americans' ability to meet their debt obligations will likely be pinched in the coming months as more workers lose their jobs in a sluggish economy, S&P warned. 
Earnings news Department store chain Dillard's Inc. posted a wider-than-expected third-quarter loss as declining consumer confidence after the Sept. 11 attacks stunted sales. 
The Little Rock, Ark.-based retailer, an operator of more than 340 stores in 29 states, recorded a net loss in the quarter, ended Nov. 3, of $40 million, or 48 cents a share. That compared with a net loss of $4 million, or 4 cents a share, a year ago. 
Foot Locker Inc. posted a strong rise in third-quarter profits, despite the generally dismal U.S. retail climate, as it focuses on its core athletic shoe and apparel businesses. 
Foot Locker said its net income for the third quarter, ended Nov. 3, was $33 million, or 23 cents a share, compared with $25 million, or 21 cents a share, a year earlier. 
People eating more meals at home following the Sept. 11 terrorist attacks helped boost fourth-quarter earnings for Hormel Foods Corp. by 13 percent. 
For the fiscal quarter ended Oct. 27, the Austin, Texas-based company earned $68.8 million, or 49 cents a share, up from $61 million, or 44 cents a share, a year earlier. The results beat by 2 cents a share the consensus estimate of analysts. - Star-Ledger wire services

NEUKOM 
..................................................................................................................................... 

Report on Business: International
Banks to extend Enron debt but share price still plummets
LILY NGUYEN
The Globe and Mail, Reuter News Agency

11/22/2001
The Globe and Mail 
Metro
B1
"All material Copyright (c) Bell Globemedia Publishing Inc. and its licensors. All rights reserved." 

CALGARY -- Enron Corp. won some financial breathing room yesterday, but its shares plunged as much as a third before recovering slightly over continuing fears that a deal to rescue the once-mighty U.S. energy trader could be in jeopardy. 
Shares in the beleaguered Houston company sank at one point to $4.55 (U.S.) in trading on the New York Stock Exchange. For the second successive day, investors were beating up the company over news Monday that $690-million in debt is rapidly coming due as a result of Enron's slashed credit ratings.
Reassurances from Enron that banks have agreed to extend the due date past next Tuesday gave the stock a modest prop. Shares closed the day at $5.01, down $1.98, for a market capitalization of less than $4-billion. Enron shares now stand 45 per cent below their Monday close, and a fraction of their $80 level in February. 
Industry observers fear the news of the debt problem -- the latest in a string of nasty surprises from the company -- could jeopardize a rescue of the once-dominant global energy merchant by smaller hometown rival Dynegy Inc. The two companies struck a merger deal that would see Dynegy buy Enron for about $8.9-billion in stock on Nov. 9. 
U.S. analyst Michael Worms said Enron's recent disclosures made the deal's fate uncertain. 
"Obviously, with the most recent disclosures regarding Enron, it renewed uncertainty as to whether or not this deal would still go through," said Mr. Worms, an analyst at Gerard Klauer Mattison in New York who was bullish about the deal last week. 
The market apparently considers it far from a done deal as well, with the spread between Dynegy's share offer and Enron's price widening substantially this week. At a share exchange ratio of 0.2685 of a Dynegy share for each Enron share, Enron shareholders would receive about $10.67 at Dynegy's closing price of $39.76 on the NYSE yesterday. 
But in a statement issued later in the day, the two companies insisted the merger is still on. 
"We are continuing our confirmatory due diligence and working to accelerate the regulatory approvals required to complete the merger," Chuck Watson, Dynegy's chairman and chief executive officer, said in a statement. 
In a separate statement, Enron chairman and CEO Kenneth Lay said company executives "continue to believe that this merger is in the best interests of our shareholders, employees and lenders." 
But industry observers said Enron remains in a precarious position. As credit concerns balloon, trading partners are increasingly reluctant to do business with the company. 
"Enron is definitely losing market share on credit concerns," said Michael Barbis, an analyst at Fulcrum Global Partners. As a result, "the market perceives Enron as needing more cash." 
The very methods that contributed to Enron's rapid rise are generally seen now as the reason for its woes. 
Enron, established in 1985, grew from a modest natural gas pipeline company with annual revenue of less than $5-billion to an energy giant with revenue pegged at about $200-billion this year. 
To finance this explosive rate of growth, the company created a vast and impenetrable network of affiliated entities or partnerships to divert billions of dollars of debt -- which would have jeopardized Enron's credit rating and limited growth -- from its balance sheet. 
But the off-balance sheet transactions caught up with the company in recent months, with Enron announcing a $618-million third-quarter loss and disclosed a $1.2-billion reduction in shareholder equity in part because of the partnerships. 
The company followed with more disturbing news, saying earnings have been overstated by about $600-million since 1997. 
The U.S. Securities and Exchange Commission is now investigating Enron in relation to the partnerships, some of which were headed by former Enron executives. 
Lawsuits have also been flying at the company as shareholders line up in an attempt to recover more than $15-billion in lost market value since September. 
Meanwhile, its would-be acquirer, Dynegy, hasn't been immune to the fallout of the latest developments. Its stock dropped yesterday too, and at $39.76 is well below the $47.20 it hit last week, but above the $33 low it was trading at before the merger deal was announced. 
Analysts said that if the merger goes through, Dynegy stands to gain considerably. The company estimates the addition of Enron will beef up its bottom line by about 35 per cent or 90 to 95 cents a share next year, a sizable chunk of profit that would justify a share price in the $60 to $70 range. 
"The outlook for earnings over the next couple of years, assuming the acquisition of Enron is successful, is significant," said Mr. Worms of Gerard Klauer Mattison. Despite Enron's latest troubles, he maintained a "buy" rating on Dynegy with a 12-month target of $68. 
Dynegy has also taken moves to limit its downside. The company is injecting $1.5-billion of cash into Enron, but it gets rights to Enron's prized 27,000-kilometre Northern Natural Gas pipeline in return for its investment if Enron goes under. 
As well, the merger agreement specifies that Dynegy can walk away from the deal if legal costs exceed $3.5-billion. 
"The bet here is, can Dynegy's management pull this off, and can Enron stay afloat until the merger closes?" said John Meloy, an analyst at Simmons & Co. International in Houston.

Illustration 
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BUSINESS
ENRON'S COLLAPSE CONTINUES

11/22/2001
South Florida Sun-Sentinel 
Broward Metro
1D
(Copyright 2001 by the Sun-Sentinel) 

Shares of embattled Enron Corp. plunged another 28.3 percent Wednesday as analysts and investors continued to doubt the once- mighty energy trader's ability to recover lost business and investor confidence. 
In a report released Wednesday morning, Goldman Sachs & Co. analyst David Fleischer became the latest to question Enron's future, saying that a filing by the Houston-based company with the Securities and Exchange Commission earlier this week "raised new issues about liquidity and the ability of the company to even finance itself over the next several months." Analysts are also questioning whether Dynegy Inc.'s planned $8.9 billion acquisition of Enron will survive given the latest revelations.
Enron fell $1.98 to $5.01. Dynegy fell $1.94, or 4.7 percent, to $39.76. 
Consumer sentiment rebounding 
Consumers were more upbeat about their finances and economic prospects this month than they were in October, according to a study by the University of Michigan. The university said its final index of consumer sentiment for November was 83.9, compared with 82.7 in October. The mid-November preliminary reading was 83.5. 
The index, set up in 1966, has a base of 100. Increases or decreases from that level indicate Americans' degree of comfort with their finances and the state of the economy. 
Buffett's offer put in jeopardy 
Fruit of the Loom Inc. failed to win court approval of its proposed bankruptcy sale procedures, jeopardizing an $835 million offer for the underwear maker by Warren Buffett's Berkshire Hathaway Inc. 
U.S. Bankruptcy Court Judge Peter Walsh turned down Fruit of the Loom's request to approve the procedures after Berkshire's lawyer said the company wouldn't accept less than $30 million if it's outbid for Fruit of the Loom or the recovery plan based on Berkshire's bid is rejected. 
Group chairman to depart Merrill 
Merrill Lynch & Co.'s Herb Lurie, the investment banker who announced $115 billion in mergers in a single week in 1998, said he will leave the biggest securities firm at the end of the year. 
The 41-year-old Lurie, who is chairman of Merrill's financial institutions investment-banking group, said he decided to depart before the firm offered most of its employees incentives to leave and started cutting more jobs to save costs amid a profit slide. 
Verizon dispatches buyout offers 
Verizon Communications Inc., the biggest U.S. local-telephone company, sent buyout offers to several thousand employees in the past week to cut costs as the economy slows, a spokesman said. 
Verizon, based in New York, has offered packages this year "to something in the order of 30,000 employees," said Peter Thonis, a spokesman. The total includes managers and employees at Verizon Wireless who were excluded from the most recent offer, he said. 
The company has about 256,000 employees. 
NationsRent suspended by NYSE 
The New York Stock Exchange will suspend trading in shares of NationsRent Inc., the Fort Lauderdale-based construction equipment rental company, because of the stock's "abnormally" low prices, which dipped recently to levels of about 10 cents a share. The stock will stop trading before the opening bell on Monday or earlier, the NYSE said Wednesday. 
Florida jobless filings decline again 
New claims for state unemployment benefits fell for the fourth straight week, suggesting that the surge of layoffs seen after the terror attacks might be easing. The Labor Department reported Wednesday that for the work week ending Nov. 17, new jobless claims dipped by a seasonally adjusted 15,000 to 427,000. That followed a drop of 10,000, an even bigger decline than the government previously estimated, according to revised figures. 
Nintendo ships more GameCubes 
Nintendo Co., the maker of video games such as Pokemon, will ship 18 percent more GameCube game systems to U.S. retailers this year than previously planned. Nintendo plans to deliver 1.3 million units, an increase from 1.1 million, the company said in a statement. The $199 GameCube, which went on sale Sunday, competes with Microsoft Corp.'s new $299 Xbox and Sony Corp.'s $299 PlayStation 2. 
Luxottica faces federal court order 
Luxottica SpA said a California court issued a restraining order temporarily barring the company from selling some sunglasses in the United States after Oakley Inc. claimed the Italian company was selling knock-off designs. 
The U.S. District Court for the Central District of California barred Luxottica from selling three sunglass models until Nov. 30. Oakley claimed in a lawsuit that rival Luxottica bought its biggest customer, the Coral Gables-based Sunglass Hut store chain, and began selling knockoffs of Oakley designs. 
Markets giving thanks 
U.S. stock and bond markets will be closed today for Thanksgiving. On Friday, regular stock trading will close at 1 p.m. and the bond market will close at 2 p.m.

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Business
Enron's cash woes endanger merger ; Dynegy mulls whether to ask for renegotiation
From Tribune news services

11/22/2001
Chicago Tribune 
North Final ; N
1
(Copyright 2001 by the Chicago Tribune) 

Officials of Dynegy Inc. on Wednesday weighed whether to seek to renegotiate the terms of an agreement to acquire Enron Corp., its Houston rival, while Enron and its bankers sought to shore up the energy trader's finances, executives close to the two firms said. 
Although Enron said it secured the remaining $450 million of a new $1 billion credit line and pushed back the deadline for repaying a $690 million debt, its shares fell a further 28 percent, after falling 23 percent on Tuesday.
"If Dynegy steps away entirely from the merger, Enron's credit situation seems untenable, with a bankruptcy filing highly possible," rating agency Fitch Investors said. 
UBS Warburg analyst Ron Barone said "bankruptcy would not be out of the question" if the merger fell through or ran into obstacles. 
"We believe the odds of Enron incurring a material adverse change on its operations is soaring," Barone said in a research note, saying that Dynegy may invoke clauses allowing it to walk away from or alter the terms of the $9 billion agreement. 
In a statement, Enron said it was in feverish talks with its other lenders to restructure its debt obligations and reaffirmed its commitment to the Dynegy deal. 
"We continue to believe that this merger is in the best interests of our shareholders, employees and lenders," Enron Chairman and Chief Executive Kenneth Lay said. 
J.P. Morgan Chase & Co. Vice Chairman James Lee said in the same statement that Chase believes its interests and those of Enron and its other primary lenders are aligned, and that the bank would "develop a plan to strengthen Enron's financial position up to and through its merger with Dynegy." 
Enron's shares fell $1.98 to close at $5.01. It was the most actively traded issue on the New York Stock Exchange for a second day in a row. 
The shares had dipped as low as $4.55 on Wednesday, rebounding slightly after Enron's announcement. Accounting for stock splits, that is the lowest Enron has traded since February 1989. 
Dynegy shares were off $1.94, or 4.65 percent, at $39.76. 
Dynegy on board 
Dynegy Chairman and CEO Chuck Watson said he is encouraged by the new loan and debt extension. Watson said in a statement that Dynegy was working to "accelerate the regulatory approvals required to complete the merger." 
Watson said ChevronTexaco Corp., which owns 26 percent of Dynegy, reiterated its "full confidence" in Dynegy's ability to complete the merger. 
However, Dynegy officials worried Wednesday that even discussing the idea of renegotiating the merger agreement could damage confidence in Enron among investors and other energy traders. 
An executive close to Dynegy said that there did not yet appear to be legal grounds on which to break up the deal unilaterally. Nor, he added, was Dynegy prepared to demand that Enron allow the terms of the deal to be changed. 
An Enron spokeswoman said that she was not aware of any attempts by Dynegy to renegotiate the deal. 
Privately, analysts were calling the odds of success lower since Enron made a filing with the Securities and Exchange Commission on Monday alerting investors to its credit crunch. 
Monday's filing noted that Enron's financial woes have led to a "reduced level of transaction activity" with the company by trading partners. 
Most analysts interviewed by Reuters called the chances of the deal even, where earlier they had listed odds of success at 60 percent to 70 percent. 
However, one analyst said he thought emotion was driving the current stock moves, and that it comes despite three powerful factors in favor of the deal. 
"The bottom line, Enron needs this to happen, Dynegy wants this to happen, and ChevronTexaco is supportive of it happening," Credit Suisse First Boston analyst Curt Launer said. 
Trading deals down 
Goldman Sachs downgraded Enron and Dynegy to "market perform," and took both off its recommended list. Goldman said the cash infusion from Dynegy--$1.5 billion--"appears inadequate to restore the confidence of Enron customers." 
Enron's trading partners said they were treading carefully. 
"We've been scaling back for some time, but we're still dealing with Enron. Every day, our credit people are watching," said Al Butkus, a vice president with Kansas City-based UtiliCorp United Inc. 
The trading business, Enron's crown jewel and the part most coveted by Dynegy, relies on volume for profitability, and Enron has said it was possible that the lower volumes would hamper fourth- quarter earnings. 
One indicator of Enron's shape was the fact that its bonds are being quoted by price, like junk bonds, rather than by how much extra yield they carry over U.S. Treasuries, like investment-grade bonds. 
The company's 6.4 percent notes maturing in 2006 and 6.75 percent notes maturing in 2009 were respectively bid Wednesday afternoon at 62 and 60 cents on the dollar, each down from the high 60s on Tuesday. Their yields to maturity were a respective 19 and 16 percent. Its 20-year zero-coupon convertible bonds traded Wednesday at just over 34 cents on the dollar, down from 38 cents on Tuesday.

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U.S. Watchdog Group Refuses Inquiry of Enron Audit Woes
By Judith Burns
Dow Jones Newswires

11/22/2001
The Wall Street Journal Europe 
18
(Copyright (c) 2001, Dow Jones & Company, Inc.) 

WASHINGTON -- An accounting industry watchdog won't investigate auditing problems at Enron Corp. despite a request from a senior U.S. lawmaker, but may take a broader look at what's causing recent audit debacles. 
"Investigation of the Enron situation rests with the SEC," Public Oversight Board Chairman Charles Bowsher said. "We can't run a separate investigation."
The Securities and Exchange Commission is examining accounting and audit problems at Houston-based Enron, focusing on investments in limited partnerships tied to former Chief Financial Officer Andrew Fastow. Enron has acknowledged it overstated net income by $586 million (663.8 million euros) and will need to restate five years of financial reports. 
Citing concerns about the accounting industry's peer-review process, Rep. John Dingell asked the Public Oversight Board to conduct a special investigation of Arthur Andersen LLP and its audit work for Enron. 
Mr. Bowsher said the oversight board won't open a special investigation, leaving that to the SEC and the industry's quality-control inquiry committee, but will decide at its next meeting whether to take "a hard look" at recent, high-profile audit blowups. 
"We're probably going to want to look at some of these major audit failures, and that's not limited to Andersen," Mr. Bowsher said. 
He cited recent audit failures involving Cendant Corp., Microstrategy Inc., Sunbeam Corp. and Waste Management Inc., saying "I think we ought to look at them all." 
Former SEC chief accountant Lynn Turner expressed disappointment at the oversight board's reluctance to exercise its investigative muscle, given a rash of financial restatements and frauds that have cost investors more than $100 billion in recent years. 
"In light of losses that have reached the magnitude of the savings-and-loan debacle, it's time for the POB to start carrying out investigations of what's happening at the audit firms," Mr. Turner said. 
He said Rep. Dingell is right to question the accounting profession's ability to police itself through so-called peer reviews, saying recent audit failures "are evidence that the peer-review process is not as robust as it needs to be." 
Firms that audit public companies must undergo peer review every three years, subjecting their work to scrutiny by a competing audit firm or a panel appointed by the American Institute of Certified Public Accountants. In practice, the Big Five firms hire each other to conduct the oversight, with no requirement to rotate assignments, and critics say reviewers aren't as tough as they could or should be. 
"There's a tendency in the peer reviews, even when problems are identified, to regard them as isolated instances," not evidence of a systemic failure at an audit firm, said Douglas Carmichael, an accounting professor at Baruch College in New York. 
Mr. Bowsher defends peer reviews as "a very rigorous, thorough process," but concedes they haven't prevented a recent bout of problematic audits. He suggested that may be due to factors from bad judgment on the part of individual partners to questions about applying accounting and auditing standards. 
In Enron's case, the quality-control inquiry committee, composed of about a dozen CPAs, will investigate Andersen's audit work but critics doubt it will do much digging.

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Business/Financial Desk; Section A
Employees' Retirement Plan Is a Victim as Enron Tumbles
By RICHARD A. OPPEL Jr.

11/22/2001
The New York Times 
Page 1, Column 2
c. 2001 New York Times Company 

The rapid decline of the Enron Corporation has devastated its employees' retirement plan, which was heavy with company stock, and has infuriated workers, who were prohibited from changing their investments as the stock plunged. 
Through the 401(k) retirement plan, employees chose to put much of their savings in Enron shares, and the company made contributions in company stock as well. But around the time Enron disclosed serious financial problems last month, the company froze the assets in the plan because of an administrative change. For several weeks, as the stock lost much of its value, workers stood by helplessly as their retirement savings evaporated. They were not allowed to switch investments at all -- even though the plan had far less risky choices.
The unfortunate timing caps a year of pain for Enron's workers. At the end of last year, the 401(k) plan had $2.1 billion in assets. More than half was invested in Enron, an energy conglomerate. Since then, the stock has lost 94 percent of its value. 
At Portland General Electric, the Oregon utility acquired by Enron four years ago, some workers nearing retirement have lost hundreds of thousands of dollars. The utility has lined up grief counselors to help them work through their problems. 
''We had some married couples who both worked who lost as much as $800,000 or $900,000,'' said Steve Lacey, an emergency-repair dispatcher for Portland General. ''It pretty much wiped out every employee's savings plan.'' 
''Shortly after it was frozen, the articles started coming out about some of the questionable activities of Enron,'' Mr. Lacey added. ''The stock took a tremendous drop, and we were pretty much helpless.'' 
The loss serves as a grim reminder of the danger of relying too heavily on one investment. Stock plunges similar to Enron's have also wiped out the retirement savings of many employees of the Nortel Networks Corporation, Lucent Technologies Inc. and Global Crossing Ltd. 
The loss by Enron's workers also stands in stark contrast to the profits made by some senior Enron executives, who sold stock during the last few years. Enron's chairman, Kenneth L. Lay, made $20.7 million during the first seven months of 2001 by exercising stock options -- and more than $180 million by exercising options during the three prior years. Last week, Mr. Lay agreed to forgo a $60 million severance package after Enron traders and employees made clear how upset they were that he would profit from the proposed acquisition of the company by Dynegy Inc. while they were suffering. 
Enron -- which is already the subject of a Securities and Exchange Commission investigation of transactions among Enron and partnerships headed by the company's former chief financial officer, Andrew S. Fastow, and a number of shareholders' suits -- now has an additional legal problem. 
On Tuesday, Steve W. Berman, a lawyer from Seattle who represented states against the tobacco industry, filed a lawsuit in Federal District Court in Houston seeking class-action status on behalf of Enron employees who lost money on the stock through their retirement plan. The lawsuit says that Enron schemed to pump up the price of the stock artificially and violated its fiduciary duty to its employees by failing to act in their best interests. 
''They were promoting Enron as a retirement investment vehicle and matching employees' contributions with Enron stock, when they knew the stock was overvalued, and that's a breach of their fiduciary duties,'' Mr. Berman said in an interview yesterday. 
What's more, he said, the assets were frozen on Oct. 17, with the stock at $32.20, even though Enron executives knew there would be imminent disclosures about the company's accounting practices. ''They knew the worst news was about to come out, but they froze the stock,'' he said. 
Enron closed yesterday at $5.01. 
The company declined to comment on much of the allegations because of pending litigation. A spokeswoman, Karen Denne, said that the change in plan administrators had been in the works for a number of months and that she did not know the exact date the change was put into effect. 
Like many other big companies, Enron made its contributions to the plan in company shares. But employees also chose to put much of their own contributions into the stock, lured by its stellar past performance. The company says that 89 percent of the Enron stock in the plan wound up there because employees chose it, and 11 percent was the company's contribution. 
''A lot of people believed in the stock, so it wasn't just the company match,'' said an employee at Enron's headquarters in downtown Houston. ''It was their own money, too. People are just shell-shocked.'' 
The stock's past performance had lured many workers. Last year, as the stock soared, total assets in the 401(k) plan rose more than 35 percent. 
About 57 percent of Enron's 21,000 employees participate in the 401(k) plan. The company generally matches employee contributions at 50 cents on the dollar, up to 6 percent of their salary, with Enron stock, which cannot be sold and put into another investment until the employee reaches age 50. But Ms. Denne said workers otherwise ''have a range of options'' in which to invest their money. 
Gerry O'Connor, a senior consultant with the Spectrem Group, a consulting firm based in Chicago, said it was not uncommon for companies to freeze assets when administrators were switched. ''If you don't, you can wind up with misallocated money, wrong statements, and all kinds of complicating factors,'' he said. 
But a heavy dose of assets in one company stock has been a concern to many specialists in retirement planning. Employees are taking ''a lot of risk, but they don't think of it as such,'' Mr. O'Connor said. 
''They say, 'You know, I work for this company, and we're doing great.' '' 
In addition to the swoon in their 401(k) plans, Enron employees have watched the value of their stock options wither. Enron gave a far larger percentage of employees options than most companies do, but now, with the fall in Enron shares, nearly all of those options are worthless. 
Enron's tumbling fortunes have come as a particular shock to some of its workers in Oregon. About 95 percent of the 2,700 employees of Portland General, which Enron recently agreed to sell to help it raise badly needed cash, are invested in the 401(k) plan, said Scott Simms, a spokesman. 
The losses, he added, have hit everyone ''including officers all the way through to other staff.'' 
''It's certainly not something in which certain employees have lost out and others haven't,'' he said. ''It was the same plan for everyone.'' 
In an interview with The Oregonian in Portland, Peggy Y. Fowler, Portland General's chief executive, said the asset freeze was an unfortunate coincidence. ''The timing couldn't have been worse,'' she said. 
''We refer to our retirement program as a three-legged stool -- Social Security, the company pension and the 401(k),'' Ms. Fowler said. ''One of the legs has been cut off.''

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Business/Financial Desk; Section C
Circling the Wagons Around Enron
Risks Too Great To Let Trader Just Die
By ANDREW ROSS SORKIN and RIVA D. ATLAS

11/22/2001
The New York Times 
Page 1, Column 2
c. 2001 New York Times Company 

Officials of Dynegy yesterday weighed whether to seek to renegotiate the terms of the company's agreement to acquire Enron, its Houston rival, while Enron and its bankers sought to shore up its finances, executives close to the two companies said. 
The discussions came as the stock and energy markets continued to register doubts about the financial stability of Enron, the energy trading concern. Enron's stock fell another 27 percent, even though the company won a three-week reprieve from its banks on a $690 million note that would have come due next Tuesday if Enron had been unable to come up with collateral.
An executive close to Enron described the loan extension, by J. P. Morgan Chase and Citigroup, as a Band-Aid, given the approach of Thanksgiving. ''People are trying to take the time to come up with something for the intermediate term,'' the executive added. 
The bankers also met with investors, including leveraged buyout firms and two industrial companies, which might inject up to $2 billion into Enron under arrangements that would protect them from a further collapse in the company's stock, the executives said. 
The new investments would be in Enron's Transwestern Pipeline, which links natural gas fields in Texas to the California market, they said. The deals would be structured like Dynegy's agreement, as part of the merger, to infuse $1.5 billion into the Enron subsidiary that owns the Northern Natural Gas pipeline. That arrangement lets Dynegy keep the pipeline even if the merger falls apart. 
Besides talking with other potential investors, J. P. Morgan Chase and Citigroup agreed to terms that have each taking a $250 million equity stake in such a deal, the executives said. The bankers plan to meet with Enron officials on Monday to complete the transactions, they added. 
Karen Denne, an Enron spokeswoman, noted that the company had previously said it was seeking a further infusion of up to $1 billion in equity. ''We are not going to discuss the specifics of who we are talking to,'' she said. 
Though investors again manhandled the stock of Enron, which is down 94 percent this year, the banks, Dynegy and credit-rating agencies all sought to proceed delicately. Executives explained that hasty moves could only deepen the crisis of confidence in Enron, wiping out the energy trading operations that only months ago made it one of the nation's most admired and politically influential companies. 
Dynegy officials worried yesterday that even talking about renegotiating the merger deal could damage confidence in Enron among investors and other energy traders. 
An executive close to Dynegy said that there did not yet appear to be legal grounds on which to break up the deal unilaterally. Nor, he added, was Dynegy prepared to demand that Enron allow the terms of the deal to be changed. But he indicated that the situation could change. 
Ms. Denne, the Enron spokeswoman, said that she was not aware of any attempts by Dynegy to renegotiate the deal. Dynegy issued a statement saying that its chief executive, Chuck Watson, was encouraged by the steps Enron had taken with its bankers. Mr. Watson said the company was continuing its due diligence on the deal. 
Dynegy's shares, which rose as high as $46.94 in the days after the merger was announced, on Nov. 9, closed yesterday at $39.76, down more than 4 percent for the second consecutive day. 
Enron was the most actively traded stock on the New York Stock Exchange, closing at $5.01, down $1.98. That means the premium that Dynegy would be paying for Enron has risen to 115 percent. 
Analysts following Enron's debt said that bankers had little choice but to support the company, given that most of Enron's bank debt is not secured. That means that if bankers pushed Enron into bankruptcy, they would receive no better treatment than the holders of more than $6 billion in Enron bonds and other debt. 
Enron said it was in talks with lenders to restructure $9.15 billion in debt that will come due by the end of 2002. ''If the Dynegy deal closed, that would be the best thing for the banks,'' said one analyst following the debt. 
James B. Lee Jr., vice chairman of J. P. Morgan Chase, echoed that thought in a statement issued by Enron. ''We believe the interests of Chase and Enron's other primary lenders are aligned in this restructuring effort,'' he said. ''We will work with Enron and its other primary lenders to develop a plan to strengthen Enron's financial position up to and through its merger with Dynegy.'' Along with Citigroup, J. P. Morgan Chase is Enron's lead bank, and it is also an adviser on the merger with Dynegy. 
Another group with the power to push Enron to the brink, the big credit-rating agencies, continued to step gingerly. The agencies have held Enron's debt rating one step above ''junk'' status, knowing that downgrading it further would force the company to pay or refinance up to $3.9 billion in debt -- effectively rendering Enron insolvent. One rating agency official said yesterday that such a move would roil the entire debt market, adding that it was ''patriotic'' to hold off. 
Still, one rating agency, Fitch, put out a strongly worded commentary yesterday. 
''If Dynegy steps away entirely from the merger, Enron's credit situation seems untenable, with a bankruptcy filing highly possible,'' wrote Ralph Pellecchia and Glen Grabelsky, the Fitch analysts following Enron. ''Our present BBB- rating rests on the merger possibility and continued support of the lending banks, without which Fitch would consider lowering the rating.'' 
Analysts and energy executives said that Enron's collapse -- though unthinkable just weeks ago -- would be unlikely to cause a meltdown in the nation's energy markets. While Enron has been the nation's biggest trader of electric power and natural gas, many other companies -- including Dynegy -- make markets in those commodities. Analysts say the gradual unfolding of Enron's financial woes this fall has given its trading partners time to unwind deals and limit their exposure to Enron. 
Yet even one of Enron's most stubborn supporters was forced to concede yesterday that his confidence had been shattered by the company's problems, including the rapid depletion of its cash reserves, restatements that erased $600 million in earnings and the surprise disclosure of the $690 million debt. 
That fan, Goldman, Sachs & Company's energy analyst, David Fleischer, downgraded the shares to neutral. Until yesterday, Goldman had kept the stock on its recommended list.

Photo: Kenneth L. Lay of Enron, left, and Chuck Watson of Dynegy, on Nov. 9, when the acquisition was announced. (Associated Press) Chart: ''The Stock's Collapse'' Enron's stock has lost more than 90 percent of its value in the last year. Graph tracks the daily closing price of Enron shares from November 2000 to yesterday. (Source: Bloomberg Financial Markets) 
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Houston Chronicle Working Column
L.M. Sixel

11/22/2001
KRTBN Knight-Ridder Tribune Business News: Houston Chronicle - Texas 
Copyright (C) 2001 KRTBN Knight Ridder Tribune Business News; Source: World Reporter (TM) 

On the days it was cold and damp, utility lineman Roy Rinard would think about the future. 
His hip hurt from arthritis, and his lungs hurt from sarcoidosis, but Rinard knew on days like that he'd be climbing poles for only four or five more years.
That's because the 54-year-old was pumping every dime he could into his 401(k) plan at work and getting a dollar-for-dollar match. And the money was piling up in the 21 years he worked there. 
Earlier this year, Rinard had $472,000 in his 401(k) plan. Today, it's worth about $40,000. 
That's because Rinard is a lineman with Enron-owned Portland General Electric in Portland, Ore. 
In January, Enron was trading for $84.87. Wednesday it closed at $5.01 a share. 
Part of the reason that Rinard lost so much money is that Enron gives its employees their 401(k) match in company stock. That was great when the stock was flying high but as the stock has tanked, employee retirement accounts have evaporated. 
It's fairly common for employers to give their 401(k) match in their own company stock, said Scott Alt, assistant vice president of Aon Consulting, a human resources consulting firm in Houston. 
It's often cheaper for a company to provide stock because they don't have to put out the cash, said Alt, who sets up 401(k) plans for companies. 
And giving stock makes the employees shareholders, which many executives believes breed loyalty. They work a little harder when they own the company, Alt said. 
And employees like it -- except, of course, if the stock plummets. 
At Enron, the problem was compounded when many employees, including Rinard, saw Enron's stock doing so well that they decided to put their entire account into Enron stock. 
Enron executives were talking about how the stock price was poised to climb above $100 a share, he recalled. It was going to $120. 
Rinard and a co-worker, Steve Lacey, have filed an Employee Retirement Income Security Act, or ERISA, lawsuit in Houston contending that Enron recklessly endangered their retirement funds. 
Steve Berman, managing partner for the law firm of Hagens Berman in Seattle, said Enron touted the value of its stock and encouraged employees to put their entire portfolio into Enron stock. 
Enron officials didn't emphasize the risk and instead painted the situation as positive, especially when things were going downhill, said Berman, who is hoping to get the suit certified as a class-action case. 
He's hoping to prove that the 401(k) plan executives failed to act responsibly when they knew about serious business problems. 
Berman is hoping to break some new legal ground with his case. It's patterned after a case against Lucent Technologies in which Lucent employees sued their employer this summer for matching their 401(k) contributions with company stock that later tanked. That case is still in litigation. 
Another troubling feature of the Enron 401(k) plan was that employees were not allowed to make trades for about a month. Unfortunately, the lockdown began Oct. 17, the day after Enron surprised the market that it was taking a $1.01 billion after-tax third-quarter charge to get out of bad investments. 
Enron officials, who did not return a telephone call for this column, have said they had planned the lockdown for several months because it was changing plan administrators. 
But that timing was disastrous for Rinard and his co-workers who couldn't sell their shares between the time it was $33.84 a share on Oct. 16 and when they could begin to trade again at less than $10 a share. 
"I just watched it drop, horrified," Rinard said. "There wasn't a thing I could do about it." 
Like many employees, Rinard's 401(k) retirement fund was the only thing he had. And now Rinard is kicking himself for trusting his company too much. 
Before the wheels came off the wagon, retirement was a doable thing, Rinard said. The end was in sight. 
"Now, after 35 years of climbing poles, I'm just right back to where I started."

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Business; Financial Desk
Enron Shares Fall Again on Doubts Energy: A retreat by bankers or a credit downgrade could threaten Dynegy merger and land firm in bankruptcy. Stock tumbles to 12-year low.
THOMAS S. MULLIGAN
TIMES STAFF WRITER

11/22/2001
Los Angeles Times 
Home Edition
C-1
Copyright 2001 / The Times Mirror Company 

NEW YORK -- Investors pounded shares of Enron Corp. to a 12-year low Wednesday amid mounting doubts about whether the Houston-based energy-trading king can survive long enough to complete its announced takeover by cross-town rival Dynegy Inc. 
Enron shares plunged $1.98, or 28%, to close at $5.01 in New York Stock Exchange trading, its lowest level since April 1989. Enron, a Wall Street darling just months ago, is down 94% year-to-date.
A minefield stands between Enron and the merger, analysts said. Almost any stumble--a further downgrade by a credit rating agency, a retreat by Enron's bankers or trading partners, another negative surprise about its financial condition--could pitch it into bankruptcy. 
Still, the credit rating agencies held their fire Wednesday, keeping Enron's bonds one notch above "junk," or sub-investment-grade, status. 
Enron also gained some breathing space from its lenders, announcing that a $690-million note payment due Tuesday had been postponed to mid-December. 
"I think they'll probably limp through [to the merger]," said analyst Michael S. Worms of Gerard Klauer Mattison in New York. "But it's a bad limp." 
There were no major new disclosures to prompt Wednesday's sell-off, but investors seemed to be afraid to hold Enron stock over the Thanksgiving weekend, traders said. The stock market is closed today and open Friday for an abbreviated session--traditionally the lightest trading day of the year. 
Enron shares plummeted 23% on Tuesday in reaction to a filing Monday with the Securities and Exchange Commission in which Enron disclosed the $690-million obligation. The disclosure was a surprise even to the credit rating agencies that have been in constant contact with Enron executives since the company's finances began unraveling last month. 
The rating agencies' view is critical, because under some controversial Enron deals that have come to light recently, a downgrade to junk level would be a "trigger event" requiring Enron to immediately pay $3.9 billion to creditors, the company said in Monday's SEC filing. 
Such an event could instantly bankrupt the company, analysts said. 
Enron has been reeling since mid-October, when it began disclosing details of deals involving limited partnerships organized by current or former company executives. The partnerships' purpose appears partly to have been to pump up Enron's reported profit while concealing large amounts of debt it was incurring. 
The SEC has announced that it is investigating the situation. 
In addition to announcing the delayed payment, Enron said Wednesday that it had tapped the remaining $450 million of a previously announced $1-billion credit line from its chief lenders, J.P. Morgan Chase & Co. and Citigroup Inc. 
Enron probably can restructure its debts and postpone most payments until May, analyst Ronald M. Barone of Standard & Poor's rating agency said Wednesday. It is in the lenders' interest to cooperate, as much of Enron's debt is unsecured by hard assets, and the banks would stand to lose most of their principal in a bankruptcy, he said. 
Dynegy broke its recent silence Wednesday by issuing a statement in which Chairman and Chief Executive Chuck Watson said he was "encouraged" by the news of Enron's agreements with its lenders. 
Dynegy is "working to accelerate the regulatory approvals required to complete the merger," Watson said, adding that oil giant ChevronTexaco Corp., which owns 26% of Dynegy's stock, reiterated its support for the deal. 
Ratcheting up the pressure on Enron, another credit rating agency, Fitch Inc., issued a statement Wednesday listing its own concerns. Enron's energy trading partners seem to be demanding more cash collateral and reducing their exposure to Enron, which calls into question the ongoing value of the company's core trading business, Fitch said. 
Although Dynegy has reiterated its intention to complete the merger, Enron's problems make renegotiating the merger terms or canceling the deal a possibility, Fitch said. 
"If Dynegy steps away entirely from the merger, Enron's credit situation seems untenable, with a bankruptcy filing highly possible," Fitch said. 
If the merger falls through, Dynegy still will retain the right to purchase Enron's Northern Natural Gas Co. pipeline system for $1.5 billion. 
However, analyst Andre Meade of Commerzbank Securities said he believes Dynegy still is mainly interested in the trading franchise. 
"I don't think it's worth Dynegy's while to go through all this pain if they just want to pick up assets [such as the pipeline] on the cheap," Meade said.

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Enron Stock Declines Further On Release of Regulatory Filing --- Document Reveals Potential Fresh Problems
By John R. Emshwiller
Staff Reporter

11/22/2001
The Asian Wall Street Journal 
M7
(Copyright (c) 2001, Dow Jones & Company, Inc.) 

Enron Corp.'s stock and bond prices took another beating after the energy company's release late Monday of its much-anticipated third-quarter financial filing with the U.S. Securities and Exchange Commission. This revealed potentially major new cash-flow and earnings headaches. 
As of 4 p.m. in New York Tuesday, Enron shares were at $6.99, down $2.07, or 23%. Enron once again topped the exchange's most-active list with 89.9 million shares traded, more than twice the volume of the next most active stock.
Enron bond prices fell into the range of between 70 cents and 80 cents on the dollar, according to market observers. Following the announcement earlier this month of Dynegy Inc.'s plan to buy Enron for around $10 billion in stock, bond prices had firmed to above 80 cents on the dollar. 
A Dynegy spokesman Tuesday wouldn't comment on the status of the pending acquisition, other than to say his company was reviewing Enron's third-quarter financial report, filed with the SEC, as part of continuing "due diligence." Under the proposed acquisition, Dynegy would exchange 0.2685 of its shares for each Enron share. Based on Dynegy's 4 p.m. price Tuesday of $41.70 a share, off $1.90, the deal values Enron shares at about $11.20 -- well above the current market price. 
Monday's third-quarter financial report from Enron, which supplemented and revised Enron's earnings announcement last month, reinforced fears that the energy-trading company is in a "precarious financial position and will be for awhile," said Andre Meade, head of U.S. utility research at Commerzbank Securities. 
Enron's SEC filing Monday said that because of the company's deteriorated credit standing, it might have to repay a $690 million note by this coming Monday. The filing also said Enron might be forced to take a $700 million pretax charge to earnings in the current quarter, ending Dec. 31, due to a drop in value of some of its assets. 
Houston-based Enron has been in deepening financial distress for the past month, since announcing big asset and shareholder-equity reductions in the third quarter.

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FRONT PAGE - FIRST SECTION - Enron granted breathing space.
By ROBERT CLOW, ANDREW HILL, SHEILA MCNULTY and GARY SILVERMAN.

11/22/2001
Financial Times 
(c) 2001 Financial Times Limited . All Rights Reserved 

FRONT PAGE - FIRST SECTION - Enron granted breathing space - US energy group postpones $690m in repayments as it fights for survival. 
Enron, the crisis-hit US energy trader, won a stay of execution from its lenders yesterday but remained on a knife edge as it struggled to restore the confidence of customers, bankers and investors.
The former stock market star said repayment of $690m ( #479m) of outstanding notes would be postponed from next Tuesday to "mid-December". The group also said it had finalised the remaining $450m of a $1bn credit line from JP Morgan Chase and Salomon Smith Barney, part of Citigroup. 
Enron's survival is crucial to the smooth functioning of the US energy market, which the group dominates. Its failure would also have severe repercussions in the wider financial markets, where Enron offsets much of the risk of energy price changes. 
Negotiations with lenders are set to continue through today's Thanksgiving holiday, according to people close to the talks. 
Whether Enron can survive depends on the commitment of Dynegy, rival US energy group, to its $9bn rescue takeover bid, announced two weeks ago. Dynegy said yesterday it was "encouraged" that Enron had progressed in boosting its liquidity and it was continuing the "due diligence" review of Enron's operations. 
Some analysts believe Enron will burn through its cash balances of $1.2bn before the Dynegy deal can be completed next year. 
David Fleischer of Goldman Sachs, one of the last remaining bulls on Enron, downgraded the stock yesterday, pointing out that cash balances were inadequate to pay off debt obligations of $2.8bn by the end of the year. 
One person close to the talks with lenders said Enron had a medium-term plan for restructuring $9.15bn of debt due by the end of next year. Jimmy Lee, vice-chairman of JP Morgan Chase, said the bank would work to "strengthen Enron's financial position up to and through its merger with Dynegy". 
In morning trading yesterday, Enron's stock fell 33 per cent before it announced the extension of the $690m repayment. The group's bonds had also fallen to levels that suggested Enron faced bankruptcy. 
By lunchtime in New York the stock had recovered slightly and was trading at $4.97, 29 per cent lower on the day. The shares started the week at $9, but a regulatory filing by Enron on Monday that detailed the extent of its debt prompted traders to limit exposure before Thanksgiving. 
Additional reporting by Gary Silverman and Robert Clow .. Lex, Page 22 Enron seeks sale, Page 24. 
(c) Copyright Financial Times Ltd. All rights reserved. 
http://www.ft.com.

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Lenders throw Enron lifeline but Dynegy is main rescue hope
NEIL HUME I N NEW YORK

11/22/2001
The Guardian 
Copyright (C) 2001 The Guardian; Source: World Reporter (TM) 

Enron, the debt-stricken energy trading group that owns Wessex Water, was thrown a lifeline yesterday by its lenders who postponed the repayment of a $690m (pounds 487m) loan due next week. But its survival still depends on whether its smaller rival Dynegy goes ahead with its $9.6bn rescue takeover. 
Last night Dynegy said it was encouraged by the agreement and was seeking ways to speed up regulatory clearance of the deal that would create the dominant force in US energy trading.
Enron shares, which touched $4.55 - their lowest price since February 1989 - before the banks announced that the repayment deadline would be extended from next Tuesday to mid-December, were down in afternoon trading yesterday by $1.74 at $5.25. 
Enron also said it had drawn down the remaining $450m of a $1bn secured credit line from JP Morgan and Schroder Salomon Smith Barney. 
"We have been in contact with our banks and believe we can identify a mutually beneficial restructuring to enhance our cash position, strengthen our balance sheet and address upcoming maturities," said Jeffrey McMahon, Enron's chief financial officer 
This week, Enron shares went into yet another free fall following the publication of a third-quarter filing with the securities and exchange commission in which the company warned that last week's credit rating downgrade by Standard & Poor's would trigger the repayment of the $690m loan on Tuesday. Enron also revealed it would have to repay $9.15bn of debt by the end of next year. 
That news sparked fears that Enron might run out of cash before the Dynegy takeover. Both firms estimated it could take six to nine months to gain regulatory approval without special dispensation. 
Dynegy is offering 0.2685 shares for each Enron share and under the terms of the deal can walk away if Enron's problems turn out to be worse than previously thought. 
Yesterday's agreements will help restore confidence among Enron's customers, seen as the key to the deal. The energy trading division is Enron's main profit engine and the major attraction for Dynegy. 
In the past two months Enron has suffered a fall from grace. It shares have lost 90% of their value since it sacked its finance director Andrew Fastow in October for unusual transactions carried out off balance sheet. These forced it to take a $1bn charge and cut shareholder equity by $1.2bn. 
To shore up its financial position, Enron is likely to sell Wessex Water, for which it paid pounds 1.4bn in 1998, and a number of gas-fired power stations, including the high performing 1,900MW Teesside plant.

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M and A
Dynegy aims for quick merger with Enron
by Padraic Cassidy

11/22/2001
The Daily Deal 
Copyright (c) 2001 The Deal LLC 

Prompted by Enron's recent stock sell off, Houston energy trader Dynegy is trying to quicken the pace of the companies' $24 billion merger. 
After watching Enron Corp.'s stock plummet at the start of a short holiday week, Houston energy trader Dynegy Inc. said Wednesday it would try to quicken the pace of the companies' $24 billion merger.
Prompting Dynegy's statement was Enron's announcement that it closed on $450 million of a promised $1 billion line of financing from J.P. Morgan Chase & Co. and Salomon Smith Barney Inc., secured by the assets of its subsidiary, Northern Natural Gas Co. 
Dynegy, which has agreed to acquire crosstown rival Enron in an all-stock deal, said it was encouraged by the development and was working to accelerate the transaction. 
The companies announced Nov. 9 their intent to merge in a deal that was valued at $24 billion, including $13 billion in Enron debt. 
Enron's stock price has plummeted since the company acknowledged the Securities and Exchange Commission was investigating its financial disclosures and trading activities. 
Dynegy said the financing terms also pleased ChevronTexaco Corp., which owns 29% of Dynegy. 
ChevronTexaco agreed to pump $2.5 billion of new equity into Dynegy, $1.5 billion of which immediately will be channeled into Enron and $1 billion at closing. 
Dynegy will use the initial $1.5 billion to acquire preferred stock and other rights in an Enron subsidiary that owns the Northern Natural Gas pipeline system. The funds will give Enron additional cash liquidity to support its operations. 
Enron, which last week closed on $650 million of financing secured by its Transwestern Pipeline Co., also said it is in discussions with its primary lenders to make a formal postponement to mid-December of a $690 million payment that is due Tuesday. 
"We believe the interests of Chase and Enron's other primary lenders are aligned in this restructuring effort," said James B. Lee, vice chairman of J.P. Morgan. 
-- Padraic Cassidy 
www.TheDeal.com

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Enron Tries to Pacify Worries as More Investors Decide to Sell Shares
Charlene Oldham

11/22/2001
KRTBN Knight-Ridder Tribune Business News: The Dallas Morning News - Texas 
Copyright (C) 2001 KRTBN Knight Ridder Tribune Business News; Source: World Reporter (TM) 

Faltering Houston energy trader Enron Corp. tried to calm investors' worries Wednesday, announcing progress in relieving its debt situation, but its stock lost a quarter of its value for the second day in a row. 
At one point Wednesday, shares hit a 12-year low, touching $4.55.
The stock partially recovered after the company said it negotiated a three-week extension on a $690 million note that became due next week after the company's debt rating deteriorated. 
Enron also said it closed on the remaining $450 million of a previously announced $1 billion line of credit and is trying to restructure other debt. 
Still, counting debts owed at the parent company and a subsidiary, Enron needs to raise nearly $1 billion to pay off notes coming due in the next month or so, said Scott Keller, an analyst at DealAnalytics.com. 
Shares closed at $5.01, down $1.98, or 28 percent, in New York Stock Exchange trading. 
Around 115.6 million shares changed hands, making it the most active stock on U.S. exchanges Wednesday. 
Until its recent downfall, Enron was regarded as a high-flier among energy companies, having diversified from its natural gas roots to the electricity trading and telecommunications industries. The stock hit a 52-week high of $84.88 late last year. 
An investigation by the Securities and Exchange Commission this fall led to the restatement of Enron's earnings back to 1997 and the disclosure of a number of complex and questionable partnerships -- some run by the company's chief financial officer. 
Mr. Keller said Wednesday that it's crucial that a special committee appointed by the company's board complete an internal investigation of financial dealings that prompted the SEC probe. 
"Once your short-term liquidity runs out, it doesn't matter who wants to buy you," Mr. Keller said 
Although both Enron and Dynegy reaffirmed their commitment to a merger Wednesday, analysts said Enron could be facing a bankruptcy filing long before a buyout if it doesn't restore enough confidence to raise the funds it needs. 
The merger deal between Dynegy and Enron -- announced Nov. 9 --allows Dynegy to back out of the transaction should there be a "material adverse change" in conditions. 
Houston-based Dynegy could also decide to renegotiate the terms of the deal, which currently prices Enron at about $11 a share. 
Considering Enron's credit problems and the growing number of companies canceling transactions with the energy trader, analysts are increasingly uncertain that the deal will close at any price. 
"What Dynegy is buying more than anything else is the trading operations," said Edward Jones analyst Brian Youngberg. "A week ago, I would have said there was a 90 percent chance that this deal would go through. Now, I would say it's 50-50." 
Early Wednesday, Goldman Sachs lowered its rating on Enron's stock. CIBC World Markets also cut Enron to a "hold" from a "buy." 
And Mr. Youngberg lowered his rating to "sell" late Tuesday. 
"Individual investors who are buying the stock now are really gambling with their money," he said. 
Indeed, those who are still holding Enron stock are in an all-or-nothing guessing game, analysts said. Should they sell out now or hold on with the hope that the Dynegy deal will go through before Enron faces bankruptcy? 
Lately, investors have been deciding in droves to sell. Enron has logged an average daily trading volume of 47 million shares for the last month, compared with 2.1 million shares trading each day this time last year. 
"What the market activity represents is the increasing uncertainty about whether you're going to get $10 or $11 or zero," Mr. Keller said.

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