Dynegy and Enron Shares Get a Boost As Acquisition Plan is Met With Optimism
The Wall Street Journal, 11/13/01
Gas Pipeline Is Prominent As Dynegy Seeks Enron
The New York Times, 11/13/01
Suitor for Enron Receives Approval From Wall St.
The New York Times, 11/13/01
Share boost for Dynegy good news
Houston Chronicle, 11/13/01
Dynegy, Enron Stock Prices Get Boost Energy: Even as experts warn of regulatory hurdles, investors back proposed merger.
Los Angeles Times, 11/13/01

Enron Shares Enriched Ken Lay Before Flaming Out: Graef Crystal
Bloomberg, 11/13/01

COMPANIES & FINANCE THE AMERICAS - Dynegy deal brings balance back to markets.
Financial Times, 11/13/01

GLOBAL INVESTING - Spreading the risks - and the rewards.
Financial Times, 11/13/01
COMMENT & ANALYSIS - Enron reaps the whirlwind.
Financial Times, 11/13/01
Andersen Could Face SEC Sanction, Suits Over Enron Accounting Error
Los Angeles Times, 11/13/01
Investors upbeat about merger between Dynegy and Enron
Associated Press Newswires, 11/13/01
WORLD STOCK MARKETS - Dow sinks in wake of New York jet crash.
Financial Times, 11/13/01
Dynegy seen as winner in Enron deal ; Firm gets rights to key pipeline
Chicago Tribune, 11/13/01
UK: Innogy restarts energy trading with Enron.
Reuters English News Service, 11/13/01
Enron, Dynegy shares climb Industry observers give takeover bid mixed reviews
The Globe and Mail, 11/13/01
City - City Comment - Enron's end provides textbook disaster study.
The Daily Telegraph, 11/13/01
Stocks Steady After Scare
The Washington Post, 11/13/01
Tata Power, BSES keen to buy 85 pct stake in Enron unit Dabhol Power - IDBI
AFX News, 11/13/01
India's Tata group, BSES keen to acquire 85 percent of Enron India unit
Agence France-Presse, 11/13/01
BSES seeks mega project status for Dabhol
Business Standard, 11/13/01
Dynegy's Plan to Acquire Enron in Deal Valued at $10.12 Billion Boosts Shares
Dow Jones Business News, 11/12/01
USA: DynegyDirect, EnronOnline to trade separately for now.
Reuters English News Service, 11/12/01
Dynegy Bid for Enron Doesn't Calm Credit Concerns, Traders Say
Bloomberg, 11/12/01

USA: UPDATE 1-EOTT Energy Q3 net up, sees weaker 2001 profits.
Reuters English News Service, 11/12/01

Dynegy to Ask J.P. Morgan, Salomon to Reduce $90 Mln Enron Fee
Bloomberg, 11/12/01




Dynegy and Enron Shares Get a Boost As Acquisition Plan is Met With Optimism
By John R. Emshwiller
Staff Reporter of The Wall Street Journal

11/13/2001
The Wall Street Journal
A4
(Copyright (c) 2001, Dow Jones & Company, Inc.)

The shares of Enron Corp. and Dynegy Inc. both rose in heavy trading as investors began trying to digest the possible risks and rewards of Dynegy's plan to acquire Enron in a stock swap with a current value of $10.12 billion. 
In calls and meetings with analysts yesterday, Dynegy Chairman Chuck Watson and Enron Chairman Kenneth Lay continued talking up the deal that was announced late Friday. "We are confident this is good strategically and financially for Dynegy and Enron," said Mr. Watson, who will serve as chairman and chief executive of the combined entity, to be called Dynegy Inc.
While the proposed combination faces months of review by government agencies and gives Dynegy possible opportunities to cancel the deal, investors' initial reaction to the merger announcement was positive. As of 4 p.m. in New York Stock Exchange composite trading, Dynegy shares were at $44.31, up $5.55, or 14%. Also on the Big Board, Enron was at $9.24, up 7.1%, or 61 cents. Both companies were among the most actively traded issues. 
Under terms of the proposed acquisition, Dynegy would give 0.2685 of its shares for each Enron share. Based on Dynegy's stock price yesterday , this formula values Enron stock at $11.90 each. Enron has about 850 million shares outstanding. 
Some people raised cautionary notes yesterday. Moody's Investors Service placed Dynegy on review for a possible credit-ratings downgrade. Standard & Poor's made a similar move on Friday. Moody's said that while it saw positive elements to the proposed combination, it also believed "the financial and business risks associated with the transaction could negatively impact Dynegy's credit fundamentals." 
Prudential Securities analyst Carol Coale, who counts herself a fan of Dynegy, also worries that Enron's enormous problems could be a drag on the combined entity. "I don't want the Dynegy folks to get into something that's not good for the company," she said. 
As reported, Enron in the past several weeks has seen its stock price and standing in the investment community plummet, largely as the result of large-scale transactions it did with partnerships headed by Enron officers. Those transactions have produced hundreds of millions of dollars of write-offs and restatements in the past month. They are being investigated by the Securities and Exchange Commission and have helped spawn more than a dozen shareholder lawsuits.

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


Business/Financial Desk; Section C
Market Place
Gas Pipeline Is Prominent As Dynegy Seeks Enron
By FLOYD NORRIS

11/13/2001
The New York Times
Page 1, Column 5
c. 2001 New York Times Company

Dynegy has negotiated a great takeover. And it may end up buying Enron, too. 
As part of its planned acquisition of Enron, Dynegy will get the crown jewel even if the overall deal falls apart. In return for its $1.5 billion investment today, Dynegy has the right to acquire Northern Natural Gas, a pipeline system that is probably worth more.
As Dynegy stock soared 14 percent yesterday, Enron's lagged behind, rising just 7 percent. [Page C13.] 
That widened the spread -- the profit a trader could lock in by buying Enron and selling Dynegy short, assuming the deal goes through -- to 28 percent. 
The big premium probably reflects more than the fact that this deal will not close for many months. It is at least a possibility that Dynegy will renegotiate the price, or even walk away, as it learns more about Enron's business. 
Not that Chuck Watson, chairman and chief executive of Dynegy, was threatening to do any such thing. In a talk to analysts yesterday, and in a later interview, he was extraordinarily upbeat about Enron's trading business even as he dismissed many of the company's diversifications as failures whose poor performance might have been obscured by fancy accounting. 
Full details of the agreement between the companies will not be known until the merger agreement is filed with the Securities and Exchange Commission today or tomorrow. But it appears that if the agreement falls apart for any reason, Dynegy has the right to keep the pipeline without putting up any additional cash. 
Speaking to analysts yesterday, Rob Doty, chief financial officer at Dynegy, said the company was paying about seven or eight times the cash flow of the pipeline business. 
Walking away from the deal might cost Dynegy $350 million if it could not cite any material adverse change in Enron's business, as provided in the merger agreement. But one way to look at this deal is that Dynegy is spending $1.85 billion for the pipeline and a right to get the rest of Enron on the agreed terms. 
Mr. Watson said he was confident that things would not go wrong. 
''We have comfort there is not another shoe to drop,'' he said. ''If there is no shoe, this is a phenomenally good transaction.'' 
In presentations to analysts, Dynegy officials said they expected the company's earnings per share to grow by at least 90 cents a year even before considering cost reductions as the two businesses are merged. That arithmetic was based on assumptions that Enron could deliver at least 75 percent of the $2 a share in pro-forma earnings that Wall Street had been forecasting for next year. Those forecasts had stayed the same even as Enron's business collapsed. 
The bullish case for the merger is that Enron's real profits were there and that the financial maneuvering did not cover up far deeper problems. 
Mr. Watson promised that more details would be disclosed about the partnerships that were created by Enron and traded with it, providing a substantial part of the company's profits in 2000. 
Enron's need to make a deal quickly -- almost any deal -- was emphasized by Standard & Poor's, the bond rating service. In a conference call yesterday, Ron Barone, an analyst with S.& P., said that without the takeover, Enron's rating would have been cut to low BB or high B. Those ratings are not even at the high end of junk, and a company like Enron, which depends on others being willing to treat it as a trusted trading partner, needs an investment grade rating. Its current S.& P. rating is BBB minus, the lowest investment grade rating. 
That means Enron could not continue as an independent business. And it means that should Dynegy decide to renegotiate, Enron would be in a very poor bargaining position unless it had another bidder.

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

Business/Financial Desk; Section C
THE MARKETS
Suitor for Enron Receives Approval From Wall St.
By ALEX BERENSON

11/13/2001
The New York Times
Page 13, Column 1
c. 2001 New York Times Company

Wall Street found nothing but good news in Dynegy's $9 billion takeover of the Enron Corporation yesterday. 
Three days after Dynegy, an energy marketing and trading company based in Houston, agreed to take over Enron, its giant crosstown rival, Dynegy executives came to New York to assure investors that the deal would sharply increase their company's profits. They met a receptive audience.
Dynegy stock closed yesterday at $44.31, up $5.55, or 14.3 percent. Since last Wednesday, when news of a possible takeover emerged, Dynegy's stock has risen more than one-third. Enron closed at $9.24, up 61 cents, or 7.1 percent. 
After some initial uncertainty about the takeover, investors appear to have accepted Dynegy's view that the deal will give it a lucrative franchise in trading natural gas and electricity. Enron's stock fell almost 80 percent in the weeks leading up to the deal as Enron said it had overstated its earnings by almost $600 million since 1997 and forced out several top executives. 
But Chuck Watson, Dynegy's chairman, told investors repeatedly yesterday that Enron's problems were mainly a result of failed expansion efforts. He largely dismissed the concerns of some short-sellers and analysts that Enron might be hiding losses at its core energy trading operations. 
''There's nothing wrong with Enron's business,'' Mr. Watson said in an interview at the Waldorf-Astoria Hotel after making a lunchtime presentation to analysts and investors. ''The people in it ought to be really upset that for the last several years, they have produced earnings and cash that have been invested in other businesses that are not making money.'' 
Enron's immediate problem was a crisis of confidence, which could have caused other companies to stop trading with it, Mr. Watson said. A $1.5 billion cash infusion from Dynegy should restore the confidence of Enron's business partners and keep Enron stable until the takeover is complete, he said. To bolster Enron further, J. P. Morgan Chase and Citigroup may each invest an additional $250 million, executives close to the deal said. The potential investments by J. P. Morgan Chase and Citigroup were reported yesterday in The Wall Street Journal. 
Mr. Watson said Dynegy would also move quickly to assuage Enron employees who are angry that Kenneth L. Lay, Enron's chairman, and other top executives sold hundreds of millions of dollars in stock in 2000 and this year as Enron's shares plunged. ''Right now, there's some animosity over there,'' he said. 
Many employees at Enron will get new grants of stock options when the acquisition is completed, he said. The company said it expected the deal to close by the end of the third quarter of next year, after extensive reviews from federal and state energy regulators and the Department of Justice. 
Mr. Watson predicted that the deal would lift Dynegy's earnings by 90 cents or more a share next year, to more than $3.45 a share. 
Analysts backed that view yesterday. ''Investments in noncore business distracted the attention of management and also took up capital,'' said Thomas Hamlin, an analyst at Wachovia Securities. Mr. Hamlin said he believed that Dynegy had obtained Enron, which reported more than $100 billion in revenue last year, for a bargain price. 
''It's not too often you get to take out the No. 7 Fortune 500 company and double your earnings in the meantime,'' he said. ''My guess is the stock is worth $70 per share.'' 
The deal could increase Dynegy's earnings by $1 to $2 a share next year, said Christopher Ellinghaus, an analyst at the Williams Capital Group. 
''That's a whopper,'' he said. ''It's a very good deal financially, certainly should be a good deal strategically, and provides some immediate balance-sheet backstop for Enron.'' 
Mr. Lay said in an interview that Enron had been forced to sell itself because of ''the relentlessness of all the articles and the shorts.'' 
''We realized that we needed to do something to stabilize the ship,'' he said. ''A good company was being badly tarnished.''

Photo: In Houston, the headquarters building of Dynegy Inc., the energy and marketing trading company, which is in a $9 billion takeover of Enron. (Asociated Press) 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Nov. 13, 2001
Houston Chronicle
Share boost for Dynegy good news 
Saving Enron trading called key handicap 
By LAURA GOLDBERG and DAVID IVANOVICH 
Copyright 2001 Houston Chronicle 
Although investors Monday cheered Dynegy's planned acquisition of Enron Corp., Dynegy must still negotiate a series of potential roadblocks to pull off a successful merger. 
Among them: ensuring that Enron's core energy-trading business, suffering before the merger announcement, stays healthy. Negative news on that front quickly surfaced Monday as at least two traders said they still plan extremely limited business with Enron. 
Dynegy must also manage any unexpected disclosures about Enron's financial performance and investment partnerships, convince Enron's traders and other key employees to stick around, and mesh different corporate cultures. 
Investors were optimistic in Dynegy's abilities as shares in the company traded up $5.55 to close at $44.31 Monday, while shares in Enron ended the day up 61 cents at $9.24. 
Enron has been under siege since Oct. 16 when it reported a $35 million loss and $1.2 billion reduction in shareholder equity tied to business dealings with investment partnerships run by its then-chief financial officer. 
Since then, the Securities and Exchange Commission started an investigation of Enron, a slew of shareholder lawsuits were filed and Enron's stock price plummeted. 
A new shareholder suit filed Monday included Dynegy on its list of defendants. 
Last week, Enron said it was restating its earnings back to 1997 to include losses related to a number of complex partnerships, including several being investigated by the SEC. It said it was correcting almost $600 million worth of mistakes. 
Just how close Enron was to a collapse remains unclear. One industry source believes Enron had been pushed "to the brink" and would have been done for if it had been unable to reach agreement with Dynegy last week. 
But Ron Barone, a credit analyst with Standard & Poor's, doesn't think Enron's condition was so desperate. 
"We clearly didn't see this as an imminent bankruptcy or imminent default, but it is something that could have eroded over time ... in a fairly short time." 
Friday, Enron's long-term debt rating was downgraded to one notch above investment-grade status by both Moody's Investors Service and S&P. 
Enron is the largest natural gas and electricity trader in the nation, accounting for about 25 percent of all transactions. Its collapse would have meant the loss of much liquidity in the trading market, making trades more difficult and prices more volatile, industry experts said. 
Dynegy announced a deal Friday to buy Enron at a fire-sale price of almost $9 billion in stock, plus the assumption of about $13 billion in debt and $2 billion in preferred stock. The merger is expected to close, barring holdups from regulators, in six to nine months. 
As part of the agreement, Dynegy stakeholder ChevronTexaco is giving Dynegy $1.5 billion, which is to be infused today to help shore up Enron's liquidity and preserve its trading franchise. 
Some of Enron's former trading partners are still steering clear of the giant. 
To facilitate transactions, the various energy trading firms extend credit to one another. Those agreements are contingent upon a partner maintaining an adequate rating. 
If the credit rating firms had downgraded Enron's debt to junk status, its trading operation would have been devastated, industry officials said. 
As details of Enron's questionable financial dealings have been revealed, Enron's trading partners have been scrambling to reduce their exposure. 
Kansas City, Mo.-based Aquila Energy Marketing Corp., for instance, has been ratcheting down its activity with Enron, company spokesman Al Butkus said. 
By the end of last week, Aquila's exposure to Enron was "insignificant," Butkus said. "And after all that was revealed on Friday and the downgrading of the credit, we are now at an even lower level." 
Atlanta-based Mirant has likewise reduced its exposure and is only doing a limited amount of business with Enron. 
Some larger players, however, continue doing deals with the company. 
"Reliant Energy has consistently been trading with Enron through its difficulties, albeit with a heightened sense of caution," said Shahid Malik, president of Houston-based Reliant Energy's trading operation. 
Charlotte, N.C.-based Duke Energy's exposure stands at $100 million. 
"We're continuing the way we have been," said Duke spokesman Terry Francisco. 
John Olson, an analyst with Sanders Morris Harris in Houston, predicted it would take the traders some time to digest the merger deal. 
"I think people will increasingly come back to Enron just as soon as the $1.5 billion changes hands," he said. 
Traders still have incentives to do business with Enron even though it's being sold, as it has a wider variety of products than some of its competitors and its EnronOnline Internet trading operation is regarded as superior. 
On a conference call with investors and analysts Monday morning, Dynegy and Enron executives fielded a variety of questions about the merger but refused comment on a Wall Street Journal report that J.P. Morgan Chase & Co. and Citigroup are considering a $500 million investment in Enron. 
Analysts remain worried that new and troubling surprises will emerge about Enron's finances, including those that could call into question whether its core trading business is as advertised. 
Dynegy executives aren't expecting any such disclosures, but took a conservative approach to calculating merger benefits. 
"I believe we have adequately bracketed the downside," said Chuck Watson, Dynegy's chairman and chief executive. 
Even with a worst-case scenario, Dynegy still found a "tremendous amount of economic value" in the merger, said Watson, who will take the same roles after the merger. 
The deal, Dynegy said, will add 90 cents to 95 cents per share in earnings for current Dynegy shareholders. And that's before cost savings that are expected to run $400 million to $500 million a year. 
Dynegy detailed two escape clauses in the merger deal. For one, if the amount of legal and shareholder claims Enron must pay out is greater than $3.5 billion, it can be called off. 
Enron and Dynegy officials also said they will do whatever it takes to keep their key people. But will traders jump ship? "Oh, yeah I'm sure they will," the industry source said. 
Jeff Dietert, an analyst with Simmons & Co. International in Houston, believes that a number of Enron's marketers and traders will find Dynegy a strong alternative. 
"I firmly believe that the Enron guys like to play on the winning team and Dynegy is a very, very strong player," he said. 
That Dynegy was approached by three key Enron executives about a merger showed Dynegy would be getting the full cooperation of Enron's management team, Watson said. 
Enron employees working for Dynegy will have to get used to a new culture. Teamwork and fraternal are words often used to describe Dynegy, while cutthroat is used for Enron, which also is known for its willingness to take more risk. 
Watson plans to blend strategies and business elements of each. 
The new company will include Enron's strong offering of financial products and combine them with Dynegy's base of power plants and other assets, said Steve Bergstrom, Dynegy's president, who will take the same job in the new company. 
The post-merger Dynegy will also be more involved in "market-making," which Enron is known for. That's the practice of ensuring orderly markets can exist by acting as both the buyer and the seller of a commodity. 
It's unclear whether Dynegy will continue Enron's foray into other commodities such as paper and metals. 
Dynegy hopes Enron can complete its planned sale of assets considered outside its core wholesale energy business before the merger closes. 
Enron already has deals to sell power utility Portland General Electric along with about $900 million in international assets. Billions of dollars in international projects are for sale. 
But Watson said Dynegy isn't interested in seeing the assets go at bargain-basement prices. 
"We don't necessarily feel like our back is pinned against the wall in asset dispositions," he said. 
Bottom of Form 1


Business; Financial Desk
Dynegy, Enron Stock Prices Get Boost Energy: Even as experts warn of regulatory hurdles, investors back proposed merger.
NANCY RIVERA BROOKS
TIMES STAFF WRITER

11/13/2001
Los Angeles Times
Home Edition
C-1
Copyright 2001 / The Times Mirror Company

Investors and analysts applauded the proposed $9-billion merger of Dynegy Inc. and Enron Corp., boosting the stock price of both Houston-based energy companies on Monday even as some experts warned of regulatory hurdles. 
Dynegy and Enron executives courted Wall Street by offering assurances that the combined company, to be called Dynegy, would be more financially conservative and easier to understand than Enron has been.
Dynegy Chief Executive Charles L. Watson said the merger would immediately sweeten earnings for the combined company and that he remains "90% certain" that no more nasty surprises will emerge from a continuing internal investigation of Enron's cloudy finances. 
"This is an exciting business combination ... that will fuse two groups of talented, dedicated people who share a passion for their work," said Watson, who would be chairman and chief executive of the new company. 
Dynegy's stock leaped $5.55 to close at $44.31 on the New York Stock Exchange while Enron's stock increased 61 cents to $9.24. 
The proposed transaction, revealed late Friday after days of rumors, marks an extraordinary humbling of Enron and its powerful chairman and CEO, Kenneth L. Lay. Enron is the world's largest energy trader, but a loss of investor confidence and a severe cash crunch have pushed it into the arms of a competitor that is one-quarter its size. 
Under the deal, Enron shareholders would get 0.2685 Dynegy share for each share of Enron stock. Based on the $38.76 close Friday of Dynegy's stock on the New York Stock Exchange, the deal valued Enron's stock at $10.40 a share--or $11.89 a share based on Monday's close. Dynegy would convert 850 million Enron shares, the company said. 
Dynegy said Monday that its deal is worth about $24 billion in all: the $9-billion stock swap and the assumption of $2 billion of preferred stock and $13 billion in debt. Enron would get an immediate cash infusion from ChevronTexaco Corp., which owns nearly 27% of Dynegy, with an additional $1billion to follow when the deal closes. 
Enron's stock fell 80% after a series of disturbing financial disclosures that began Oct. 16 with a surprise third-quarter loss tied to failed investments in water and telecommunications and losses from the termination of some off-balance-sheet partnerships. 
Enron also revealed that $1.2billion had been shaved off shareholders' equity because of those partnerships. The Securities and Exchange Commission launched an investigation into the investment vehicles, and the company fired three executives linked to the partnerships. 
An internal investigation led Enron to admit it overstated profit by $586 million, or 20%, going back to 1997. 
All those disclosures are unrelated to Enron's core businesses of energy trading, energy marketing and natural gas pipelines, said Dynegy President Steve Bergstrom, and it is those businesses that Dynegy wants. 
"We have had the opportunity to look under the hood of their core businesses and have found no surprises," said Bergstrom, who would be president of the combined company. Dynegy expects those businesses alone to add as much as 95 cents a share to the combined company's earnings the first year, and Dynegy has built protections into the deal if more surprises emerge from noncore businesses or off-balance-sheet partnerships, the executives said. 
Among the protections: Dynegy or Enron would receive $350 million if the other backs out of the deal; Dynegy can abandon the transaction if lawsuit and financial liabilities exceed $3.5 billion; and if the deal falls apart, Dynegy gets Enron's Northern Natural Gas pipeline. 
The combined company would be leader in all of its primary businesses, Watson said, with revenue of more than $200 billion and assets of more than $90 billion. The new Dynegy would be the world's largest energy trader and would own 25,000 miles of natural gas pipelines and 22,500 megawatts of electricity generation. 
It is that powerhouse role that may give regulators pause, energy and antitrust experts say. 
California Atty. Gen. Bill Lockyer has not taken a position on the proposed merger. Dynegy co-owns three power plants in California and Enron controls a portion of the state's natural gas supply through its pipeline and trading businesses.

PHOTO: Kenneth Lay, left, and Chuck Watson announce proposed merger.; ; PHOTOGRAPHER: Associated Press 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Enron Shares Enriched Ken Lay Before Flaming Out: Graef Crystal
2001-11-13 01:01 (New York)

 
     (Commentary. Graef Crystal is a columnist for Bloomberg 
News. The opinions expressed are his own.) 
 
     Las Vegas, Nov. 13 (Bloomberg) -- Enron Corp. shareholders 
never blinked as Chief Executive Officer Kenneth Lay piled up pay 
-- salary, bonuses, stock grants and options -- that would meet 
almost any definition of excessive. 

     From 1993 to the end of 2000, Lay's potential compensation 
came to $614 million if you add unexercised option profits to the 
millions he actually pocketed. 

     Sad to say, Lay's paper profit of $362 million at the end of 
2000 has evaporated as Enron's stock lost about 90 percent of its 
value. The Houston, Texas, energy company, beset by accounting 
problems, is now being bought by a smaller competitor, Dynegy 
Inc. 

     Still, the 59-year-old Lay hauled away $31.5 million a year 
in real dollars over the last eight years, a generous amount 
given Enron's recent admission -- after the Securities and 
Exchange Commission opened an investigation -- that it overstated 
earnings by $586 million in five of those years. 

     Lay was Enron's CEO from the time it was formed 15 years ago 
in a merger of natural-gas pipeline operators until he stepped 
down in February for prot?g? Jeffrey Skilling. Skilling left 
unexpectedly in August for ``personal'' reasons. 
 
                          CEO'S Return 
 
     In six months under Skilling, Enron's total return to 
shareholders was a negative 46 percent, four times worse than the 
performance of the Standard & Poor's 500 Index. It was also a 
sharp contrast to the 30 percent a year Enron returned to 
shareholders over the previous eight years under Lay, when the 
company's performance was almost double that of the S&P 500. 

     So Lay became CEO again after Skilling's mid-August 
departure -- and Enron's performance has now been even worse: 
minus 78 percent versus the 5.8 percent negative return of for 
the S&P 500. 

     While Lay has an employment agreement extending all the way 
to 2005, the company's pending acquisition by Dynegy leaves his 
future in doubt. For Enron's battered shareholders, whose stock 
once was among the S&P 500's top performers, that may not be such 
bad news. 

     Enron shareholders endured a roller-coaster ride during 
Lay's long tenure, their stock 2.2 times as volatile as that of 
the S&P 500 Index. 

     Lay, and some other Enron executives, were responsible for 
at least some of the heavy activity in their company's shares. 
Lay exercised and sold option shares twice a day on every trading 
day this year through Aug. 21, on last report. In the process, he 
dumped about 300,000 option shares to reap about $26 million. 
 
                         Royal Treatment 
 
     That comes atop his realized option gains of $123 million in 
2000 and another $44 million the year before that. 

     Shedding large numbers of option shares might seem 
reasonable for a CEO about to leave the company. For someone 
continuing as board chairman, such behavior raises suspicion he 
might have known before others what a bad investment Enron was 
about to become. 

     Over the past eight years, Lay has received bonuses totaling 
$19.8 million, free shares worth $12.7 million at the time of 
their grant, payouts under miscellaneous stock-option plans of 
$3.5 million and a whopping 11 million option shares. 

     Those figures don't include free personal travel on company 
planes. In 2000 alone, that little item came to $334,000. 

     If Lay has been handsomely compensated, he has treated his 
outside directors royally. Enron's current proxy statement 
informs shareholders that directors in 2000 received an average 
of $79,107 in cash, deferred compensation, phantom stock units 
and stock options granted in lieu of cash. 
 
                            Who Knew? 
 
     By itself, that figure might not seem egregious. Parsing the 
artful language of the proxy, one reads further to find that each 
outside director also received a stock option covering 10,775 
shares at a strike price of $75.13 a share. I estimate the 
present value of that option to be $315,000, making for a 
director's total  pay of an eye-popping $394,000. 

     To be sure, those options are now way underwater, given 
Enron's closing price yesterday of $9.24. Still, the fact they 
were granted at all suggests that Enron's directors must have had 
a warm fuzzy feeling for Lay while treating him so munificently. 

     Politically, too, Lay has shown generosity and a deft touch: 
He gave $2,000 directly to President George W. Bush's campaign, 
another $275,000 in soft money to the Republican party and has 
long been an adviser to Bush on energy matters. 

     Even if he was unaware of the accounting issues that helped 
bring down Enron, Lay still profited hugely from a stock price 
that soared on the strength of inflated numbers. And, as the CEO, 
he bears ultimate responsibility for what goes on in the company 
he helped found and has run for most of the past 15 years. 

     The question arises, to echo a phrase made famous during the 
Watergate era: ``What did Ken Lay know, and when did he know 
it?'' 
 
--Graef Crystal in Las Vegas (702) 270-6841 


COMPANIES & FINANCE THE AMERICAS - Dynegy deal brings balance back to markets.
By JULIE EARLE, SHEILA MCNULTY, PETER SPIEGEL and RICHARD WATERS.

11/13/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

Dynegy's rescue takeover of Enron brought stability back to the companies' share prices and the energy markets as trading resumed yesterday morning. 
However, executives of the two companies faced a barrage of questions from investors and analysts over concerns that they had not yet got to the bottom of the complex transactions that nearly brought Enron down.
Dynegy's shares jumped 15 per cent in early trade, while Enron's stock rose by more than 12 per cent, after the late-Friday deal that appeared to resolve Enron's immediate financial crisis. 
"It's a sensational deal for Dynegy," said John Olson of Sanders Morris Harris, an investment banking firm in Houston. "It is clearly the best deal of the year. When you can buy Enron at seven times earnings, at approximately book value, warts and all, you're getting a very good deal." Dynegy said the merger would lift its earnings per share by 35 per cent next year. 
While the bounce in Enron's shares reflected relief that the company's immediate liquidity crisis was over, they were still trading at less than a third of their price of mid-October. 
Charles Watson, Dynegy chairman and chief executive, said the deal included provisions that would protect his company's shareholders if large unexpected liabilities emerged at Enron. He added that he was confident that an investigation into the off-balance sheet transactions at Enron had left little uncovered. 
Dynegy is able to walk away from the deal if Enron suffers more than $3.5bn in costs from shareholder lawsuits and other liabilities stemming from its disputed transactions, executives said. However, analysts questioned why, if Enron's core business was so strong, the company was being sold at such a discount. 
The deal could also face a tough review in Washington, given Dynegy's involvement as a big trader in many of the same markets where Enron is the dominant force. 
Antitrust experts said the deal might not get approval unless Enron can qualify as a "failing firm" under the Justice Department's 1992 merger guidelines. 
A failing-firm defence, used most recently by TWA when it was bought out by American Airlines in March, would require Enron to prove there was no other avenue - either through bankruptcy reorganisation or acquisition by a third company - which would allow it to remain a viable competitor. It would also have to show that, without the merger, it would completely exit the market altogether. 
Mr Watson also indicated that Dynegy would strip Enron's operations back to its core energy trading and pipeline businesses, raising the prospect of further significant sales and write-downs. 
"The $6.5bn of (international) assets on Enron's books will get marked down dramatically," said Mr Olson. "They also have to have a moment of truth with the assets in their telecommunications business." Of about $1bn in broadband, he expects Enron to write off about $600m in hard assets. 
Other energy trading firms said that they were moving to reduce their exposure to the company, as the InterContinental Exchange (Ice), Enron's online rival, revealed record trading volumes last week, its best in 13 months of operation. Report by Sheila McNulty in Houston; Julie Earle and Richard Waters in New York; Peter Spiegel in Washington See Lex. 
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Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

GLOBAL INVESTING - Spreading the risks - and the rewards.

11/13/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

Just as Enron is showing us how a public company should not shift private equity exposure off its balance sheet, Sandy Schwab, son of Charles Schwab, and Middlebury Capital, a New York-based hedge fund, are providing an alternative model. 
Mr Schwab's firm Chess Ventures is raising a private equity fund that will specialise in financial services technology, according to a source close to the fund-raising. The idea is to attract 10 to 12 banks from around the world to co-invest in technology companies specialising in financial services.
The idea is similar to the corporate venturing activities undertaken by a host of California technology companies. They jumped into venture capital in the late 1990s, not just because there seemed to be stacks of money to be made, but also so they could become partners to thrusting future competitors, rather than victims of their cutting-edge technology. 
Technology is also a vital business for financial services companies - and not just for those like Schwab with a heavy presence in internet trading. Every year, banks and brokers plough hundreds of millions of dollars into trading, settlement and risk management systems. 
But the problems with corporate venturing became clear when companies such as JP Morgan Chase, Wells Fargo, Dell and Intel registered significant earnings volatility as the value of their venture capital holdings was marked down significantly. 
Enron got around these problems by setting up an off-balance sheet vehicle with a number of additional investors. Its idea was to distance its earnings statement from volatile investments in the New Power Company and Rhythm NetConnections. But eventually, those investments came home to roost. 
Enron had to compensate it co-investors in the structure for their losses arising from its private equity investments, and paid a heavy price for the apparent subterfuge of keeping them out of the public view. 
The Schwab fund seems to offer the benefits of corporate venturing without some of its costs. The investors, who it is hoped will eventually contribute $100m to $150m to the new fund, will share the benefits of whatever technology is developed and they will probably also be the first customers of the companies they are sponsoring. 
But because they are all taking a relatively small part of the pie they should ameliorate their overall risk. 
Spreading the risks like this would be hard to pull off in a totally domestic structure. Corporate venturing is, after all, meant to give a company an edge over its competitors. 
But diversifying the fund internationally should allow the Chess fund to spread the risks. The fundraisers are talking to banks in the UK and Scandinavia, among other places. If the theories of growing European cross-border integration and competition come to fruition some of the bank co-investors might end up competing but in the meantime separating investors by geography seems like a safe bet. 
Schwab and the other investors could, of course, have put their money into other stand-alone venture funds. That would at least have solved the problem of keeping their volatile private equity exposure on balance sheet, but stand-alone funds with the sharp focus that a corporate venturing outfit has are fairly few and far between. 
Corporate venture capital groups, where the corporation involved is a strategic investor rather than just a speculator, are usually narrowly focused on their parent group's industry because they are in the business of helping their parent develop a strategic edge. A few venture firms focus very narrowly on enterprise software but often they want to keep their options to invest in, say, biotechnology, if that area suddenly looks promising. 
For non-strategic investors that approach has clear advantages. Technology investments have suffered over the last 18 months, while biotech investments have held up relatively well. If investors are right about the dramatic impact of information technology on biotechnology, investors in a general fund that has had the foresight to bet on those changes will probably do very well. 
But the Schwab approach is all about venturing as a way to extend research and development. Venturing can tap into the reserves of entrepreneurship that have served the US so well in the 1990s in a way that traditional research and development probably cannot. 
Entrepreneurship does, however, come at a price. Young companies can and do fail. Their values can swing wildly. 
An off-balance sheet approach with clear strategic benefits might allow companies to have their cake and eat it. 
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Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

COMMENT & ANALYSIS - Enron reaps the whirlwind.
By PETER MARTIN.

11/13/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

COMMENT & ANALYSIS - Enron reaps the whirlwind - The energy group succeeded brilliantly for a time by creating markets to trade risk, but ended up absorbing too much. 
Enron's fate is a test case for one of the current era's most powerful beliefs. Actively traded markets, says the new orthodoxy, will replace cumbersome monolithic businesses.
Electricity, computer chips, telecoms bandwidth, weather risks, petroleum products, reinsurance, housing finance, advertising space - the list of goods and services which the new market alchemy would transform is endless. 
Even 20 years ago, most of these commodities were exclusively handled through vertically integrated business empires. Some of them did not even exist as identifiable products, they were so tightly enmeshed with the business that produced and sold them. 
It all goes back to 1979. Together, the second oil shock and the election of Margaret Thatcher in Britain ushered in the market wave, forcing deregulation in the US oil and gas industries and a stream of utility privatisation. 
Enron, originally just a natural gas pipeline business, seized on the new opportunities - first in the US gas business, then in other areas of energy such as electricity, then in a much wider range of goods. 
It started trading these products and services as commodities. It was not an old-fashioned utility any more, but it was also more than a simple trader. 
Instead, as its former chief executive Jeffrey Skilling put it: "Enron's operations are built around the integration of modern financial technologies and physical technologies." It brought derivatives theory to boring old businesses like gas and electricity; and it brought a set of assets that could provide security of supply to the new dematerialised energy trading. 
We will come back to what went wrong at Enron later. But first notice how much went right in the newly market-oriented industries. Critics argued that an integrated business, tightly controlled from the centre, was essential for security of supply. But British electricity privatisation proved you could switch to a market-oriented system quickly and smoothly - and the lights stayed on. 
All you needed were proper regulations, a freely operating supply side and a bunch of active market-makers. These were not always present - for example, the absence of the first two gave California an electricity shortage. But if the markets were properly set up, everything worked like clockwork. 
The new era had a simple creed. Before there were effective markets, companies needed to be vertically integrated to cope with unexpected fluctuations in demand and supply. But now markets allowed them to handle that risk more efficiently, buying and selling what they needed. Trading exploded: Enron alone recorded revenues of over $100bn ( #68bn) in 2000. 
So what did go wrong? Enron expanded its markets too aggressively, moving far beyond energy through a web-based platform called EnronOnline. As Mr Skilling put it in an interview with BusinessWeek: "We're on the side of angels. We're taking on the entrenched monopolies. We're bringing the benefits of choice and free markets to the world." 
Expensively, Enron rushed into trading telecoms bandwidth, building a big network to ensure it could deliver a scale of demand that never materialised. 
Mr Skilling left abruptly in August, citing personal reasons. This autumn the company announced it had been engaging in transactions with supposedly independent entities that should, in fact, have been consolidated with its own accounts. Some of these were headed - in a clear conflict of interest - by its own chief financial officer. Correcting the accounting caused big restatements of earnings. 
This may, of course, just be the growing pains of an innovative but overly ambitious company. In that case, Enron may prosper under new ownership - it agreed to be taken over by Dynegy, a much smaller rival, on Friday. Dynegy will slash the range of Enron's activities to focus on energy. If the sale goes through, such an approach may restore Enron to health. 
But perhaps the Enron problems tell us something more significant about the rush to turn formerly integrated businesses into markets. 
To get these to work requires active market-makers like Enron. Creating liquidity in previously illiquid markets soaks up capital. Nalin Kulatilaka, professor of finance at Boston University's management school, has studied Enron for years. "The bottom line is that when the liquidity on the two sides of a market are very different," he says, "a company that tries to lead the way in creating these marketplaces is going to bear sustained liquidity risks." 
The risks that the old system had coped with by building a layer of inefficiency into its operations did not go away in the new market era. Enron knew all about these risks: managing them, through complex trades, was its essential skill. 
James Lam, founder of the consultancy eRisk, says: "Enron has always been recognised by other companies as best practice in risk management. It put in systems to manage risk on a real time basis, and had very strong management." 
But risk is a bit like a balloon. Squeeze it down in one area and it bulges out in another. Even if the operational risk was managed with great skill, the underlying riskiness of the strategy Enron was pursuing could not be wished away. Except, perhaps, by transactions that passed it on to outside entities. The problem was that those entities were not really outside at all. 
Despite Enron's problems, the shift to a market-based approach is now irreversible - for energy markets at least. Ed Krapels, who runs Energy Security Analysis in Boston, says: "Clearly Enron's trading culture has been adopted by every one of the big oil companies except Exxon." 
But, he adds, there is a big difference between companies with trading at their core, like Enron and Dynegy, and those that have added a trading approach to a business fundamentally based on physical assets, such as BP. The leverage and aggression in such businesses is much lower. 
Dynegy's rescue of Enron was only made possible by an injection of cash from ChevronTexaco, which owns 26 per cent of Dynegy's shares. Call it the revenge of the entrenched monopolies. Energy markets may not be as efficient without an aggressive Enron. But if they come back into the embrace of the big physical operators, they may cope a little better with the unpredictable riskiness of the real world. 
peter.martin@ft.com. 
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Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Business; Financial Desk
Andersen Could Face SEC Sanction, Suits Over Enron Accounting Error
Bloomberg News

11/13/2001
Los Angeles Times
Home Edition
C-7
Copyright 2001 / The Times Mirror Company

HOUSTON -- Arthur Andersen may face U.S. Securities and Exchange Commission sanction and shareholder lawsuits because it certified Enron Corp. financial reports that the company disavowed last week as inaccurate, legal and accounting experts said. 
Andersen, the world's fifth-largest accounting firm, served as Enron's outside auditor for more than a decade. Last week, the company reported that it overstated earnings by $586 million over 41/2 years, inflated shareholder equity by $1.2 billion because of an "accounting error," and failed to consolidate results of three affiliated partnerships into its balance sheet.
Enron restated its financial reports as the company suffered a cash crisis triggered by disclosure of the cut in shareholder equity and the start of an SEC investigation. 
"I'd be very surprised if the SEC didn't go after Arthur Andersen," said Alan Bromberg, securities law professor at Southern Methodist University. 
Andersen partner David Tabolt has said the firm is cooperating with a special committee of Enron's board of directors appointed to investigate the accounting problems. 
Lynn Turner, who was the SEC's chief accountant for three years until he resigned in August, said Enron and Andersen ignored a basic accounting rule when they overstated shareholder equity. 
Explaining the equity reduction last week, Enron said it had given common stock to companies created by Enron's former chief financial officer in exchange for notes receivable, and then improperly increased shareholder equity on its balance sheet by the value of the notes. 
"What we teach in college is that you don't record equity until you get cash for it, and a note is not cash," said Turner, who is now director of the Center for Quality Financial Reporting at Colorado State University. 
"It's a mystery how both the company would violate, and the auditors would miss, such a basic accounting rule, when the number is $1 billion."

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


Investors upbeat about merger between Dynegy and Enron
By JUAN A. LOZANO
Associated Press Writer

11/13/2001
Associated Press Newswires
Copyright 2001. The Associated Press. All Rights Reserved.

HOUSTON (AP) - While troubled Enron Corp. brings a certain amount of financial baggage in its union with rival Dynegy Inc., the merger will create a new company that while strong won't dominate the energy market, according to several analysts. 
But others still expressed concerns with the deal between the two Houston-based companies, citing strategic and cultural differences between the two companies and potential antitrust issues.
Meanwhile, investors on Monday gave a tentative thumbs up to the merger. Dynegy shares rose $5.55, or 14 percent, to close at $44.31, while Enron shares were up 61 cents, or 7 percent to $9.24 on the New York Stock Exchange. 
Enron's financial crises had left many fearing severe disruptions in the energy market, Daniel Ford, an analyst with Lehman Brothers wrote Monday in a research note to clients. 
"We believe the terms of the announced merger agreement are a path to resolving these fears," Ford wrote. 
Duane Grubert, an analyst with Sanford C. Bernstein and Co., said any antitrust concerns that might arise from the deal will be minimal because the energy market will be able to absorb the new company's impact. 
"While there is risk, the prize is so big the parties will go through it and the deal will ultimately close," Grubert said. 
But Carol Coale, an analyst with Prudential Securities Inc., wrote in a research note to clients she had several concerns about the deal, including whether Dynegy will be successful in retaining Enron's "talented" energy trading and marketing personnel and whether both companies have compatible trading strategies. 
Dynegy officials said Monday the proposed deal was "doable," would clear all antitrust hurdles and be completed within nine months. 
"What we have done is literally taken the worst case (scenario) and even in the worst case there is a lot of economic value for both companies," said Chuck Watson, chairman and chief executive officer of Dynegy, during a conference call Monday. 
The deal, worth at least $9 billion, was announced Friday. Dynegy will also assume $13 billion of Enron debt. The Enron name will disappear. 
Under the deal, ChevronTexaco Corp., which owns more than a quarter of Dynegy, would immediately provide about $1.5 billion. ChevronTexaco would contribute an additional $1 billion upon completion of the deal. 
Dynegy's earnings for 2002, before the merger, were expected to range between $2.50 and $2.60. The buyout now raises that to between $3.40 and $3.50, said company spokeswoman Jennifer Rosser. 
According to Thomson Financial/First Call, analysts were expecting Dynegy to earn $2.57 a share next year. 
Dynegy officials pledged Monday that they won't tolerate the sort of financial practices that prompted Enron to acknowledge last week that it overstated earnings by about 20 percent since 1997. 
Those financial practices included business partnerships now under investigation by the Securities and Exchange Commission. 
Enron, the nation's top buyer and seller of natural gas reported a $618 million third quarter loss on Oct. 16 and disclosed a $1.2 billion reduction in shareholder equity related to the partnerships. Worries about Enron's financial stability eventually caused shares to plunge 80 percent, leaving Enron open for a takeover bid. 
Officials with both companies said if for some reason the deal falls through, Dynegy will be given Enron's Northern Natural Gas pipeline in compensation for the $1.5 billion cash infusion Enron received. 
The agreement also has a clause that would allow Dynegy to opt out of the deal if Enron's litigation and other costs surpass $3.5 billion, Dynegy officials said Monday. 
--- 
On the Net: 
http://www.enron.com 
http://www.dynegy.com

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

WORLD STOCK MARKETS - Dow sinks in wake of New York jet crash.
By MARY CHUNG.

11/13/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

US equities fell sharply in morning trading after an American Airlines jet crashed near New York's JFK airport, sparking a nervous selloff on Wall Street. 
Two months after the September 11 terrorist attacks in the US, the markets were again deeply nervous. A positive opening quickly evaporated following news of the crash, which renewed concerns about safety in the airline industry.
By midsession, the Dow Jones Industrial Average was down 166.20 to 9,441.80 while the S&P 500 index fell 15.93 to 1,104.38. The Nasdaq Composite lost 23.23 to 1,805.25. 
After an initial selling spree, stocks trimmed some of their losses as investors anxiously awaited details to determine the cause of the crash. "This just knocked the wind out of the market," said Christopher Wolfe, US equity strategist at JP MorganChase. "If it's deemed to be an accident, the stock market will respond better." 
The airline industry took a sharp hit as the Amex airline index tumbled 7 per cent at $64.25. 
Shares in AMR Corp, the parent of American Airlines, gave up 13.3 per cent at $15.72 while Northwest fell 6 per cent at $12.75. Hotel and other travel-related companies were also lower as Carnival Corporation fell 4.4 per cent at $23.09 and Starwood Hotel and Resorts shed 4.5 per cent at $23.12. 
Aircraft maker Boeing fell 2.4 per cent at $32.43 and United Technologies lost 4 per cent at $54.69. Shares in Honeywell and General Electric were off 5.5 per cent and 4.2 per cent, respectively. All other Dow components were also trading lower. 
Dynergy jumped 13 per cent at $43.84 after the energy trading company agreed to acquire its larger rival Enron in an $8bn rescue deal. Enron rose 11 per cent at $9.59. Other energy stocks traded lower. Exxon Mobil fell 1.6 per cent at $39.60. 
Ciena Corp gained 10 per cent at $18.94 after the fibere-optic networking equipment maker said it would meet or top fourth-quarter sales forecasts. The company also said it would cut 380 jobs, or 10 per cent of its workforce. 
Cisco Systems fell 2 per cent at $18.84 while Juniper Networks added 2.6 per cent at $24.06. Shares in Intel retreated 1.4 per cent at $27.50 and Microsoft dipped 0.6 per cent at $64.80. 
Insurance companies were mostly lower with Conseco down 3 per cent at $3.86 and Metlife off 0.7 per cent at $27.34. 
Toronto picked up from early lows, but remained under pressure. By midsession, the S&P 300 composite index was still nursing a loss of 0.6 per cent at 7,163.90. Trade, however was thin with many investors absent for the Remembrance Day holiday. 
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Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Business
Dynegy seen as winner in Enron deal ; Firm gets rights to key pipeline
Melita Marie Garza, Tribune staff reporter

11/13/2001
Chicago Tribune
North Sports Final ; N
1
(Copyright 2001 by the Chicago Tribune)

Shares of Dynegy Inc. shot up 14 percent on Monday as investors calculated that the Houston-based power-trading company will win big whether or not regulators approve its blockbuster merger with hometown rival Enron Corp. 
Under terms of the deal, Dynegy executives said in a conference call with analysts on Monday, their company will get rights to Enron's prized Northern Natural Gas pipeline in return for $1.5 billion invested in Enron. Moreover, the deal calls for Enron to pay Dynegy $350 million if Enron walks away to accept a higher bid from another company.
Particularly lucrative for Dynegy, analysts said, are the rights it obtained to acquire the Northern Natural Gas pipeline. The pipeline is an interstate transmission system, providing transportation among other supply conduits and serving customers in the upper Midwest through a 17,000-mile network. 
For this and other reasons, Dynegy stock closed at $44.31, up $5.55, on the first trading day after the $24 billion merger deal was announced. 
Enron, the nation's largest trader of natural gas and electricity, has been bowed in recent weeks by soured transactions with energy partnerships run by one of its former executives and by a revelation about questionable accounting practices. Enron last week was forced to revise down its earnings for the past five years and has seen its debt ratings downgraded and its stock price plummet. 
But Chuck Watson, Dynegy's chief executive, said during the conference call that he did not anticipate any more nasty surprises arising from Enron's convoluted books. "We literally have taken what we think is the worst case scenario," Watson said. "I'm comfortable that even in that case this is a very, very good economic transaction for both companies." 
Dynegy executives estimated an annual earnings-per-share growth of 15 percent to 20 percent for the combined company over the next three years. 
Under the stock-for-stock-swap portion of the deal, valued at $8.85 billion, Dynegy is paying the equivalent of $10.41 a share for the 850 million outstanding Enron shares. Dynegy would pay .2685 shares of its stock for each share of Enron. In addition, Dynegy agreed to assume an estimated $13 billion in debt. 
It is conceivable that additional problems with Enron's off- balance sheet partnerships could kill the proposed deal between the two power-trading rivals. 
But on Monday, Kenneth Lay, Enron's chief executive, said: "We don't have anything we are trying to hide. On the contrary, we have been very forthcoming of everything we have found. We have disclosed anything and everything that we have found so far." 
Despite its sanguine outlook on the deal, Dynegy officials acknowledged that they have escape clauses in their offer. For example, Dynegy can renege on the deal if pending litigation against Enron, which includes a slew of lawsuits filed by disgruntled investors who have lost millions of dollars, exceeds $3.5 billion in costs. 
Since last Wednesday, when Dynegy shares closed at $33, the stock has risen more than 33 percent. After rumors began swirling last Thursday that it was in talks with Enron, its shares rose to $36.50. On Friday, after making the bid for Enron, its shares closed at $38.76, for a rise of 17.5 percent in two days of trading. 
By comparison, Enron stock rose 7.1 percent, to $9.24, on Monday and has risen only 2 percent since last Wednesday. 
Dynegy officials on Monday also sought to quell rumors that the deal was greased because Enron owed Dynegy money. In fact, "Dynegy currently owes Enron...less than $50 million," said Rob Doty, chief financial officer of Dynegy.

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


UK: Innogy restarts energy trading with Enron.

11/13/2001
Reuters English News Service
(C) Reuters Limited 2001.

LONDON, Nov 13 (Reuters) - British power company Innogy on Tuesday said it had resumed trading with crisis-hit U.S. energy group Enron after a 14-day cessation. 
In the first confirmation that it had stopped trading with the U.S. group, Innogy said in a statement "the situation now seems to have been resolved and business will resume".
Innogy said there had been little impact on it as a result of the suspension of trading. 
But industry experts said the implications for Enron could be larger because a number of large European energy groups suspended dealings with it at the end of last month. 
Enron ran into a crisis of investor confidence in mid-October when it disclosed previously unbooked charges, and is now the object of a $9 billion rescue takeover offer from smaller rival Dynegy .

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

Report on Business: International
Enron, Dynegy shares climb Industry observers give takeover bid mixed reviews
JANET McGURTY
Reuter News Agency

11/13/2001
The Globe and Mail
Metro
B15
"All material Copyright (c) Bell Globemedia Publishing Inc. and its licensors. All rights reserved."

NEW YORK -- Shares of Enron Corp. climbed higher yesterday on investor enthusiasm over last week's $9-billion (U.S.) bid by rival energy trader Dynegy Inc. to take over the beleaguered energy giant. 
Dynegy gained $5.55, or 14.3 per cent, to $44.31 on the New York Stock Exchange, while shares of Enron rose 69 cents, or 8 per cent, to $9.32. The takeover announced Friday halted a free-fall in Enron's stock that lost about 75 per cent of its market capitalization in the past month.
However, Enron's stock was trading well below the value of Dynegy's offer of 0.2685 Dynegy shares for each Enron share, which translates into $11.94 a share. Analysts said this likely reflected doubts in some investors minds as to whether the deal, which includes "escape clauses" for Dynegy, will go through. 
Some industry analysts said they were impressed by the upfront details offered by Dynegy during a conference call with analysts, an about-face compared with calls with Enron. A lack of transparency from Enron about its off-balance-sheet transactions, along with a U.S. regulatory investigation, had sparked widespread investor unease. 
"I would say that after listening to the conference call, I am even more comfortable with my initial judgment that the projections are conservative," said Jay Yannello, an analyst with UBS Warburg. 
Earlier, Mr. Yannello reiterated a "strong buy" on Dynegy, saying while the brokerage does not underestimate the enormous challenge at hand, the takeover should yield the biggest and most credible energy merchant in the world. Dynegy is about one-fifth the size of Enron when measured by revenues. 
Enron's woes came to light in mid-October after the biggest energy trader in North America disclosed that some of its off-balance-sheet partners contributed to a $1-billion charge and a $1.2-billion reduction in shareholder equity. 
The takeover is an attractive transaction because of Enron's trading operations, which combined with Dynegy's above-board culture based on teamwork, strict values and honesty, should yield a formidable company, Mr. Yannello said. 
However, last week some antitrust lawyers said the deal will be closely examined by the Federal Trade Commission because of the combined company's market share in energy trading, said Steve Newborn, formerly in charge of FTC merger enforcement. 
Gordon Howald, an analyst at Credit Lyonnais Securities, said he is favourably disposed toward the takeover, which he called a "low risk-high reward proposition." 
The most critical component is the immediate $1.5-billion equity infusion by Dynegy shareholder ChevronTexaco Corp. into Enron that will bolster Enron and help keep it viable. 
Some analysts are less sanguine. They said Dynegy is making a big bet that it can successfully clean up Enron's balance sheet problems as well as integrate its trading and marketing business without losing a lot of key traders and volumes.

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

City - City Comment - Enron's end provides textbook disaster study.

11/13/2001
The Daily Telegraph
P40
(c) Telegraph Group Limited, London, 2001

A YEAR ago Enron, North America's biggest natural gas and power business with a growing European presence, chalked up $101 billion in revenues and saw its market value reach the giddy heights of almost $80 billion. 
Yesterday it was coming to terms with being part of Dynegy, its junior rival in Houston, taken out at a price which just allows it to escape the ignominy of the 90pc club. In less than three weeks the one-time Wall Street darling has been humbled by a sequence of events that stunned the market and will provide business schools with a classic casebook disaster study.
The Enron demise is one which cannot be blamed on the events of September 11. A third-quarter loss, followed by an equity write-down, the disclosure of questionable off-balance-sheet businesses, an admission that earnings have been over-stated and a Securities and Exchange Commission investigation brought Enron to the brink of collapse. 
Ken Lay, its chairman, had taken full advantage of market deregulation to build Enron into a multi-national utility with a network of power plants, gas pipelines and a powerful trading presence, in everything from energy to metals. It trades these from an office in Victoria which employs 2,000 people, and Mr Lay might have wondered rather earlier how this army of people could possibly pay for themselves, even in his brave new deregulated world. 
Now Dynegy has picked up Enron cheaply, and must find its way off debt mountain before the financial weather gets worse. The new group has sales of more than $200 billion, and assets in the books at $90 billion. A fire sale is inevitable, including that of Wessex Water, sold to Enron for $1.4 billion three years ago. It will probably not fetch more than $400m today, and even at that price is not obviously cheap.

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

Financial
Stocks Steady After Scare
Associated Press

11/13/2001
The Washington Post
FINAL
E03
Copyright 2001, The Washington Post Co. All Rights Reserved

NEW YORK, Nov. 12 -- A jetliner crash in New York today gave Wall Street a sharp reminder that more terrorist attacks are possible and prompted shaken investors to refrain from any major moves. The stock market ended the day mixed, recovering from a steep drop as news reports indicated terrorism did not appear to be the cause of the crash. 
"Fears are running high," said Alan Ackerman, executive vice president of Fahnestock & Co. "We're dealing with a bruised U.S. psyche, whether it is at the consumer level or the investor level."
The Dow Jones industrial average closed down 53.63, or 0.6 percent, at 9554.37, after dropping as much as 198 in very early dealings. The American Airlines plane crashed at 9:17 a.m. EST, 13 minutes before the stock market opened. 
The Nasdaq composite index rose 11.65, or 0.6 percent, to 1840.13, having been down as much as 42. The Standard & Poor's 500-stock index slipped 1.98, or 0.2 percent, to 1118.33, having declined as much as 21. 
The cause of the crash, which occurred near Kennedy Airport, was not immediately known. But some investors, worried that it might have been the result of a terrorist attack, began selling immediately. By early afternoon the market had recovered much of its losses as reports indicated that terrorists were probably not involved. 
Analysts were encouraged by the market's recovery, especially since stocks were expected to pull back after rallying for several weeks. 
"It's pretty impressive -- the market's resiliency -- especially after last week's advance," said Jon Brorson, director of equities at Northern Trust. 
Among Wall Street's biggest losers were airlines and the companies that supply them. American's parent AMR fell $1.64, to $16.49, and Delta sank $2.72, to $23.27. 
General Electric, which made the engines in the plane that crashed, fell 98 cents, to $39.43. United Technologies, also a supplier of jet engines, tumbled $1.76, to $55.30. 
Leisure-related stocks also suffered as investors worry that skittish consumers will take fewer vacations. Marriott International declined $1.50, to $32.50, and Expedia, an online travel agent, tumbled $1.26 to $29.96. 
Gainers included companies that initiated cost-cutting measures or indicated business could be improving. Optical networker Ciena rose $1.65, to $18.83, after reaffirming fourth-quarter earnings expectations in line with analysts' forecast and announcing 380 job cuts. 
Energy companies Dynegy and Enron traded higher on news of their merger. Dynegy surged 14 percent, up $5.55 at $44.31, while Enron gained 61 cents, or 7 percent, to $9.24. On Thursday, Enron announced it would restate its earnings since 1997, in part to reflect a controversial $1.2 billion reduction in shareholder equity that has led to a Securities and Exchange Commission investigation. 
Other Indicators 
* The New York Stock Exchange composite index fell 1.49, to 569.12; the American Stock Exchange index fell 2.07, to 824.77; and the Russell index of 2,000 small stocks rose 2.38, to 440.48. 
* Declining issues narrowly outnumbered advancing ones on the NYSE, where trading volume fell to 1.01 billion shares, from 1.11 billion on Friday. On the Nasdaq, advancers narrowly outnumbered decliners and volume totaled 1.57 billion, up from 1.53 billion. 
* Government bond markets were closed for Veterans Day. 
* The dollar rose against the Japanese yen and the euro. In late New York trading, a dollar bought 120.53 yen, up from 120.32 yen late Friday, and a euro bought 89.36 cents, down from 89.38 cents. 
* Light, sweet crude oil for December delivery settled at $21.23 a barrel, down 99 cents, on the New York Mercantile Exchange. 
* Gold for current delivery rose to $278.30 a troy ounce, from $277.40 on Friday, on the New York Mercantile Exchange's Commodity Exchange.


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Tata Power, BSES keen to buy 85 pct stake in Enron unit Dabhol Power - IDBI

11/13/2001
AFX News
(c) 2001 by AFP-Extel News Ltd

BOMBAY (AFX-ASIA) - Tata Power Co Ltd and BSES Ltd have expressed interest in acquiring the 85 pct stake held by Enron Corp and its associates in Dabhol Power Company, a statement released by the Industrial Development Bank of India (IDBI), the lead lender to the project, said. 
"Both BSES Ltd and Tata Power have expressed deep interest to purchase the 85 percent shareholding held by Enron and its associates. They would also like to conduct due diligence of the project," the statement said.
It also said lenders and owners of Dabhol Power held a three-day meeting last week in Singapore that was "fruitful and expected to pave the way towards the solution for the various issues." 
Enron, along with the Maharashtra State Electricity Board (MSEB) and the state government, had jointly set up the Dabhol power plant, which stopped generating electricity after MSEB failed to pay for power from the 1,284 megawatt project. 
Dabhol Power had served an "asset transfer notice" to the MSEB for the valuation of the company's assets in order to sell them off. rc/ For more information and to contact AFX: www.afxnews.com and www.afxpress.com

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

India's Tata group, BSES keen to acquire 85 percent of Enron India unit

11/13/2001
Agence France-Presse
(Copyright 2001)

BOMBAY, Nov 13 (AFP) - Indian power generation companies Tata Power Co. Ltd and BSES Ltd. have expressed interest in acquiring the 85 percent stake held by Enron Corp. and its associates in the controversial Dabhol Power Company in western India. 
"Both BSES Ltd. and Tata Power have expressed deep interest to purchase the 85 percent shareholding held by Enron and its associates. They would also like to conduct due diligence of the project," said a statement Tuesday by the Industrial Development Bank of India (IDBI), the lead lender to the project.
The statement also said lenders and owners of Dabhol held a three- day meeting last week in Singapore that was "fruitful and expected to pave the way towards the solution for the various issues." 
US-based Enron has said expects about one billion dollars for the stake. 
Enron, along with the Maharashtra State Electricity Board (MSEB) and the state government, had jointly set up the power plant in the western state, which stopped generating electricity after MSEB failed to pay for power from the 1,284 megawatt project. 
Dabhol Power has served an "asset transfer notice" to the MSEB for the valuation of the company's assets in order to sell them off. 
IDBI and other lenders such as the State Bank of India, ICICI Ltd. and IFCI Ltd. have lent more than 60 billion rupees (1.25 billion dollars) to the project and filed a lawsuit against Dabhol to ensure they get their funds back. 
jds/sct

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

BSES seeks mega project status for Dabhol
Our Bureau Mumbai

11/13/2001
Business Standard
4
Copyright (c) Business Standard

Power major BSES, which has evinced keen interest in acquiring a 85 per cent stake in the Dabhol Power Company (DPC), has sought mega power project status for the Dabhol project. 
"We have suggested this as one of the measures for bringing down the capital cost of the project which, in turn, will translate into lower tariffs. This has been mooted by us at various meetings with the government as well as in the recent meeting with lenders at Singapore," R V Shahi, chairman and managing director, BSES.
The conferring of such a status will enable the project to bag a slew of tax concessions including reduction in customs duties. It will also enable the plant to sell power across states. 
Global energy major Enron which holds 65 per cent stake in DPC has decided to exit the power project along with its two US partners General Electric and Bechtel who hold 10 per cent each. BSES as well as Tata Power have evinced keen interest in this stake. 
BSES is planning to conduct due diligence through an internal task force which will be assisted by a group of consultants. 
It is official now that the two parties have evinced interest in acquiring a 85 per cent stake in the project. The Industrial Development Bank of India has officially acknowledged for the first time that the issue was discussed at last week's meeting of lenders at Singapore. 
The institution has said in a press release, " The issues discussed at the meeting included completion of Phase-II of the project and the cost thereof, sale of shareholding by Enron Corporation, US, Bechtel Enterprises Inc, US, and General Electric, US, in DPC (aggregating 85 per cent of total capital) to either of the prospective new sponsors viz. BSES and Tata Power. The meetings were fruitful and are expected to pave the way towards the solution to the various issues faced by DPC." 
At the meeting in Singapore both the prospective sponsors evinced keen interest in the purchase of Enron and its associates' shareholdings and discussed in detail with IFIs as well as Enron, several issues relating to the project which would have an impact on the pricing of the shares. 
Towards this end, brief features of the incentive package prepared by a committee appointed by Centre for the purpose, were discussed. The officials of DPC/Enron also clarified various technical and operational issues, which would need to be resolved for smooth transfer of management and successful operation of the plant by the new sponsors.

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

Dynegy's Plan to Acquire Enron in Deal Valued at $10.12 Billion Boosts Shares

11/12/2001
Dow Jones Business News
(Copyright (c) 2001, Dow Jones & Company, Inc.)

The shares of Enron Corp. and Dynegy Inc. both rose in heavy trading as investors began trying to digest the possible risks and rewards of Dynegy's plan to acquire Enron in a stock swap with a current value of $10.12 billion, The Wall Street Journal reported. 
In calls and meetings with analysts Monday, Dynegy Chairman Chuck Watson and Enron Chairman Kenneth Lay continued talking up the deal that was announced late Friday. "We are confident this is good strategically and financially for Dynegy and Enron," said Mr. Watson, who will serve as chairman and chief executive of the combined entity, to be called Dynegy Inc.
While the proposed combination faces months of review by government agencies and gives Dynegy possible opportunities to cancel the deal, investors' initial reaction to the merger announcement was positive. As of 4 p.m. in New York Stock Exchange composite trading Monday, Dynegy (DYN) shares were at $44.31, up $5.55, or 14%. Also on the Big Board, Enron (ENE) was at $9.24, up 7.1%, or 61 cents. Both companies were among the most actively traded issues. 
Under terms of the proposed acquisition, Dynegy would give 0.2685 of its shares for each Enron share. Based on Dynegy's stock price Monday, this formula values Enron stock at $11.90 each. Enron has about 850 million shares outstanding. 
Some people raised cautionary notes Monday. Moody's Investors Service placed Dynegy on review for a possible credit-ratings downgrade. Standard & Poor's made a similar move on Friday. Moody's said that while it saw positive elements to the proposed combination, it also believed "the financial and business risks associated with the transaction could negatively impact Dynegy's credit fundamentals." 
Prudential Securities analyst Carol Coale, who counts herself a fan of Dynegy, also worries that Enron's enormous problems could be a drag on the combined entity. "I don't want the Dynegy folks to get into something that's not good for the company," she said. 
Enron in the past several weeks has seen its stock price and standing in the investment community plummet, largely as the result of large-scale transactions it did with partnerships headed by Enron officers. Those transactions have produced hundreds of millions of dollars of write-offs and restatements in the past month. They are being investigated by the Securities and Exchange Commission and have helped spawn more than a dozen shareholder lawsuits. 
Copyright (c) 2001 Dow Jones & Company, Inc. 
All Rights Reserved.

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

USA: DynegyDirect, EnronOnline to trade separately for now.
By Gelu Sulugiuc

11/12/2001
Reuters English News Service
(C) Reuters Limited 2001.

NEW YORK, Nov 12 (Reuters) - Online energy trading leader EnronOnline will merge with smaller rival DynegyDirect after its parent company Enron Corp. agreed last week to a $9 billion takeover by Dynegy Inc. , Dynegy said Monday. 
The integration of the two platforms will take about six to nine months, Dynegy said. In the meantime, the two will continue to operate separately.
"We're looking to take the best of both platforms for the integrated company," said Dynegy spokesman John Sousa. "(The emerging platform) will continue to be based on a one-to-many philosophy as it stands now." 
On both EnronOnline and DynegyDirect traders can only deal with Enron and Dynegy, respectively. 
EnronOnline is the biggest online energy trading platform in the United States, with a daily average of $2.6 billion in trades in the past month. 
DynegyDirect is a much smaller, though growing platform. It recorded nearly $10 billion in transactions in the third quarter. 
The two platforms offer trading in hundreds of products and services, from crude oil and refined products, to natural gas and electricity. Most of the trading is done in U.S. markets, but some European markets are available as well. 
Enron, currently North America's biggest buyer and seller of both natural gas and electricity, agreed to a Dynegy buyout after it was overwhelmed by a series of problems, including a U.S. regulatory probe into the off-balance sheet dealings, a $1.2 billion cut in shareholder equity and damaging credit rating downgrades. 
However, Dynegy can drop its offer if more bad news emerges, or if pending lawsuits against Enron lead to more than $3.5 billion in costs. 
Dynegy also expressed confidence the takeover will win U.S. regulatory approval and said it does not expect any antitrust concerns to impede the merger of the two electronic platforms. 
Dynegy shares gained $5.55, or 14.3 percent, to $44.31 on the New York Stock Exchange, while shares of Enron rose 61 cents, or 7 percent, to $9.24. 
The takeover halted a free-fall in Enron's stock that lost about 75 percent of its market capitalization in the past month.

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

Dynegy Bid for Enron Doesn't Calm Credit Concerns, Traders Say
2001-11-12 17:49 (New York)

Dynegy Bid for Enron Doesn't Calm Credit Concerns, Traders Say

     New York, Nov. 12 (Bloomberg) -- Some energy traders said
they are still wary of business with Enron Corp., which has agreed
to be bought by rival Dynegy Inc. for about $23 billion in stock
and assumed debt.

     ``We're continuing to trade with them on a very limited
basis, and we'll continue to do so until the proposed Dynegy
buyout develops further,'' said James Peters, a spokesman for
energy trader Mirant Corp.

     Traders had scaled back business with Enron recently. Before
today, its stock had plummeted 90 percent this year. The biggest
energy trader faced a cash crunch and a loss of investor
confidence because of questions about partnerships it started and
put under the control of its senior executives. Investors feared
the company was using the partnerships to hide losses and debt.

     Dynegy said late Friday it agreed to buy Enron for about
$8 billion in stock and $15 billion in assumed debt. A quick end
to Enron's woes is far from assured because the company still is
facing scrutiny from securities, antitrust and energy-market
regulators, executives said.

     ``Our credit guys are a still a little nervous'' about
dealing with Enron, said Michael Steffes, vice president of
marketing and trading at Indianapolis-based Aces Power Marketing
LLC, which buys and sells power on behalf of electric cooperatives
in the U.S. Midwest. ``They're relieved that something's happened,
but they haven't changed their tack.''

     Two weeks ago, closely held Aces decided to halt trading
electricity contracts stretching out two to 10 years with Enron,
Steffes said. On Friday, it limited trading to same-day or next-
day purchases or sales. The company has no plans to lift those
restrictions now, Steffes said.

                           Credit Rating

     Many traders would have banned business with Enron if its
credit rating had been downgraded to junk, industry officials
said. As a result, there would have been fewer willing buyers and
sellers in the energy markets, making trades more difficult to
complete. Moody's Investors Service on Friday lowered its rating
on Enron's long-term debt to ``Baa3,'' one notch above junk.

     Some gas distributors in the northern U.S. that have long-
term natural-gas supply contracts with Enron were lining up
alternate suppliers, according to Gelber & Associates Corp., an
energy-trading adviser in Houston. The companies didn't want to
take any chances of an Enron default that might leave them short
of gas during the peak of the winter heating season.

                        `No Clear Sailing'

     ``You just have to be cautious until there's clear sailing,''
said Charlie Sanchez, energy-markets manager at closely held
Gelber. ``There's no indication that there's clear sailing here.''

     Some companies that had reduced their dealings with Enron in
recent weeks said the merger announcement had helped ease their
credit concerns. Spinnaker Exploration Co., a gas and oil producer
which had ``lightened up'' its trading with Enron, is now willing
to consider new deals, Chief Executive Officer Roger Jarvis said.

     ``The merger makes me feel a lot more comfortable'' about
doing business with Enron, Jarvis said. ``I don't think there is
anything wrong with the Enron trading franchise. This is a very
good outcome for them and for the gas business in general.''

     Shares of Dynegy surged $5.55, or 14 percent, to $44.31 after
Chief Executive Officer Chuck Watson told investors the Enron
purchase will boost profit by 35 percent next year. Enron rose 61
cents to $9.24. Dynegy, Enron and Spinnaker are based in Houston.

     EnronOnline, the  Internet trading system, expected more than
5,000 transactions today, a 25 percent increase over Thursday and
Friday, spokesman Eric Thode said. That's 11 percent below the 30-
day average of about 5,600.

     Atlanta-based Mirant is moving to woo long-term Enron
customers still nervous by the firm's credit downgrades.

     ``The market's a lot bigger than Enron,'' Peters said. ``This
merger allows Mirant to step up its marketing to long-term
customers who have recently been served by Enron.''

--Bradley Keoun in New York, (212) 318-2310 


USA: UPDATE 1-EOTT Energy Q3 net up, sees weaker 2001 profits.

11/12/2001
Reuters English News Service
(C) Reuters Limited 2001.

HOUSTON, Nov 12 (Reuters) - Crude oil marketer and transporter EOTT Energy Partners L.P. said on Monday that third-quarter profits rose on added benefits from a recent acquisition, but said full-year profits will fall below estimates due as market conditions in the current quarter are weaker than previously anticipated. 
Houston-based EOTT reported third-quarter net income of $7.4 million, or 26 cents a share, compared with net income of $3.9 million, or 14 cents a share, in the same quarter last year.
EOTT, which set a recapitalization plan earlier this year, said revenues for the quarter of $2.3 billion, lower than $3.1 billion in the prior-year quarter. 
EOTT said it expects to report earnings of between 90 and 94 cents per share for 2001 on weaker-than-expected fourth-quarter market conditions in its crude marketing and pipeline operations. The estimates include a gain of 4 cents per share related to an accounting change recorded in the first quarter. 
Wall street analysts had been expecting the company to earn in the range of 80 to 95 cents per share with a consensus of 89 cents per share, according to estimates from research firm Thomson Financial/First Call. 
EOTT Energy Partners' general partner, EOTT Energy Corp., is a wholly-owned subsidiary of beleagured trading giant Enron Corp. . 
Shares of EOTT Energy Partners closed Monday trading on the New York Stock Exchange at $19.55 During the third quarter, the stock rose almost 8 percent, while the benchmark Standard & Poor's 500 index fell nearly 15 percent in the same period.

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

Dynegy to Ask J.P. Morgan, Salomon to Reduce $90 Mln Enron Fee
2001-11-12 17:35 (New York)

Dynegy to Ask J.P. Morgan, Salomon to Reduce $90 Mln Enron Fee

     New York, Nov. 12 (Bloomberg) -- Charles Watson, chief
executive officer of Dynegy Inc., wants J.P. Morgan Chase & Co and
Salomon Smith Barney to accept less than the $90 million they
charged Enron Corp. for merger advice.

     ``It sounds a little high,'' said Watson, whose company
agreed on Friday to acquire Enron for $23 billion in stock and
debt. ``If the fees are exorbitant, I'm going to realign them to
where I think they should be.''

     Salomon and J.P. Morgan Chase may balk at giving up fees that
people familiar with the transaction said were $45 million each
during a year when merger business has plunged 50 percent, bankers
said. The payout is the largest for advising a company to be
acquired this year, according to data compiled by Dealogic.

    ``In the current environment, investment banks will be torn
between trying to hold onto fees they've already negotiated and
trying not do anything that would cut into fees in the future,''
said Brian Sullivan, managing partner for financial services at
Heidrick & Struggles Inc., a recruitment firm.

     J.P. Morgan Chase spokeswoman Kristin Lemkau and Salomon
Smith Barney spokesman Duncan King declined to comment.

     While Salomon and J.P. Morgan Chase negotiated their fees
with Enron, Watson is hoping the firms will accept less in
exchange for the promise of future business. The fees for each
bank are three times the $15 million Dynegy is paying its adviser,
Lehman Brothers Holdings Inc., according to people familiar with
the situation. Lehman spokeswoman Hannah Burns declined comment.

                            Record Fees

     The fees may be higher in part because Salomon and J.P.
Morgan Chase also agreed to extend $1 billion in credit to restore
investor confidence. J.P. Morgan Chase and Salomon also offered to
invest another $500 million in the combined company, said people
familiar with the transaction.

     ``Maybe there were extenuating circumstances, related to
financing,'' said Tom Burnett, president of Merger Insight, an
affiliate of Wall Street Access Inc.

     Watson said that unlike Enron, which was forced to restate
earnings for the past four-and-a-half years and reduce earnings by
$586 million, Dynegy didn't face a cash shortage and so was
unlikely to sell an equity stake to Salomon and J.P. Morgan Chase.

     ``I don't want or need their money,'' Watson said today in an
interview. The two banks' terms for any investment probably would
be ``too expensive,'' he said.

     Enron's cash needs until the merger closes, projected in the
third quarter of next year, will be met by the transfer tomorrow
of $1.5 billion from ChevronTexaco Corp., the largest shareholder
in Dynegy, and the $1 billion credit line from J.P. Morgan Chase
and Salomon, said Robert Doty, Dynegy's chief financial officer.

     The largest previous investment banking fee for a takeover
announced this year was a $50 million fee split by Credit Suisse
First Boston and Goldman Sachs Group Inc. for their advice to
Wachovia Corp. in its $13.6 billion purchase by First Union Corp.

     Morgan Stanley got about $75 million for advising Time Warner
in its sale to American Online Inc., according to bankers. That
acquisition, which formed AOL Time Warner Inc. in January, had a
value of $186 billion when it was announced last year.

--George Stein (212) 893-3934, ghstein@bloomberg.net and Mark Lake