Under the Radar: Enron's Only White Knight Is Itself
TheStreet.com, 11/02/01
BANDWIDTH BEAT: Playing '20 Questions' With Enron Execs
Dow Jones Energy Service, 11/02/01
USA: Stung Californians not crowing at Enron's troubles.
Reuters English News Service, 11/02/01
Enron Portland Genl Sale Seen Going Smoothly This Time
Dow Jones Energy Service, 11/02/01
Nymex/Lowers Costs -2: Retroactive To Thurs Transactions
Dow Jones Commodities Service, 11/02/01




Under the Radar: Enron's Only White Knight Is Itself
By Christopher Edmonds <mailto:cedmonds@thestreet.com>
Special to TheStreet.com
11/02/2001 03:15 PM EST
URL: <http://www.thestreet.com/comment/chrisedmonds/10003396.html>

There is no suitor-in-waiting for Enron (ENE:NYSE - news - commentary) . 
Despite a speculation-filled week, Warren Buffett's Berkshire Hathaway (BRKA:NYSE - news - commentary) probably isn't waiting in the wings to gobble up the troubled energy giant. The risk profile doesn't fit Royal Dutch Shell (RD:NYSE - news - commentary) , and it's unlikely General Electric (GE:NYSE - news - commentary) is ready to jump at the chance to rescue the Houston energy firm from its troubles with the SEC and disgruntled investors. ?And while the recent slide in Enron's stock price might seem to make it an attractive target, it's implausible that an Enron competitor would step up to the plate and make an offer to acquire its troubled peer. ?"We do not believe there is a high probability of a bailout offer at a price significantly above the current price, as there is too much uncertainty about the capital structure and shareholder lawsuits," says Jeff Dietert, independent power analyst at Simmons & Co., a Houston energy investment firm and a member of the TSC Energy Roundtable. ?Many metrics suggest the stock is inexpensive. Merrill Lynch analyst Donato Eassey recently calculated Enron's asset value to be between $16 and $24 per share, which may make Enron's current price of less than $12 look cheap. But in nearly the same breath, Eassey downgraded Enron stock to neutral from "accumulate." Merrill Lynch has provided banking services for Enron. ?"While we have not altered our view of Enron's fundamentals or its ability to weather this long-term storm, from a practical standpoint we believe noise surrounding the SEC's move to a formal investigation will outweigh any [earnings] analysis or net asset value calculation," Eassey told clients in a report Thursday. ?For Buffett: Intriguing But ...?Reports that famed value investor Warren Buffett is looking at Enron may be correct. He is an opportunistic investor and has an interest in the power business. And, Berkshire's ownership of Mid-American Energy provides a platform for an Enron deal. ?However, interest and action are two different things. While Buffett has said he wants additional power holdings, he seems more focused on the traditional, regulated utilities rather than the more aggressive opportunities represented by Enron. Buffett's track record shows he craves certainty and that is something Enron can't provide, especially now. ?There are also pragmatic issues. If Enron considered a deal, it would have to be one that was both rich and immediate, something Buffett can't offer. Constrained by the Public Utility Holding Company Act, or PUHCA, Berkshire might not be able to purchase Enron until the sale of Portland General, the Oregon utility, is completed sometime next year. ?The Enron culture could also keep Buffett away. Enron is well known for its employee stock option program that made millions of dollars for people like ex-CEO Jeffrey Skilling while creating little value for shareholders. Buffett is a tireless critic of such shenanigans. Buffett also generally looks for companies with a management team committed to remaining in place, and Ken Lay has no desire to remain at the helm of Enron for the long haul, and future leadership is uncertain. ?And while Buffett still may take a look, price could be the ultimate stumbling block. "I think he understands the derivative trading business better than most," says Robert Hagstrom, portfolio manager of the Legg Mason Focus Trust and author of The Essential Buffett: Timeless Principles for the New Economy. "I wouldn't be surprised if it's caught his eye, but I don't think he would get his price. He won't pay a premium for Enron." ?As for Buffett, he won't comment on anything, let alone rumors like this. ?Shell: Burned Out on Gas??Another rumored suitor is Royal Dutch Shell (RD:NYSE - news - commentary) . Speculation has escalated to the point of suggesting that Shell and Enron have signed a confidentiality agreement to allow for exchange of privileged financial data. ?A Shell spokeswoman in London would not comment on the speculation. An Enron spokesman also declined to comment. ?Shell wants to expand its gas business and in its bid for Barrett Resources, showed it will pay a premium for the right assets. ?But Enron is more an energy trading company than an exploration and production company. Shell's problems growing both its Coral trading subsidiary and its Tejas Gas unit -- a costly acquisition -- probably would make it shy away from going there again, Dietert says. ?Shell and Enron are very different companies, he adds. "Culturally, it's a tough deal to imagine." ?GE Capital: Enlightened Investor??The final name bandied about is GE Capital. This one is more difficult to figure, but an investment in Enron by the finance unit of General Electric isn't out of the question. However, sources tell me an outright bid is unlikely. ?"They are a potential investor," says Dietert. "If push comes to shove, Enron would be willing to issue 30% to 40% more equity rather than face bankruptcy. And, GE Capital could participate in such a deal." ?However, any move is just speculation at this point. And General Electric won't comment on speculation. ?Even if an offer for Enron emerged, price would clearly be an issue. Current uncertainty suggests any offer would be well below a price Enron would consider reasonable. Hence, while a bid for Enron isn't out of the question, it's likely Enron will stand to fight its current battles alone. ???BANDWIDTH BEAT: Playing '20 Questions' With Enron Execs?By Michael Rieke??11/02/2001?Dow Jones Energy Service?(Copyright (c) 2001, Dow Jones & Company, Inc.)??A Dow Jones Newswires Column ??HOUSTON -(Dow Jones)- Since Enron Corp. (ENE) is such a hot topic these days, here's a suggestion for a new game.?If you worked for the Securities and Exchange Commission, with its subpoena powers, what questions would you ask in your current investigation of Enron? ?You could even break it down into categories, like the game show "Jeopardy." ?The first category is Enron trading counterparties run by Enron executives. ?How many of those counterparties were run by Enron employees such as former Chief Financial Officer Andrew Fastow and Michael Kopper, a former managing director of Enron's Global Equity Markets Group? ?We know that Fastow ran two private investment companies that Enron traded with - LJM Cayman and LJM2 Cayman. Kopper ran one called Chewco Investments ?What does LJM stand for? (If you know that answer to that one, you're ahead of an Enron spokeswoman who told Bandwidth Beat that she didn't know what the letters stood for.) ?Sometimes companies use letters that are actually initials of investors names. Are any of the investors in the LJM partnerships an Enron executive whose last name starts with L, J or M? (The Enron spokeswoman hasn't called back with an answer to that one either.) ?Who was meant to profit and who was meant to lose in Enron's complicated financial transactions with the LJM partnerships and others? ?If the partnerships were meant to profit, what will Enron's shareholders (and their class-action lawsuit attorneys) have to say about it? ?If Enron was meant to profit from the transactions, was it because the deals allowed the company to hide underperforming assets, making its quarterly reports look better? If the answer to that question is yes, what will Enron's shareholders (and their class-action lawsuit attorneys) have to say about it? ?A related category might be geography. Start with an easy one: In what body of water are the Cayman Islands located? ?Then move to more interesting questions. Why were the two LJM private investment partnerships located in the Caymans? Does it have anything to do with the fact that the Caymans are a tax-free jurisdiction even for non-residents? Does it have anything to do with the strict confidentiality laws governing business transactions there? ?The next category is politics. Again, start with an easy one: How much money did Enron Chairman Ken Lay give to George W. Bush's presidential campaign fund? (That one is easy because, by law, the limit is $1,000 per person for hard money contributions.) ?How much soft money did Lay and Enron each give to the Republican Party during the 1999-2000 campaign cycle? ?How much did Lay give to Bush's presidential primary campaign fund? (That one is more difficult. Bush decided not to accept government matching funds for his primary campaign, so there wasn't any limit on individual contributions.) ?How much money did Ken Lay help raise for Bush's presidential primary campaign? (Here's a hint: He was a member of the Bush Pioneers, each of whom pledged to raise at least $100,000 for the fund.) ?Still in the politics category, how much will those campaign contributions affect the current SEC investigation of Enron? (That's another easy one. All contributors to political campaigns will tell you that they expect nothing in return.) ?Now for the history category. In an April conference call with analysts, who was the analyst who criticized Enron for not disclosing enough information about its finances? ?What expletive did Enron's former Chief Executive Jeff Skilling call the analyst? (Here's a hint: In reporting the name-calling incident, a radio newsman said Skilling had "called the analyst a type of hole.") ?At the time, Skilling said the analyst was a "short-seller." That means the analyst had borrowed Enron stock and sold it, expecting the share price to decline over time. He then would buy it back at a lower price and make a profit. ?If that investment strategy qualified the analyst to be called a particular type of hole, what do you call the Enron executives who have sold more than $500 million in company shares since Jan. 1, 2000? ?In answering that question, remember that short-sellers have to buy the stock back at some point in order to make money. Also remember that the Enron executives didn't have to buy back any of the stock they sold. ?Join in the fun. If you want to play and have questions to add to the list, refer to the e-mail address and phone number below. ?-By Michael Rieke, Dow Jones Newswires; 713-547-9207; michael.rieke@dowjones.com??Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	??USA: Stung Californians not crowing at Enron's troubles.?By Leonard Anderson??11/02/2001?Reuters English News Service?(C) Reuters Limited 2001.??SAN FRANCISCO, Nov 2 (Reuters) - If there's one market that might applaud the mounting financial woes facing energy giant Enron Corp., it's California, whose power sector was shattered by the market deregulation that Enron tirelessly champions. ?Last summer, angry Californians tossed a pie at Enron ex-Chief Executive Jeff Skilling during a speech here in which he blamed state regulators for causing the energy crisis.?California officials, led by Governor Gray Davis, blasted Houston-based Enron and other out-of-state power companies for creating the emergency, accusing them of manipulating the market and jacking up prices. ?But with Enron now facing a credit crunch and a full-scale probe by U.S. regulators into questionable financial dealings, California officials are holding back their harshest criticism, saying instead there are lessons to be learned from Enron's predicament. ?And some of Enron's toughest critics, among them Davis and Loretta Lynch, president of the state's Public Utilities Commission (CPUC), would not discuss the company's woes. ?"You reap what you sow, but I don't think anyone wants to pile on them right now," said a state government source. ?Many Californians cited ongoing business and creditor links with Enron as reasons not to hurl stones at the energy giant. ?Enron is by far the nation's largest trader of electricity and natural gas, with energy analysts estimating it is involved in some 25 percent of daily trade in those markets. ?Transactions on the company's widely watched Internet-based EnronOnline trading system are estimated currently to average $3 billion to $4 billion a day. ?'BUSINESS CYCLES' ?"Business cycles come and go," said Greg Pruett, spokesman for San Francisco-based energy company PG&E Corp. , whose Pacific Gas & Electric unit, California's biggest utility, filed for federal bankruptcy protection in April in the wake of the energy mess. ?"We are wrestling with our own situation, and you can appreciate what Enron is going through. We have done business with Enron for a long time and will continue to do business with them in the future," Pruett said. ?California's power agencies, forced into buying emergency electricity for the state earlier this year when the state's investor-owned utilities ran out of credit and cash, said they have financial ties with Enron. ?"Their situation is not ringing alarm bells for us," said Gregg Fishman, a spokesman for the Independent System Operator (ISO), which manages the state power grid. ?The ISO owes Enron money for purchases of daily power supplies but Fishman declined to say how much. ?Aside from a 30-day supply contract earlier this year, Enron does not have any current power deals with the state's Department of Water Resources, said Oscar Hidalgo, spokesman for the agency which negotiates long-term agreements. ?One top California energy regulator, however, said Enron's troubles offer an important lesson for energy markets. ?Carl Wood, a CPUC commissioner, said the deregulation of markets for basic services like electricity "threatens as much financial volatility and instability as we have seen in the telecommunications and the dot-com industries." ?Wood said, "Enron is the flagship for deregulation, but there are definite dangers of venturing into unregulated market behavior. Enron itself apparently is becoming a victim of sorts. Our largest utility is in bankruptcy. One obvious conclusion is to keep the energy industry on a pretty short regulatory leash." ?"The unregulated energy industry rises faster, but it also falls further," said Doug Heller of the Foundation for Taxpayers and Consumer Rights, an advocacy group in Santa Monica, California. ?"It's okay for a free market to operate for things like computers and other goods but energy is different. Regulatory structures are needed to protect customers," he said.??Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	??Enron Portland Genl Sale Seen Going Smoothly This Time?By Jessica Berthold?Of DOW JONES NEWSWIRES??11/02/2001?Dow Jones Energy Service?(Copyright (c) 2001, Dow Jones & Company, Inc.)??LOS ANGELES -(Dow Jones)- Enron Corp's (ENE) current troubles won't jeopardize its $1.8 billion sale of utility Portland General Electric to Northwest Natural Gas Co. (NWN), analysts and the companies said. ?In contrast to Enron's previous attempt to sell the utility to Sierra Pacific Resources (SRP), which foundered earlier this year on regulatory issues, the sale to the Portland, Ore.-based gas utility is expected to go smoothly.?It will need to, as Enron has said it is counting on sales of assets, including Portland General, to pay off $3.3 billion in notes coming due during the next 20 months. ?"Enron has wanted out of this asset for a very long time," said Susan Abbott, an analyst with Moody's Investor Services. "Right now, they need to sell some assets, and this would be a larger one that would give them some cash." ?The energy giant's shares have lost about two-thirds of their value in the past three weeks and its credit ratings have been downgraded to within two steps of noninvestment grade levels due to uncertainties about its extremely complex financial structure. ?Those uncertainties were sparked Enron's $1.2 billion reduction in shareholder equity related to transactions with entities headed by former Chief Financial Officer Andrew Fastow. The notes coming due are also related to those entities. Enron's dealings with those entities are the subject of an investigation by the Securities and Exchange Commission, and have raised investor hackles over a perceived lack of transparency. ?Analysts said none of this will change plans for the Portland General sale - which will bring Enron $1.55 billion in cash, $200 million in Northwest Natural Gas preferred stock, and $50 million in common stock. ?Earlier Problems Not Seen Repeated ??In April, a two-year old deal to sell the utility to Nevada company Sierra Pacific Resources (SRP) for $2 billion collapsed due to changes in that state's laws that would have forbidden the utility's recovery of power costs if the sale went through. The deal had already been doomed for months due to Sierra Pacific's tenuous financial position. ?But Northwest Natural's financial house is in order, and there is no apparent law or regulation that threatens to block the deal in Oregon or Washington, the two states where approval is needed, analysts said. ?"Northwest Natural is very well-regarded by regulators in both states, and I think there's quite a bit of interest on the part of regulators to have the utility in local hands as opposed to somewhere down in Texas," said Gerald Keenan, utility analyst for PricewaterhouseCoopers. ?Concerns about the quality of Enron's credit may encourage state regulators to act more quickly on the sale, an analyst said. ?"If I were a regulator, I'd be much more interested in having Portland General out from under Enron," the analyst said. ?The Oregon Public Utilities Commission hopes to expedite its review of the sale so that it is complete in six months, rather than the usual 10, commission spokesman Bob Valdez said. ?"Given the fact that we are familiar with the management and regulatory affairs of both companies and have dealt with them extensively, we hope it will take no longer than six months," said Valdez, adding that the commission expected to receive a filing on the sale Nov. 7. ?The Washington Utilities and Transportation Commission hasn't received a filing, but once it does there is no statutory time limit on review, a spokeswoman said. ?Federal Review Seen Uneventful ??In addition to Oregon and Washington utilities regulators, the sale must be approved by the Federal Energy Regulatory Commission, the U.S. Securities and Exchange Commission, the Federal Trade Commission, the U.S. Department of Justice and the U.S. Nuclear Regulatory Commission. ?None has received filings yet on the sale, which is slated for completion in the fourth quarter of 2002. ?"We are shooting for mid-November as far as submitting our request to the state commissions," Northwest Natural Gas spokesman Steve Sechrist said. "Those will be the first major hurdle, then we'll move on to the federal filings." ?Shareholders must also approve the acquisition. They will likely vote in spring of 2002, Sechrist said. ?Northwest Natural, Enron and analysts said they don't expect hangups at the federal level. ?The only thing that might create a problem for the sale, Keenan said, would be a "significant deterioration" of the natural gas or electricity markets harming the companies. Right now, however, things look good on that front. ?"The market is much more stable than it was when Sierra Pacific tried to buy the utility. And the deal is much more practical this time: the price is lower and the terms are better," he said. "Clearly it's important for Enron to be able to get this done, and I think they will." ?-By Jessica Berthold, Dow Jones Newswires; 323-658-3872; jessica.berthold@dowjones.com??Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	??Nymex/Lowers Costs -2: Retroactive To Thurs Transactions??11/02/2001?Dow Jones Commodities Service?(Copyright (c) 2001, Dow Jones & Company, Inc.)??NEW YORK -(Dow Jones)- The New York Mercantile Exchange, the world's largest energy futures marketplace, said Friday it lowered the cost of exchange-of-futures-for-swaps transactions retroactive to Thursday, when the new instruments were introduced. ?In a press release Friday, Nymex said it cut the cost of EFS transactions to $2.50 a contract per side from $10 a contract per side.?The exchange introduced the contracts in its natural gas futures market Thursday, in a move the trading community saw as an attempt by Nymex to grab market share from Enron Corp. (ENE) by extending its clearing services to the over-the-counter market for natural gas derivatives. ?Enron, which accounts for about 25% of the trade in U.S. power and gas markets, has seen its creditworthiness questioned as a result of complicated financial dealings that led to a $1.2 billion writedown of shareholder equity, a 65% drop in the company's stock in two weeks and an investigation by the Securities and Exchange Commission. ?In the first full day of trading on Nymex, 11,000 EFS contracts changed hands, Nymex said. ?EFS transactions are similar to exchange-of-futures-for-physicals, or EFP, transactions. Two parties will privately negotiate integrated over-the-counter swaps and a related futures transaction. The transaction must involve approximately equal, but opposite, side-of-market quantities of futures and swap exposures in commodities that are similar or related. ?The EFS transactions will be allowed to liquidate, initiate and transfer market positions between the two parties involved in the transaction. ?-By Andrew Dowell, Dow Jones Newswires; 201-938-4430; andrew.dowell@dowjones.com??Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	??