With growing revenue, a dominant position in major energy-trading markets
and a depressed stock price, Enron Corp. would logically be prime takeover
bait. But in the topsy-turvy world of Enron, what constitutes logic
anymore?

Takeover speculation has swirled around Wall Street and the energy markets
in recent days as Enron shares have plummeted by about two-thirds to their
lowest level in a decade, a selloff sparked by a loss of investor
confidence in the Houston energy-trading company following big
third-quarter write-downs and the disclosure of a Securities and Exchange
Commission inquiry into transactions involving its former chief financial
officer. Among the names bandied about as potential buyers of all or at
least a substantial chunk of Enron are General Electric's GE Capital unit,
Warren Buffett's Berkshire Hathaway and Royal Dutch/Shell. GE and Berkshire
had no comment. A spokesman for Shell couldn't be reached.

Meanwhile, Enron has approached at least one major institutional investor,
seeking a capital infusion, according to a person familiar with the matter.
But Enron was turned down because of uncertainties over its financial
condition, this person says.

While Enron shares, which are trading at about book value, look cheap by
historical standards and even compared with two weeks ago, it isn't clear
whether history is much guide when evaluating Enron these days, say
analysts and others. Even fans of the stock have long complained about
difficulty understanding how Enron operates because of its enormously
complex financial structure and relatively sparse disclosure. For years
while Enron's stock price was soaring, much of Wall Street didn't seem to
care about such issues.

Moody's Downgrades Enron's Debt, Maintains Review; Stock Drops 10% (Oct.
30)

Enron Is in Discussions With Banks for Credit Line of up to $2 Billion
(Oct. 29)

Enron Taps $3 Billion From Bank Lines in Pre-Emptive Move to Ensure
Liquidity (Oct. 26)

Enron Replaces Fastow as Finance Chief; Move Follows Concerns Over
Partnerships (Oct. 25)

Now with Enron's stock dropping, that lack of understanding is haunting the
company. "How bad could Enron get? That's really the question," says
Prudential Securities analyst Carole Coale. Tuesday, Ms. Coale reduced her
price target for Enron shares to $9 and maintained the "sell"
recommendation she recently put on the stock. At 4 p.m. Tuesday in New York
Stock Exchange composite trading, Enron shares were down $2.65, or 19%, to
$11.16, down from nearly $85 a year ago.

"When a business like this starts a down cycle, they've got to stop it and
stabilize before anyone will be willing to have a really intelligent
conversation with them," says Peter J. Solomon, head of Peter J. Solomon
Co., an investment-banking boutique.

An Enron spokesman says the company won't comment on takeover speculation;
nor will it comment on whether it had approached potential investors about
a possible capital infusion. However, the continued plunge in Enron shares
and turmoil surrounding the company are a significant "overreaction in the
marketplace. Our core businesses are strong," he says. The company has said
that it is taking steps to restore investor confidence.

For example, Enron is trying to negotiate a new credit line with its major
banks. Late Tuesday, Enron's bankers were putting the final touches on a
new credit line of more than $1 billion, according to people familiar with
the discussions.

Analysts and other observers say that one uncertainty surrounding Enron is
the condition of its vast energy-trading operation. As the nation's biggest
energy trader, Enron is a principal in one-quarter of all electricity and
natural-gas trades. Enron's EnronOnline Internet-based trading platform has
transacted more than $884 billion of trades since it was created in
November 1999 and does about $4 billion a day in transactions.

One worry is that Enron's trading partners, edgy about the turmoil swirling
around the company, will start demanding much tougher credit terms from the
Houston company or simply cut back doing business. Such a trend, if it
picked up enough momentum, could have troubling consequences for Enron. "We
are all in suspense. ... It all depends on how the market reacts," says
Susan Abbott, a managing director at Moody's Investors Service. On Monday,
Moody's downgraded Enron's long-term debt.


There were some warning signs of unease among trading partners even before
the company's third-quarter earnings release set the stage for the huge
drop in the stock price. About six to seven weeks ago, Entergy Corp. became
worried about its level of exposure in Enron-related deals, says Wayne
Leonard, chairman and chief executive officer of the big New Orleans energy
company. Since then, Entergy has cut its Enron exposure to about $10
million to $20 million from $90 million to $100 million, he says. Mr.
Leonard didn't specify what prompted the worries, which appear to have
arisen after the surprise August announcement by Jeffrey Skilling that he
was resigning as Enron president and chief executive. Mr. Skilling cited
personal reasons as well as his concerns over the falling stock price.

While the Enron spokesman says the company doesn't comment on specific
trading arrangements, he adds that Entergy is one of his company's smaller
trading partners. He says major trading partners are doing business with
Enron on "essentially the same terms and conditions" and that overall "our
trading operations are as strong as ever."

The company spokesman adds that a few smaller trading partners in Europe
are seeking revised credit terms from Enron. "We are working to put
together credit terms, which they are more comfortable with," says the
spokesman, who declines to be more specific.

In an effort to bolster its liquidity and position in the marketplace,
Enron last week drew down some $3 billion, accounting for the bulk of its
existing credit lines. While it used most of that money to buy its
outstanding commercial paper, a short-term corporate IOU, the company
retained about $1 billion of the borrowings as cash.

A friendly takeover of all or part of Enron would be likelier than a
hostile one. Among the most obvious candidates would be other companies
with big trading operations and experience in risk management. Two possible
deterrents to a would-be buyer: a flurry of recent shareholder lawsuits
filed against Enron and the continuing SEC probe


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