Dynegy's Enron deal faces major uncertainties Huge new liabilities, possible regulatory opposition may complicate takeover
Wall Street Journal, 11/12/01
COMPANIES & FINANCE THE DYNEGY/ENRON DEAL - Utilities in bid for project stake.
Financial Times, 11/12/01
Watson puts trust in the quiet approach.
Financial Times, 11/12/01
Ratings prove crucial at Enron.
Financial Times, 11/12/01
Market Place
Dynegy's Rushed Gamble on Enron Carries Some Big Risks
The New York Times, 11/12/01
Heard on the Street
Basic Principle Of Accounting Tripped Enron
The Wall Street Journal, 11/12/01
Dynegy's Enron Deal Faces Uncertainties --- Potential Antitrust Worries Or New Enron Liabilities Could Upset Agreement
The Wall Street Journal, 11/12/01
Analysts, Competitors Give Dynegy-Enron Merger Thumbs Up
Dow Jones News Service, 11/12/01
IN THE MONEY: 2 Stories In 1: Enron CEO Sold Compaq Stk
Dow Jones News Service, 11/12/01
USA: RESEARCH ALERT-Dynegy reiterated as "strong buy".
Reuters English News Service, 11/12/01
USA: RESEARCH ALERT-Prudential raises Enron to 'hold'.
Reuters English News Service, 11/12/01
UK PRESS: Enron Investigating Its Own Finances
Dow Jones International News, 11/12/01
Enron assets may be overvalued by 5 bln usd on balance sheet - report
AFX News, 11/12/01
Enron's Sale Could be Thwarted by Antitrust Worries or Liabilities
Dow Jones Business News, 11/12/01
Thames company sets sights on takeover
Western Daily Press, 11/12/101
India: Enron in trouble; Microsoft sees reprieve
Business Line, 11/12/01
Unravelling the Dynegy enigma
Business Standard, 11/12/01
Dynegy Throws Enron $44bn Lifeline
Australian Financial Review, 11/12/01
INDIAN COURT BARS ENRON FROM SERVING FINAL TERMINATION NOTICE
Asia Pulse, 11/12/01
US utilities trader narrowly escapes junk debt status
The Financial News, 11/12/01
Investors priced in Enron bond default
The Financial News, 11/12/01
Andersen Faces Jeopardy in Enron Accounting Error, Experts Say
Bloomberg, 11/12/01

Dynegy Calls SEC's Probe of Enron `Financial Noise' (Update1)
Bloomberg, 11/12/01

Citigroup, J.P. Morgan Mull $500 Mln Enron Stake, Dow Says
Bloomberg, 11/12/01

Enron Corp. Raised to `Hold' at Prudential
Bloomberg, 11/12/01

Hedging Bets on the Enron-Dynegy Deal
By James J. Cramer <<mailto:jjcletters@thestreet.com>>
RealMoney.com




Report on Business: The Wall Street Journal
Dynegy's Enron deal faces major uncertainties Huge new liabilities, possible regulatory opposition may complicate takeover
JOHN EMSHWILLER and REBECCA SMITH
Wall Street Journal

11/12/2001
The Globe and Mail
Metro
B8
"All material Copyright (c) Bell Globemedia Publishing Inc. and its licensors. All rights reserved."
Dynegy Inc.'s proposed $8.85-billion (U.S.) takeover of Enron Corp. faces major uncertainties, ranging from possible opposition from regulators to potentially huge new liabilities and writeoffs at Enron. 
The problem with regulators could come from antitrust worries about folding Houston-based Enron, the biggest U.S. trader of natural gas and electricity, into Dynegy, another major energy trader, also based in Houston.
Enron currently handles a quarter of all the natural gas and electricity traded in the United States. The combined company -- which would be called Dynegy Inc. -- would have 22,000 megawatts of generating capacity and 40,000 kilometres of natural gas pipelines, making it one of the largest companies in the United States in each of those categories. 
While Enron and Dynegy officials said they expect the merger to garner the necessary government approvals, the review by regulators is expected to take months. 
As for unpleasant financial surprises, Enron has already produced a devastating stream of them over the past month, ranging from huge writeoffs of assets and reductions of shareholder equity to major downward restatements of past earnings reports. 
Much of this turmoil has been caused by Enron's dealings with private partnerships run by its own officers. 
Indeed, recent Enron disclosures indicate that as much as half of the company's pretax earnings in recent years came from deals with these officer-related partnerships, raising further questions about the quality of Enron's earnings and the potential for hundreds of millions of dollars of additional writeoffs or restatements. 
Enron's partnership dealings have sparked more than a dozen shareholder lawsuits and a formal investigation by the U.S. Securities and Exchange Commission. 
In a measure of the continuing concerns over Enron's financial condition, both Moody's Investors Service and Standard & Poor's once again downgraded Enron's debt on Friday, this time to just one level above non-investment grade, or "junk" status. They also kept the company under review for possible additional downgrades, and S&P put Dynegy on the same status. 
A downgrade to junk status could force Enron to come up with hundreds of millions of dollars in cash or stock to buttress some of its complicated financial transactions. 
In an interview Friday, Dynegy chairman Chuck Watson said his company made "a good assessment" of Enron's condition and that in "the worst-case we can come up with . . . we feel comfortable [that] the value exceeds the liabilities." 
Mr. Watson said Dynegy has given itself the opportunity to back out of the proposed merger under certain conditions, which he declined to specify. 
A person familiar with the deal said that Dynegy has a right to walk away if Enron's additional legal and financial liabilities exceed $3.5-billion. 
A Dynegy spokesman confirmed the figure. 
The price being paid -- 0.2685 of a Dynegy share for each Enron share -- is a fire-sale deal by any recent historical standard. The transaction valued Enron shares at $10.41 each, based on Dynegy's price of $38.76 Friday, up $2.26 in New York Stock Exchange trading. Enron shares rose 22 cents at $8.63 in Big Board trading, a quarter of their price just a month ago and less than a tenth of the all-time high of nearly $90 a share reached last year. 
The deal envisions quickly pumping $1.5-billion of cash into Enron to bolster its liquidity and comfort Enron's trading partners who are increasingly nervous about continuing their business. The funds will come from ChevronTexaco Corp., Dynegy's biggest shareholder with a 26-per-cent stake. Dynegy will use the money to purchase the preferred stock and other rights in an Enron pipeline subsidiary.



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

COMPANIES & FINANCE THE DYNEGY/ENRON DEAL - Utilities in bid for project stake.
By KHOZEM MERCHANT.

11/12/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved
Tata Power and BSES have offered about half the sum demanded for a majority shareholding in a controversial Indian power project beset by political problems. 
Two Indian utilities have bid about half the $1.2bn that Enron demanded in September for its majority stake in a controversial power plant near Bombay.
But the fate of the offers from Bombay-based Tata Power and BSES for India's biggest and most politically divisive foreign direct investment remain uncertain following Enron's absorption by Dynegy and legal moves by Indian creditors challenging a possible sale. 
Although Dynegy has not publicly commented on the $2.9bn Indian plant, observers say it is unlikely to welcome the political problems surrounding the project and will press for a sale. 
The board of DPC, Enron's Indian arm, is set to meet on November 19, the day it was expected to announce a final notice that it was quitting the plant. But on Friday, Indian creditors won a temporary injunction in a Bombay court restraining DPC until December 3. 
Foreign and Indian creditors and DPC have been trying to broker a compromise for months after a fall-out between DPC and its sole local customer, Maharashtra State Electricity Board. 
The latest attempt concluded on Saturday in Singapore just as a parallel drama over Enron's fate reached a climax in Houston. What started as a financial restructuring exercise to salvage the Indian project rapidly turned into a fire sale. 
A decade ago, DPC was given fast-track clearance and was advertised as a symbol of India's economic awakening. Its withdrawal is now seen as an indictment of the attempts to jump-start economic growth. 
Critics portrayed DPC as arrogant and the company endured unremitting domestic hostility. MSEB said DPC's tariffs were excessive. Environmentalists argued DPC benefited from a political process lacking transparency. Leftwing politicians insisted DPC's huge capacity was unnecessary. 
DPC's patience snapped in April when it issued an initial termination notice. Since then it has been mired in a multitude of legal offensives. 
In Singapore, Indian lenders, which carry an exposure of $1.4bn in loans and guarantees to DPC, about 70 per of the total debt, said they were trying to "match-make" between a weak DPC and an Indian party. "The talks were extremely positive and provide the basis of a deal," said a banker. 
Tata Power and BSES, India's only solvent utilities, were the sole serious bidders. The dark horse was the government-owned National Thermal Power Corporation, which has working links with GE and Bechtel, the disaffected constructors and minority shareholders in DPC. 
By Indian corporate standards, the low bids are still dizzily ambitious. But both utilities enjoy powerful allies with deep pockets. BSES, for instance, is 29 per cent owned by Reliance Industries, India's biggest private-sector company. Tata Power is part of the formidable Tata industrial-to-financial services conglomerate. 
Tata Power and BSES both have ambitious expansion plans in power, telecommunications and broadband that could be hampered if their DPC bids succeed. 
Yet, they would have much work to do at DPC, which analysts say is "unsustainable in its present form". First, the new owner of Enron's 65 per cent stake in DPC must lower tariffs. 
Second, long-term power off-take contracts and payment guarantees must be secured. MSEB, which holds a 15 per cent stake in DPC, is obliged to dispatch or "off-take" 90 per cent of DPC's output. 
But MSEB has averaged only 60 per cent at phase 1 since it opened in May 1999. In effect, MSEB has been paying a lot more while using a lot less power. 
The third challenge is to reopen the plant. Phase 1 closed in May after MSEB stopped uplifting power. Work on phase 2 is also suspended. 
A new owner would not only need to spend about $300m to complete phase 2; it must also renegotiate contracts guaranteeing performance and warranties that have fallen into abeyance with the closure of the plant. 
(c) Copyright Financial Times Ltd. All rights reserved. 
http://www.ft.com.



Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	
Watson puts trust in the quiet approach.
By SHEILA MCNULTY IN HOUSTON.

11/12/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved
Charles Watson set out 16 years ago with "five guys and a smile" to build what would become Dynegy. 
That same year, Kenneth Lay laid the foundations of Enron by merging the assets of two established companies. He had an inter-state and intra-state natural gas pipeline company with 37,000 miles of pipe.
Enron widened its lead over the years, so that last year it reported $101bn in revenue, to Dynegy's $29bn. It was the number-one seller of natural gas and power in North America and operated the biggest web-based transaction system in the world. 
But on Friday, the Dynegy chief executive brought his company out from Enron's shadow, agreeing to buy its embattled rival in a deal worth about $9bn in stock. Overnight, Dynegy became the biggest energy trader in the US. How did he do it? 
Where Enron emphasised individuality, Dynegy stressed teamwork. Where Enron encouraged entrepreneurship, Dynegy stressed customer satisfaction. Where Enron urged aggression to pervade everything from its trading floors to its financial accountings, Dynegy made friendliness and conservatism its culture. 
Enron had its name emblazoned across Houston's professional baseball stadium and was building an office tower in downtown Houston. Dynegy was renting 28 floors out of the Wells Fargo Complex. 
Enron, Mr Watson notes, had a reputation for doing business with a swagger. "If that's your modus operandi, when things don't go well people come after you," Mr Watson says. He believes that image of cockiness made questions over Enron's balance sheet spiral out of control. The balance sheet adjustment itself could not justify the massive degradation of its equity in a matter of weeks. 
"The masses at Enron are thirsting for a change in image," Mr Watson says. He intends to give them that. 
Mr Watson will remain in charge when Dynegy takes control of Enron in the coming months. He has asked Mr Lay to join the board, but Mr Lay has not made a decision. "It's been a good ride, for the most part," Mr Lay said Friday night, but added, "I would say the last three weeks have not been a lot of fun." 
Mr Watson reached out to Mr Lay on October 24, as the crisis of confidence in Enron became increasingly untenable. The Securities and Exchange Commission was investigating its finances, investors were dumping its stock and the credit rating agencies were downgrading its debt. 
Mr Watson's mother was having heart surgery and he was with her in Saint Louis. 
But he called Mr Lay to offer to help. In the back of his mind was the possibility of buying Enron's valuable pipeline assets to provide it with liquidity to support its fast diminishing business. 
Two days later, Mr Watson went over to Mr Lay's home to begin working towards a combination. 
In a meeting with Mr Lay and the rest of Enron's management team, it became clear they were "willing to fix the problem whatever it took". 
Mr Watson believes the deal was put together so quickly because Dynegy works with Enron on a daily basis, they know each other's people and businesses, and they are both based in Houston. 
"We're one of the few people, maybe the only ones, who could have pulled it off," he says. 
Now that he has done so, Mr Watson plans to move into Enron's new buildings, but has not decided whether to rename the stadium to reflect its new owner. His teenager wants him too. But that would seem to go against the modesty that enabled Dynegy to win in the end. 
(c) Copyright Financial Times Group. 
http://www.ft.com.



Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	
Ratings prove crucial at Enron.
By JENNY WIGGINS IN NEW YORK.

11/12/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved
Credit ratings agencies consider themselves independent providers of research and information. But the role played by Moody's Investors Service in the sale of Enron to Dynegy last week shows agencies are often more than dispassionate observers. 
In Enron's case, its credit ratings were crucial to its survival. The company needed an investment grade credit rating to retain the confidence of its energy trading counterparties.
Enron's solution was to arrange an acquisition by Dynegy, but first it received the credit agencies' blessing. 
With the two companies close to a deal on Friday morning, Moody's responded to investor concerns about the company by downgrading the company's ratings to just one notch above junk. 
However, it also signalled it was prepared to sanction a deal, adding that "a substantial near-term injection of equity capital" would be viewed as "a stabilising event". That arrived in the form of a $1.5bn cash injection from ChevronTexaco. 
The ratings agency was under pressure to provide a credit outlook. Enron generated "a tremendous amount of interest", including calls from market participants "who wanted to share their opinion", said Moody's Fran Laserson. 
Moody's analyst John Diaz said that while the agency had analysed Enron's financials both on and off its balance sheet, there were "some issues" the agency had not been aware of. 
This means that even as they seek to point out the risks inherent in a company's balance sheet, they are also looking out for the long-term interest of a company and are willing to give troubled entities some time to deal with problems and get back on their feet. 
(c) Copyright Financial Times Group. 
http://www.ft.com.



Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	
Business/Financial Desk; Section C
Market Place
Dynegy's Rushed Gamble on Enron Carries Some Big Risks
By ALEX BERENSON and RICHARD A. OPPEL Jr.

11/12/2001
The New York Times
Page 1, Column 2
c. 2001 New York Times Company
Call it a $9 billion shotgun wedding. 
Dynegy Inc., an energy marketer and trader based in Houston, took the biggest gamble in its corporate history on Friday by agreeing to buy the Enron Corporation, its much larger crosstown rival, for more than $9 billion in stock. In one decisive move, Chuck Watson, the chairman of Dynegy, positioned his company to become the most important player in the volatile but potentially lucrative business of trading natural gas and electricity.
But the hastily arranged deal carries big risks for Dynegy as well, skeptical investors and Wall Street analysts say. No one outside Enron appears to understand the company's tangled finances fully, and the speed with which the deal was made did not give Dynegy time to scrutinize in great detail Enron's trading book or the web of partnerships Enron has entered to move debt off its balance sheet and hide losses. 
The skeptics wonder why Dynegy decided to take on Enron's huge debt, which some analysts say could total $23 billion in loans on and off its balance sheet, instead of simply trying to hire away Enron's best traders, some of whom were already leaving the company. 
''There are many risks associated with this merger that we will not know about for a while,'' said Carol Coale, an analyst at Prudential Securities. ''We're not sure that we know everything there is to know at Enron yet.'' 
In addition, Enron's earnings could be far lower than it has reported, said James Chanos, a short-seller who has been a vocal critic. On Thursday, Enron said in a filing with the Securities and Exchange Commission that it had used partnerships to overstate its earnings by a total of $600 million over the last five years. Mr. Chanos said other information in the filing indicated that more restatements were possible. 
With so much uncertainty surrounding Enron's finances, Mr. Chanos and other analysts question Dynegy's decision to move so quickly. 
They note that Dynegy and Enron often traded with each other, and some analysts had wondered whether, if Enron had filed for bankruptcy, those trades might be wiped out, leaving Dynegy unhedged, or unprotected against sudden movements in the prices of natural gas or electricity. 
If, on the other hand, Enron is not forced to restate its profits down further, then Dynegy has clinched an amazing bargain. Analysts say Enron will make $1.80 a share this year, so Dynegy is paying just six times Enron's annual earnings, about a fourth the average ratio of companies in the Standard & Poor's 500. 
Dynegy said on Friday that the deal should increase its per-share earnings next year by 90 to 95 cents, to $3.40 to $3.50, even without factoring in up to a half-billion dollars in annual savings, before taxes, from the merger. Dynegy's shares closed Friday at $38.76, up $2.26, so if the company's forecast is accurate, it is trading at 11 times its 2002 earnings -- still a bargain compared with the average stock in the S.&. P 500. 
Jeff Dietert, an analyst with Simmons & Company in Houston, said Dynegy's estimates for its earnings in 2002 were ''conservative and very achievable.'' 
Mr. Watson said Friday that Dynegy was confident that Enron's operations and its trading business were healthy. ''We feel this is a very solid company with plenty of capacity to withstand whatever happens the next few months,'' he said. 
Mr. Dietert said Dynegy needed to strike a deal with Enron quickly to make sure that Enron's trading operations and financial health did not deteriorate any further. ''If Enron preserves the value of the marketing and trading company, then there is clearly value in the Enron stock,'' he said. 
Preserving Enron's investment-grade credit rating is crucial to keeping the trading operation afloat. To help convince Moody's Investors Service and Standard & Poor's, the major rating agencies, that Enron's rating should remain investment-grade, Dynegy has agreed to inject $1.5 billion into Enron immediately. Still, on Friday, both agencies cut Enron's rating to just one notch above noninvestment grade, or junk, status, and both suggested that the rating could fall further. 
So investors and creditors will watch carefully this week to see whether other energy companies continue trading with Enron, and whether the merger stems the outflow of talented Enron traders. 
Another question hanging over the deal is how easy it will be for Dynegy to walk away if Enron's finances turn out to be worse that Enron has already disclosed. 
The merger agreement, according to executives and investment bankers who shaped it, gives Dynegy the opportunity to quit the deal without penalty if major new problems surface. But what exactly those terms are remains unknown. 
So far, investors are giving Dynegy the benefit of the doubt. The company's stock rose 17 percent on Thursday and Friday. 
''The market believes Chuck Watson and the Dynegy management team are very disciplined in the way they manage risks,'' Mr. Dietert said.



Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	
Heard on the Street
Basic Principle Of Accounting Tripped Enron
By Jonathan Weil
Staff Reporter of The Wall Street Journal

11/12/2001
The Wall Street Journal
C1
(Copyright (c) 2001, Dow Jones & Company, Inc.)
What could Arthur Andersen have done to protect the investing public from Enron? Brushing up on a basic accounting textbook might have helped, some critics say. 
Confirming investors' fears, the Houston energy trader Thursday filed a lengthy disclosure document with the Securities and Exchange Commission declaring that its financial statements going back to 1997 "should not be relied upon" and will have to be restated. Among other problems, Enron acknowledged overstating its net income by a total of $586 million, or 20%. Enron's financial statements long have been widely assailed as indecipherable. Now, it turns out, they were just plain wrong.
But what is most striking about the latest disclosures is that they show Enron's misstatements weren't limited merely to judgment calls and gray areas for the green-eyeshade crowd to debate. Portions of Enron's accounting practices amounted to violations of elementary accounting principles, some accounting specialists say. 
Citing client-confidentiality rules, an Andersen spokesman, David Tabolt, declines to comment on his firm's work for Enron, which on Friday agreed to be bought by crosstown rival Dynegy. He calls Enron's disavowal of its previous financial statements an "unfortunate situation" and says Andersen is cooperating with the SEC's Enron investigation and the special committee formed by Enron to investigate the company's accounting and disclosure practices. 
Consider the primary reason for the $1.2 billion reduction in shareholder equity that Enron revealed in mid-October, sparking much of the downdraft in the company's shares. At the time, Enron said the reduction came about because it had decided to unwind certain transactions with some limited partnerships with which it had done business. On Thursday, however, Enron acknowledged that the original accounting for the transactions violated generally accepted accounting principles. 
Starting in early 2000, the company said last week, Enron issued shares of its own common stock to four "special-purpose entities," in exchange for which it received a note receivable. Enron said it had increased both its note-receivable assets and shareholder equity, a move the company called "an accounting error" that it is correcting. Under GAAP, the payment a company receives when issuing stock only counts as equity if it is cash. As a result, Enron's 2000 audited financial statements overstated the company's notes-receivable assets and shareholder equity by $172 million. And Enron's 2001 unaudited statements overstated them by $828 million. The $1 billion overstatement represents 8.5% of Enron's previously reported shareholder equity as of June 30. 
"It is basic accounting that you don't record equity until you get cash, and a note doesn't count as cash," says Lynn Turner, a former chief accountant for the SEC. "The question that raises is: How did both partners and the manager on this audit miss this simple Accounting 101 rule?" Adds Douglas Carmichael, an accounting professor at Baruch College in New York: "Anyone that's an accountant looking at the entry should have known" it violated GAAP. 
An Enron spokesman, Vance Meyer, says, "The accounting error was just that -- an error," explaining that, "We believed it was not material. However, it was, of course, corrected . . . And we did make the correction with Andersen's concurrence." He says Andersen "performed limited quarterly reviews" of the company's unaudited financial statements and reviewed the entries that resulted in the shareholder-equity overstatements "to the extent they deemed necessary." 
To some who follow the accounting world closely, this has a familiar ring to it. During the past few years, every Big Five auditor has been hit by multiple accounting debacles at high-profile clients. For Andersen, Enron joins a list including Waste Management Inc. and Sunbeam Corp. While the names of the clients may change, the issues remain largely the same. 
For instance, Enron had reported net income of $105 million for 1997, a figure that Enron last week said will be reduced to $9 million in its upcoming restatement for that year. Enron said the reduction is mostly because of $51 million in various unexplained "audit adjustments and reclassifications" that its auditors had proposed in 1997 but at the time had determined to be "immaterial." Cumulatively, those immaterial adjustments added up to nearly half of Enron's net income for 1997 and now will be included in the company's restatements. 
That looks a lot like what happened at Sunbeam. According to the SEC's May settlement order with Sunbeam, Andersen auditors had routinely dismissed so many violations of GAAP as immaterial that they eventually piled up to produce significant distortions in Sunbeam's financial statements, making the barely solvent consumer-products maker look handsomely profitable. Sunbeam filed for Chapter 11 bankruptcy-court protection this past February. In May, the SEC filed a civil lawsuit against five former Sunbeam executives and the Andersen partner in charge of the company's audit, accusing them of engaging in a massive financial fraud; all six defendants have denied the SEC's allegations. Andersen itself wasn't named as a defendant and has said it believes the lawsuit against its partner was an unjustified action over questions of professional judgment. 
Under GAAP, misstatements aren't immaterial simply because they fall beneath a numerical threshold, according to an SEC accounting bulletin. Under certain circumstances -- and it remains to be seen if they apply in the Enron case -- the SEC says intentional immaterial misstatements are unlawful. One reason is that when immaterial misstatements are combined with other misstatements, they can "render the financial statements taken as a whole to be materially misleading." 
Enron, which paid Andersen $25 million last year in audit fees and $27 million for other services, is one of Andersen's biggest clients. So far, Mr. Tabolt, the Andersen spokesman, says the SEC hasn't told Andersen it is a subject of the Enron probe. 
Enron's disavowal of its previous financial statements also is a major embarrassment for the directors who sit on the Enron board's audit committee, which serves as the overseer of Enron's financial reporting, internal controls and compliance processes. Among the committee members is Wendy Gramm, a former chairman of the Commodity Futures Trading Commission and the wife of U.S. Sen. Phil Gramm (R., Texas). Ms. Gramm also was a member of the audit committee of IBP Inc., a meatpacking company that earlier this year became engulfed in an accounting debacle that prompted an SEC investigation and nearly derailed Tyson Foods' since-completed plan to buy the company. 
Enron last week said its audit committee had been responsible for conducting annual reviews of the transactions between Enron and the partnerships run by former Chief Financial Officer Andrew S. Fastow. The company said its special committee is investigating "whether those controls and procedures were properly implemented." Through an Enron spokeswoman, Ms. Gramm declined to comment.



Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	
Dynegy's Enron Deal Faces Uncertainties --- Potential Antitrust Worries Or New Enron Liabilities Could Upset Agreement
By John Emshwiller and Rebecca Smith
Staff Reporters of The Wall Street Journal

11/12/2001
The Wall Street Journal
A3
(Copyright (c) 2001, Dow Jones & Company, Inc.)
Dynegy Inc.'s proposed $8.85 billion takeover of Enron Corp. faces major uncertainties, ranging from possible opposition from regulators to potentially huge new liabilities and write-offs at Enron. 
The problem with regulators could come from antitrust worries about folding Enron, the nation's biggest trader of natural gas and electricity, into Dynegy, also a major energy trader. Enron handles a quarter of all the natural gas and electricity traded in the U.S. The combined company -- which would be called Dynegy Inc. -- would have 22,000 megawatts of generating capacity and 25,000 miles of natural-gas pipelines, making it one of the largest companies in the nation in each of those categories. While Enron and Dynegy officials said that they expect the merger to garner the necessary government approvals, the review by regulators is expected to take months.
As for unpleasant financial surprises, Enron has already produced a devastating stream of them over the past month, ranging from huge write-offs of assets and reductions of shareholder equity to major downward restatements of past earnings reports. Much of this turmoil has been caused by Enron's dealings with private partnerships run by its own officers. Indeed, recent Enron disclosures indicate that as much as half of the company's pretax earnings in recent years came from deals with these officer-related partnerships, raising further questions about the quality of Enron's earnings and the potential for hundreds of millions of dollars of additional write-offs or restatements. 
Enron's partnership dealings have sparked more than a dozen shareholder lawsuits and a formal investigation by the Securities and Exchange Commission. In a measure of the continuing concerns over Enron's financial condition, both Moody's Investors Service and Standard & Poor's once again downgraded Enron's debt on Friday, this time to just one level above noninvestment-grade, or "junk," status. They also kept the company under review for possible additional downgrades and S&P put Dynegy on the same status. A downgrade to junk status could force Enron to come up with hundreds of millions of dollars in cash or stock to buttress some of its complicated financial transactions. 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	
Analysts, Competitors Give Dynegy-Enron Merger Thumbs Up

11/12/2001
Dow Jones News Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)
(This article was originally published Friday) 
By Jessica Berthold 
Of DOW JONES NEWSWIRES 

LOS ANGELES -(Dow Jones)- Analysts and market competitors said late Friday that the newly-announced merger between Dynegy Inc. (DYN) and Enron Corp. (ENE) will be a positive development for Dynegy and for the wholesale energy markets.
"I think Dynegy got a fantastic deal," said Ron Barone, managing director of UBS Warburg. "This just propels the company to a new plateau and plane. As for Enron, this was the best they could do given the mistakes they made." 
The deal, announced Friday, will have Dynegy buy Enron for about $8 billion-$9 billion in stock. Dynegy will swap 0.2685 share for each Enron share, and immediately infuse $1.5 billion in asset-backed equity to Enron. ChevronTexaco Corp. (CVX), which owns 26% of Dynegy, will invest $2.5 billion in new equity into Dynegy. 
Enron's stock price has fallen about 80% in the past three weeks, and its credit rating has been downgraded to one level above noninvestment grade, due to uncertainties about the transparency of its complex financial structure. The energy giant is under investigation by the Securities and Exchange Commission over transactions with entities headed by former Chief Financial Officer Andrew Fastow. 
Dynegy comes out of the merger as a white knight, while Enron's reputation is still in question, said Mark Roberts, director of research at Off Wall Street, an analysis firm in Cambridge, Mass. 
"It looks like a good deal for Dynegy. But if they can buy Enron for $10.40 a share, it makes you wonder about Enron's recent 8-K filing, which made things look pretty good. If it were so good, they wouldn't be selling for $10.40 a share," Roberts said. 
Regulators Seen Approving Merger 

Federal regulators will probably approve the deal, because they want to make sure the energy markets are safe, Roberts said. 
"A lot of people are exposed here, and this is an arranged marriage to save the market. This deal has to get done because Enron is in trouble and there are too many parties at risk." 
Before the merger was announced, U.S. natural gas and electricity traders had begun cutting back business with Enron, accepting lower bids or higher offers from competitors rather than take on the credit risk of trading with the struggling market leader. 
That should change with the announcement of the merger, analysts said. 
"Traders were backing off of Enron because there were questions about how long it would survive without an equity injection," Barone said. "It's in everyone's best interest that the merger be completed as fast as possible to maintain liquidity and stability in the market." 
Barone added that while the merger would create a "super global powerhouse," he didn't think competitors should be worried. 
"I think they'll be fine. They wanted this successfully resolved because if Enron were illiquid they would have had problems, the market would have had problems," he said. 
A Mirant Corp. (MIR) spokesman said that while "the market is bigger than just Enron was," the merger is a positive step. 
"Dynegy's involvement is good for the market. There will be a lot of opportunity in the market going forward," said spokesman Chuck Griffin. 
Reliant spokesman Richard Wheatley said the merger will create a more competitive market player. 
"Dynegy is a formidable company, and the merger will create a marketplace with an even more formidable competitor," Wheatley said. 
Consumer Advocates Oppose Merger 

Consumer advocates said the merger raised issues of market dominance. 
"The only thing worse than the current energy cartel would be the more tightly-controlled cartel to come out of an Enron-Dynegy merger. We will oppose this merger and urge state and federal authorities to oppose it as well," said Doug Heller, attorney for California's Foundation for Taxpayer and Consumer Rights, shortly before the merger was officially announced. 
A spokeswoman for California Attorney General Bill Lockyer said it was too early to comment on the merger, but said it was the type of transaction the office had examined in the past. 
"Our office has looked into corporate mergers before over concerns about their impact on competition in the marketplace in California," said spokeswoman Sandy Michioku. 
California has a rocky history with Dynegy and Enron, both of which have been accused by consumer advocates and Democratic politicians of overcharging the state for wholesale electricity. 
-By Jessica Berthold, Dow Jones Newswires; 323-658-3872; jessica.berthold@dowjones.com



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

IN THE MONEY: 2 Stories In 1: Enron CEO Sold Compaq Stk
By Michael Rapoport

11/12/2001
Dow Jones News Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)
A Dow Jones Newswires Column (This column was first published Friday) 

NEW YORK -(Dow Jones)- Two of the biggest business stories of the past week have been the opposition to the planned merger of Hewlett-Packard Co. (HWP) and Compaq Computer Corp. (CPQ) and the continuing troubles of Enron Corp. (ENE).
Who would've thought they'd turn out to have a connection, at least a tenuous one? 
Kenneth Lay, Enron's chairman and chief executive, is a member of Compaq's board. And less than two weeks ago, he sold a big chunk of his stake in Compaq - for a price that appears to be significantly less than what he could've gotten had he simply waited for the H-P deal to be completed. 
According to a Securities and Exchange Commission filing released Friday, Lay sold 124,596 Compaq shares - more than a quarter of his Compaq stake - on Oct. 29 for $9.25 a share. The filing doesn't give a reason for the sale but notes that as a Compaq director, Lay is restricted by the company to trading in its stock only during limited specified periods. 
Here's the funny thing, though: Given the exchange ratio in the H-P/Compaq merger, as well as H-P's stock price at the time, Compaq shareholders stood to get about $11 worth of H-P stock for each Compaq share at the time Lay sold his shares. 
So Lay sold at $9.25 a share at a time when his stock was essentially worth $11 a share if the deal is completed. He reaped about $1.15 million in proceeds from the sale, but that's about $220,000 less than the shares were worth at the time under the merger with H-P. 
Boy, that's a vote of confidence in the merger, isn't it - leaving $220,000 on the table? It's also worth noting that Lay could find the time to attend to his personal finances even as his own company was facing mounting questions about its financial structure and transactions. 
The latest development that threw the H-P/Compaq merger into serious jeopardy - the announcement that H-P's founding Hewlett family, which holds 5% of the company's stock, intends to oppose the deal - didn't occur till more than a week after Lay's sale, and there's no indication that Lay knew anything about it at the time he sold his shares. But that's irrelevant: If you're a Compaq director and you're confident that the H-P merger is going to go through and provide you with a premium, why would you sell AT ALL? Ever? 
Surely Lay isn't hurting for money. According to Enron's proxy statement, he earned a salary of $1.3 million and a bonus of $7 million in 2000, plus $7.5 million in Enron restricted stock and other benefits, including use of a personal plane. 
There may be a good reason for Lay's sale, but if there is, Enron isn't providing it. An Enron spokeswoman declined to comment on Lay's sale of Compaq stock. A Compaq spokesman couldn't be reached. 
Granted, this is very much a sideshow both to the H-P/Compaq deal and Enron's own quagmire, in which the company wiped out $586 million worth of earnings Thursday by admitting that some off-balance-sheet entities should have been on Enron's balance sheet after all. But given the shellshock that H-P, Compaq and Enron shareholders have been through this week, they deserve more of an explanation about this from Lay than a quiet, after-the-fact SEC filing. 

-By Michael Rapoport, Dow Jones Newswires; 201-938-5976; michael.rapoport@dowjones.com



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

USA: RESEARCH ALERT-Dynegy reiterated as "strong buy".

11/12/2001
Reuters English News Service
(C) Reuters Limited 2001.
NEW YORK, Nov 12 (Reuters) - UBS Warburg on Monday reiterated its "strong buy" rating on Dynegy Inc. after the power-trading firm entered into a deal on Friday to buy its bigger rival Enron Corp. for some $9 billion in stock. 
"If successfully executed, this transaction would yield the most widely recognized, respected and downright credible wholesale/retail energy merchant in the world," UBS said in a research note.
But it added that pursuant to the deal, Dynegy faces a daunting task of merging complex operations and employee bases. "We are not naive in underestimating the enormous challenge at hand," UBS said. 
It said, "We note that we would not be surprised to see Dynegy put on review for downgrade by all (credit-) rating agencies, as would be typical in the initial stages of such a transaction". 
Dynegy shares closed on Friday at $38.76 on the New York Stock Exchange.



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

USA: RESEARCH ALERT-Prudential raises Enron to 'hold'.

11/12/2001
Reuters English News Service
(C) Reuters Limited 2001.
NEW YORK, Nov 12 (Reuters) - Prudential Securities on Monday raised its investment rating on Enron Corp. to "hold" from "sell," citing the proposed buyout of the company by its smaller power-trading rival Dynegy Inc. for some $9 billion in stock. 
The brokerage said in a research note that it believes capital infusion from the deal will help Enron fill near-term liquidity needs.
But it added that it is uncertain whether the deal will help prevent Enron's energy-trading partners from reducing transactions and/or credit exposure over the next few months. 
Prudential said it is also concerned about strategic and cultural differences between Dynegy and Enron, and believes that the risk of losing talented traders before the transaction closes is high. 
The buyout, announced on Friday, calls for Dynegy to swap 0.2685 share for each Enron share, valuing Enron at $10.41 a share. Enron is also in the midst of an investigation by the Securities and Exchange Commission over questionable business practices in the past. Enron closed at $8.63 on the New York Stock Exchange on Friday.



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

UK PRESS: Enron Investigating Its Own Finances

11/12/2001
Dow Jones International News
(Copyright (c) 2001, Dow Jones & Company, Inc.)
LONDON -(Dow Jones)- U.S. energy trader Enron Corp. (ENE) has been running an internal investigation for several months into the financial dealings that led to a crisis of confidence on Wall Street and forced the company to agree a rescue merger at the end of last week, reports the Financial Times. 
Charles Watson, head of Dynergy (DYN), which bought Enron Friday, is reported as saying that lawyers and accountants are "poring over every transaction."
News of the investigation may add to speculation that the financial problems were behind the resignation August of Jeffrey Skilling after just six months as chief executive office, the paper says. 
Newspaper Web site: http://www.ft.com 
-London Bureau; Dow Jones Newswires; 44 (0)20 7842 9320



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

Enron assets may be overvalued by 5 bln usd on balance sheet - report

11/12/2001
AFX News
(c) 2001 by AFP-Extel News Ltd
NEW YORK (AFX) - Enron Corp assets may be carried on the company's balance sheet at 5 bln usd more than their current value, the Financial Times reported, citing a person familiar with Enron's thinking. 
The overvaluation is likely to prompt a big writedown by Enron's prospective new owner Dynegy Inc, a ChevronTexaco Inc affiliate, the newspaper said.
Meanwhile, the Wall Street Journal reported Dynegy as saying it has a right to walk away from the agreed 8.85 bln usd deal if Enron's additional legal and financial liabilities exceed 3.5 bln usd. 
Dynegy's proposed takeover faces possible opposition from regulators and the antitrust review of the deal is expected to take months, the Journal added. 
It noted that the combined company would have 22,000 megawatts of generating capacity and 25,000 miles of natural-gas pipelines, making it one of the largest companies in the US in each of those categories. 
Enron and Dynegy officials have said that they expect the merger to garner t he necessary government approvals. 
The FT said investors will today be briefed by Dynegy on its decision to focus on Enron's core gas pipeline business and wholesale energy trading operations. 
Investors are likely to quiz the executives closely on the potential losses from Enron's web of financial dealings that led to the crisis of confidence on Wall Street and forced the merger with Dynegy, it noted. 
jms For more information and to contact AFX: www.afxnews.com and www.afxpress.com



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

Enron's Sale Could be Thwarted by Antitrust Worries or Liabilities

11/12/2001
Dow Jones Business News
(Copyright (c) 2001, Dow Jones & Company, Inc.)
Dynegy Inc.'s proposed $8.85 billion takeover of Enron Corp. faces major uncertainties, ranging from possible opposition from regulators to potentially huge new liabilities and write-offs at Enron, Monday's Wall Street Journal reported. 
The problem with regulators could come from antitrust worries about folding Enron (ENE), the nation's biggest trader of natural gas and electricity, into Dynegy (DYN), also a major energy trader. Enron handles a quarter of all the natural gas and electricity traded in the U.S. The combined company -- which would be called Dynegy Inc. -- would have 22,000 megawatts of generating capacity and 25,000 miles of natural-gas pipelines, making it one of the largest companies in the nation in each of those categories. While Enron and Dynegy officials said that they expect the merger to garner the necessary government approvals, the review by regulators is expected to take months.
As for unpleasant financial surprises, Enron has already produced a devastating stream of them over the past month, ranging from huge write-offs of assets and reductions of shareholder equity to major downward restatements of past earnings reports. Much of this turmoil has been caused by Enron's dealings with private partnerships run by its own officers. Indeed, recent Enron disclosures indicate that as much as half of the company's pretax earnings in recent years came from deals with these officer-related partnerships, raising further questions about the quality of Enron's earnings and the potential for hundreds of millions of dollars of additional write-offs or restatements. 
Enron's partnership dealings have sparked more than a dozen shareholder lawsuits and a formal investigation by the Securities and Exchange Commission. In a measure of the continuing concerns over Enron's financial condition, both Moody's Investors Service and Standard & Poor's once again downgraded Enron's debt on Friday, this time to just one level above noninvestment-grade, or "junk," status. They also kept the company under review for possible additional downgrades and S&P put Dynegy on the same status. A downgrade to junk status could force Enron to come up with hundreds of millions of dollars in cash or stock to buttress some of its complicated financial transactions. 
Copyright (c) 2001 Dow Jones & Company, Inc. 
All Rights Reserved.



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

Thames company sets sights on takeover
Robert Buckland

11/12/2001
Western Daily Press
WP Wiltshire
40
Copyright (C) 2001 Western Daily Press; Source: World Reporter (TM)
WESSEX Water could become a takeover target for Thames Water as troubles continue to engulf its U.S. 
parent.
The Bath-based utility, which employs around 1,500 people, is one of several UK businesses owned by Enron, which last week was forced to slice more than $500 million (GBP354 million) from its reported profits for the past five years. 
Enron's much-smaller rival Dynergy is set to buy the troubled giant for $8 billion (GBP5.6 billion) - although the plunging value of Enron has become a sticking point. 
Enron, North America's biggest buyer and seller of electricity and natural gas, bought Wessex for GBP1.4 billion in 1998. 
At the time it said it planned to use Wessex's expertise as the foundation stone of global water company Azurix. 
But few contracts have been secured as Azurix has constantly found itself outbid by larger groups and the failure of the water business has only added to Enron's troubles. 
Weekend speculation suggested Thames Water was poised to pounce on Wessex as Enron's financial position gets weaker. 
Thames Water's German utility group owner RWE is keen to expand its water interests in the UK and has considered bidding for Wessex in the past. 
In August it was said to be running the slide rule over the firm to bolster its UK interests. 
It acquired Thames, the neighbouring water company to Wessex, last year for GBP4.3 billion. 
A Thames move for Wessex would attract the attention of the industry regulator and previous similar takeover bids have been blocked. 
But the fact that the two are neighbours - Wessex supplies an area stretching from Wiltshire to Somerset and Dorset, while Thames goes from London to Swindon - could weigh in the favour of any bid, along with Enron's shaky financial position. 
Enron last week acknowledged it overstated earnings by about 20 per cent over the past four years and kept large amounts of debt off its balance sheets through business partnerships now under investigation by the U.S. Securities and Exchange Commission. 
The SEC said Enron's financial statements from 1997 through the first half of 2001 "should not be relied upon" and that outside businesses run by Enron officials during that period should have been included in the company's earnings reports. 
Enron's debt ratings have also been reduced to one level above junk bond status and the company's long-term debt ratings remain under review for further downgrade. 
On Friday UK energy watchdog Ofgem said it was monitoring how the financial crisis could impact on the UK market. 
As well as owning Wessex, Enron has three power plants on Teesside whose customers include suppliers, generators and distributors.



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

India: Enron in trouble; Microsoft sees reprieve
setting up these private partnerships and making deals with them,

11/12/2001
Business Line (The Hindu)
Fin. Times Info Ltd-Asia Africa Intel Wire. Business Line (The Hindu) Copyright (C) 2001 Kasturi & Sons Ltd. All Rights Res'd
ENRON is facing corruption charges, and this time it has nothing to do with Maharashtra! The shock waves began when the company announced in early October that it had a $618 million (Rs 2,966 crore) loss in the third quarter and also disclosed write-offs to the tune of $1.2 billion (Rs 5,760 crore) due to some questionable transactions. 
Two of these deals were made public in the last couple of weeks. In one, Mr Andrew Fastow, the company's Chief Financial Officer, ran a private partnership called LJM2 Co-Investment LP (named with the initials of his wife and children) with whom Enron had several financial transactions. The aim of the transactions was to hedge against fluctuating values in some of Enron's investments.
Mr Fastow and other Enron employees who were a part of this partnership made millions in fees and investment gains in their personal accounts. 
Mr. Fastow was fired after the revelations. Second, the company is said to have made a $35-million (Rs 168-crore) purchase from an entity called Chewco Investments LP, run by Michael Kopper, managing director of its North America unit. This deal is seen as an attempt by Enron to park some of its debt elsewhere. 
Enron, which began as a natural gas and energy products company, has made important forays into retail energy and bandwidth products. And its growth has been phenomenal. From $13 billion (Rs 62,400 crore) in revenues in 1996, the company, in 2000, had revenues of $100 billion (Rs 80,000 crore). In 1999- 2000 alone, it grew 150 per cent. 
As an energy trader, the company is a dominant force in the markets. 
It extended its trading skills and software infrastructure into the bandwidth area, where it has met with more limited success. However, another venture, named Azurix, focussed on managing water supply and headed by Rebecca Mark (of Dabhol fame) was a failure, leading to her exit from the company. 
Some analysts are now beginning to wonder if the phenomenal results of the company have something to do with its creative accounting. Enron is said to have borrowed large sums of money for asset purchases without the debt showing up on the company's balance sheet. 
Analysts who often write about Enron use terms like 'Byzantine' and 'labyrinth' in describing its financial dealings. Now, they are admitting that they did not really understand what was going on. Enron has been very secretive when it comes to revealing its financial arrangements. 
Clearly, the company seems to have se -up all these private partnerships to make its balance sheet look clean and nice. In return, it allowed its senior employees to profit and fatten their wallets through the fees paid for the transactions. Was it the price paid to keep quiet? S&P and Moody's have lowered the company's credit rating. Its stock price has fallen from a high of about $85 (Rs 4,080) a year ago to about $13 (Rs 624) now. And newspapers are speculating that the company may be bought over. The Securities and Exchange Commission of the US has begun investigating the company. But Enron and its Chairman, Mr Kenneth Lay, are major contributors to President Bush and his Republican Party. So don't hold your breath. 
The immediate question that arises is that Enron's Board must have been aware of these conflicts of interest, where employees were benefiting in private deals they were making with, and on behalf of, the company. 
This is especially glaring in the case of Mr Fastow, who made the decision on both sides of the fence - that is, as CFO of Enron and as the managing partner of the partnership he was running. Why was the board sitting quiet about the corruption at this level? A look at the board's composition provides some interesting information. 
Apart from several luminaries in the energy and petroleum fields, three individuals should draw attention. One is Mr Norman Blake, a former Secretary General of the US Olympic Committee, an agency that was not so long ago caught in a scandal involving pay-offs to secure hosting rights for the games. 
Another is a Professor Robert Jaedicke, a professor of Accounting at Stanford University. A third is Ms Wendy Gramm, a former Chairperson of the US Commodity Futures Trading Commission. If nobody else, these people should be experienced in recognising managed accounting figures, and in smelling suspicious deals. Clearly, a lot of people at Enron were looking the other way, intentionally or accidentally. 
The company claims, in its website, that "It is difficult to talk about Enron without using the word 'innovative"'. How true! 
And Microsoft scores 
While Enron is getting into trouble, Microsoft is trying to climb out of it. In 1998, the US federal government, along with about 20 state governments, filed a suit against Microsoft charging it with monopolistic practices. The trial court held against the company and a new judge who was appointed has been pushing the parties to settle. 
A tentative settlement was announced on November 2 and it seems, at first glance, that all the effort will not make the company behave any different. 
Among others, the settlement requires Microsoft to disclose technical data to help competitors make programs; PC manufacturers will have more freedom to ship machines with non- Microsoft products and the company cannot retaliate against them; and it will have to establish standard royalties and licensing terms. More interestingly, a three-member panel will be located at Microsoft headquarters with staff and access to company records to monitor compliance with the settlement. The period is initially for five years, and is extendable to two more. 
While Microsoft may not secure high marks for the quality of its products, the company has always been a leader with its strategy. Though technology-savvy users of personal computers have always praised Apple for its hardware and its operating system, Microsoft is the one that has climbed to dominate with 90 per cent market share. And this is because it quickly worked with allies to establish its operating system as the more widely used standard. 
With comparable astuteness, the company managed to drag the anti-trust case long enough till a more sympathetic President occupied the White House. The anti-trust head under the Democratic President Clinton was Joel Klein, who was seen as a hawk, doggedly pursuing the company. 
So Microsoft waited it out, while making significant monetary contributions to the Republican Party. Even on the campaign trail, Mr George Bush made it known that he was not such a fervent devotee of anti-trust. 
Once he came to power, the newly appointed anti-trust chief quickly moved to compromise and settle. 
The proposed settlement is not leaving everyone happy. The other private corporations that were affected by Microsoft's practices are clearly disappointed with the terms of the settlement. America Online, now incarnated as AOL Time Warner, is the biggest Internet service provider, with about 30 million subscribers, and benefited from partnership with Microsoft. But the new Windows XP only has the company's own MSN service and its own messaging system, cutting out AOL. 
Sun Microsystems is another affected party. Sun's Java software allowed the same piece of computer code to run on many different kinds of computers. But the new Windows XP has dropped support for Java. Thus, both Sun and AOL, among others, feel closed out and do not see any change in Microsoft's monopolistic behaviour. 
It is this fact that has also upset about six of the state governments, which are also parties to the suit. At the time of writing, they have refused to sign on. Massachusetts, for one, has protested that it is an ineffectual deal. 
Microsoft bravely moves on, surviving a possible threat of break-up, like a juggernaut crushing all that come in its path. But a recent Wall Street Journal report has it that the controversy has taken its toll within, that employee morale is down, and several key people have left the company. Even if it manages to close the chapter on its US legal troubles, the company still faces an investigation by the European Commission. 
Correction: In my column last fortnight, I incorrectly mentioned that Polaroid's headquarters building was empty and for sale. Polaroid does not own the building any more and only rents space in it.C. Gopinath 
- The author is a professor of international business and strategic management at Suffolk University, Boston, US. His e-mail address is cgopinat@suffolk.edu



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

Unravelling the Dynegy enigma
Our Corporate Bureau Mumbai

11/12/2001
Business Standard
4
Copyright (c) Business Standard
Dynegy? What Dynegy? This reflex query has been doing rounds in India ever since the merger of energy major Enron Inc with it was announced last week. 
So, what is Dynegy?
For starters, the company shares the same headquarters as Enron Houston; and was even founded in the same year, 1985. 
It was set up by Chuck Watson but the largest shareholder in the company is really oil major Chevron Texaco, with about 27 per cent. 
Despite its attempt to swallow a corporation that is thrice its size, Dynegy is no piffling either. 
It is one of the world's leading energy merchants and had revenues of nearly $30 billion for the year 2000, and has crossed the $ 33 billion mark in the first nine months of 2001. It is a Fortune 100 company (positioned 54th) and finds a place in the Standard & Poors 500 index to boot. 
It is also in very similar lines of business to Enron. Like that controversial company it is a trader of natural gas, electricity, coal and broadband. The synergies of such a merger are obvious. Dynegy is also into power generation and distribution and is a leading player in the North American market. It has 43 generating station with a aggregate capacity of 19,000 mw. Last year it sold 138 million units of electricity and has already sold 213 million units this year. Most of its power delivery is routed through subsidiary Illinois Power. 
On the broadband front, the company has a 21,900 mile optic fibre network. About 16, 800 miles of this is in the United States while the balance 5,100 miles is in Europe. 
Dynegy has a presence in 16 countries with a total workforce of 6,700. Dynegy is not stranger to India. Last year it signed a memorandum of understanding with the Jatiyas of Wimco for setting up a joint venture company to set up a liquefied petroleum gas (LPG) import terminal at Okha in Gujarat. 
Apart from this the two parties were planning to set up LPG bottling plants together. The cost of the project was estimated at Rs 1,000 crore. After the deal with Enron goes through it will become the latest player in the Dabhol drama. Meanwhile, international ratings agency Moody's Investors Service on Friday said it cut its long-term and short-term ratings for embattled energy trader Enron Corporation and warned it could cut the ratings again because of a substantial loss of investor confidence. Moody's cut Enron's senior unsecured debt ratings to "Baa3," its lowest investment grade, from "Baa2." It also cut the company's commercial paper rating to "Not Prime" from "Prime-2." 
If Moody's cut Enron's long-term rating again, it would take it to a junk level. A downgrade would make it tougher for Enron to issue debt and run its day-to-day business. The downgrade also adds uncertainty to a potential merger with rival Dynegy Inc, which has been in talks to acquire Enron. 
Dynegy and Enron have asked for an expedited review of the merger from Moody's and Standard & Poor's. Enron shares traded Friday on the New York Stock Exchange down $1.15 at $7.25.



Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	
Companies And Markets
Dynegy Throws Enron $44bn Lifeline
Damon Kitney With Bloomberg

11/12/2001
Australian Financial Review
10
Copyright of John Fairfax Group Pty Ltd
One of the world's largest energy trading groups, Enron Corp, has staved off financial collapse after securing a $US23 billion ($44.8 billion) rescue bid from Dynegy, ending a crisis which threatened to cause major disruption to US power and natural-gas markets. 
Enron shares have plunged 90 per cent this year following investigations by US regulatory authorities into accounting irregularities which limited its ability to finance operations.
Under the terms of the deal struck in the United States on Friday, investors will receive 0.2685 of a Dynegy share for each Enron share. 
This is worth $US10.41, based on Dynegy's closing price on Friday. 
ChevronTexaco Corp, a 26 per cent shareholder in Dynegy, has agreed to provide Enron with an upfront cash injection of $US1.5 billion. Dynegy said it would assume about $US15 billion in Enron debt. 
The new company will have $US90 billion in assets while Dynegy's shareholders, including ChevronTexaco, will have 64 per cent of the new company. Enron's holders will own the rest. 
However, the deal is likely to be opposed by consumers in California after Dynegy and Enron were blamed for soaring electricity prices that left that State's biggest utility bankrupt and the second-largest fighting for a government bailout. 
In recent months, Enron shares plunged as investors began to question the accuracy of Enron's financial statements, saying it was unclear whether the company was using affiliated partnerships to move debt off its books and hide losses. 
On Friday, the company restated its earnings for the past four years, lowering them by more than $US500 million to include losses from partnerships it once kept off its books. After the merger announcement, Standard & Poor's Investors Service said it may lower Dynegy's debt rating. It cut Enron's to ``BBB,'' one notch above junk. 
Dynegy will have annual revenue of more than $US200 billion, more than 22,000 MW of electric-generating capacity and 40,000 km of pipeline after the merger. 
The company would save as much as $US500 million a year by ``winding down'' Enron's business outside of trading and pipelines and cutting costs, Dynegy said. 
The two Houston-based companies began negotiations a week ago as it became apparent that Enron needed cash to stay in business. 
Dynegy agreed to the terms after Moody's Investors Service maintained an investment grade rating on Enron, eliminating a stumbling block in negotiations. 
Moody's announcement removed the threat that a junk rating would force Enron to repay early $3.3 billion in bonds. 
Enron fired chief financial officer Mr Andrew Fastow last month as a US Securities and Exchange Commission investigation focused in on partnerships he headed and helped create. Enron estimated Mr Fastow made $US30 million through partnerships affiliated with it.



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

INDIAN COURT BARS ENRON FROM SERVING FINAL TERMINATION NOTICE

11/12/2001
Asia Pulse
(c) Copyright 2001 Asia Pulse PTE Ltd.
MUMBAI, Nov 12 Asia Pulse - Mumbai High Court on Friday, in an ad-interim order, restrained Enron's Dabhol Power Company (DPC) from serving final termination notice on Maharashtra State Electricity Board (MSEB) until December 3. 
The order was delivered by justice D K Deshmukh who ordered that status quo be maintained on the dispute between DPC and MSEB, which had resulted in the former serving preliminary notice on the board.
The court was hearing a notice of motion in a suit filed by financial institutions led by the Industrial Development Bank of India and others urging for directions to restart the plant and generate power, so that their investments were secured. 
The judge ruled that the 14-day period beginning November 19 (during which the DPC could serve the final termination notice as per the PPA) would not expire. 
On behalf of the plaintiffs, Solicitor General Harish Salve, argued that financial institutions were ensuring safe returns of their lendings. Of the Rs 130 billion (S$2.7 billion) investment in the controversial 2184 MW project the debt component was about 65 per cent, amounting to Rs 85.50 billion. 
Of this debt component, the Indian FIs' exposure was to the tune of Rs 60 billion, he disclosed. 
The only way to secure the loans was that the plant should be made operational so that DPC gets revenue from power generation, he said. 
Counsel for DPC, Ram Jethmalani, disagreed with Salve's submission that it was necessary to restart the plant to secure investments of FIs. 
(PTI) 12-11 1226



Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	
US utilities trader narrowly escapes junk debt status

11/12/2001
The Financial News
Copyright (C) 2001 The Financial News; Source: World Reporter (TM)
Financial Times 
Dynegy agreed a $7.8bn (e8.7bn) rescue bid for Enron, at the end of last week, after the largest US electricity and gas trader narrowly escaped having its credit ratings cut to junk status.
Moody's, the ratings agency, reduced its credit rating on Enron's unsecured debt from Baa2 to Baa3, after being briefed the previous day by Enron. 
Enron's new rating is just one notch above junk status. 
A deeper downgrade would have forced Enron to sell stock to cover about $3.3bn of obligations, and could have deterred Dynegy. 
Dynegy is offering just under 0.27 of its own shares per Enron share, valuing the bid at $10.40 per Enron share, or 21% above Enron's price at the close of trading on Friday. 
Enron will also receive an immediate cash injection of around $1.5bn from ChevronTexaco, which owns 27% of Dynegy, and a further $1bn when the deal closes. 
The initial infusion will be made through Dynegy, and ChevronTexaco will receive rights over $1.5bn of the merged company's stock. 
To protect its investment, Dynegy will receive preferred stock in an Enron subsidiary that owns gas pipeline assets. 
If the merger were not completed, Dynegy would have the right to acquire the subsidiary's equity. 
The merged company will be called Dynegy, and Dynegy executives will take the roles of chairman, chief executive officer, president and chief financial officer. 
Chuck Watson, chairman and chief executive of Dynegy, said the combined group would keep a strong balance sheet and straightforward financial structure. 
Dynegy added that Enron's accounting issues would not detract from the value of its businesses and predicted annual savings of $400m to $500m from the acquisition. 
Arthur Andersen, Enron's auditor, is understood to have approved the controversial off-balance sheet arrangement used by Enron to manage its trading risks and offload debt. 
The arrangements are at the heart of the energy company's decision to review its accounts earlier last week. 
In a regulatory filing late last week, Enron indicated that its decision to restate its accounts to include two off-balance companies was based on current information, implying full details had not been available before. 
A third accounting change was based on a new assessment, Enron said, raising questions about the auditor's earlier judgement. 
An Andersen spokesman refused to comment on whether the auditor had vetted the complex off-balance sheet arrangements. 
He said that the firm does help companies understand accounting rules and how to apply them. 
Comment: Dynegy presumably has been given a fuller and franker explanation of Enron's off-balance sheet mess than its investors, but it can scarcely have been able to carry out what normally counts as due diligence. 
Moody's decision and S&P's indecision meant Enron kept its investment grade and seems to have got the deal done. 
Do ratings agencies really provide independent analysis at these times? 
The Times 
The deal comes amid a Securities and Exchange Commission investigation into Enron's controversial business practices. 
Enron admitted late last week that it had overstated its profits by nearly $586m and understated its debt by $2.6bn over the past four years. 
Enron's disposal of its share in a $2.9bn Indian power plant was blocked by the Bombay High Court. 
Anxiety increased that US energy traders were starting to bypass Enron's internet-based energy trading systems over worries that the company could not pay for transactions and pay back collateral. 
The Daily Telegraph 
Enron's problems have already affected the European energy trading market, where the buying and selling of power on long- and short-term contracts helps balance demand and reduces the risk of price volatility. 
Innogy and TXU are understood to be picking up some of Enron's lost business to restore stability to the market. 
Dynegy may sell some of Enron's non-trading business in the UK as part of any financial restructuring. 
The Guardian 
Comment: Royal Bank of Scotland insists that its loan to Enron, understood to be worth several hundred million pounds, is fully secured and that interest payments are fully up to date. 
The facility may not be so safe as it was a few weeks ago.



Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	
Investors priced in Enron bond default
Jeremy Adams in New York

11/12/2001
The Financial News
Copyright (C) 2001 The Financial News; Source: World Reporter (TM)
Bond investors last week were so concerned about the demise of Enron, the beleaguered US energy trading group, that they were trading as if the company would default on its bonds within days. 
Several US investors, mainly hedge funds, were short selling a dollar bond that matures this week, said credit traders.
Short selling involves an investor selling securities they do not own, in order to profit from a fall in prices. 
The short selling of bonds that are about to be repaid is unheard of unless there is a fear that the issuer will not make the repayment. 
At the same time, it was impossible to buy Enron credit default swaps, a type of insurance against the company defaulting. 
Most of the short selling took place on Wednesday, the day before Enron, headed by Kenneth Lay, confirmed that it was in talks to be bought by arch rival Dynergy. 
News of the possible merger led hedge funds to unwind their short positions, at a loss. 
Enron's fall from grace has also added to pressure on auditing firms to do their job more diligently. 
Arthur Andersen was Enron's auditor over the 1997-2001 accounts that Enron last week had to restate. 
Enron investors have suggested that Arthur Andersen had not pushed Enron hard enough to disclose details about the partnerships that had complex ties with it and were run by former CFO, Andrew Fastow. 
Arthur Andersen faces a lawsuit, which suggests that the accounting firm was compromised by Enron paying the firm above standard auditing and non-auditing fees. 
The Southern Electrical Retirement Fund of Oregon said in the suit: 'Maintaining the client relationship was dependent on the individual defendants, particularly Enron's Lay, and Arthur Andersen compromised themselves to do so.'



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

Andersen Faces Jeopardy in Enron Accounting Error, Experts Say
2001-11-12 08:43 (New York)

Andersen Faces Jeopardy in Enron Accounting Error, Experts Say

     Houston, Nov.12 (Bloomberg) -- Arthur Andersen LLP 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, assuring
investors the company's financial statements conformed with
generally accepted accounting principles. Last week, the company
reported that it overstated earnings by $586 million over four-
and-a-half 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. On
Friday, Enron, the largest energy trader, agreed to be
acquired by Dynegy Inc. for $23 billion in stock and assumed
debt.

     ``I'd be very surprised if the SEC didn't go after Arthur
Andersen,'' said Alan Bromberg, securities law professor at
Southern Methodist University and author of a six-volume treatise
on securities fraud. ``I think they'll have a hard time ignoring
this one.''

     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.

     ``Issues have surfaced that have caused the company to
restate its financial statements and advise investors that they
should not rely on its financial statements or our audit
reports,'' Tabolt said, adding, ``We certainly recognize the
appropriateness of that decision.''

                        Settled Suits

     The SEC and shareholders can sue an accounting company for
issuing false and misleading financial reports about a publicly
traded company. Andersen this year paid $130 million to settle
lawsuits alleging the firm allowed Waste Management Inc. and
Sunbeam Corp. to file false financial reports that cost investors
billions of dollars in losses.

      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's 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.

                     'Basic Accounting'

     ``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 one billion dollars.''

     Enron paid Andersen $52 million last year, $25 million for
auditing and $27 million for services including business and tax
consulting, due diligence procedures and help in preparing SEC
filings, according the company's proxy statement. Enron and
Andersen declined to provide further detail.

     Those fees were proportionately larger than some other
companies paid outside auditors. Exxon Mobil, the world's largest
oil company, with more than twice Enron's $100.1 billion of
revenue, paid 29 percent less to its auditor,
PricewaterhouseCoopers LLP. Dynegy, which is also audited by
Andersen, paid $3.2 million for its audit and $4.1 million in
other fees. That is 86 percent less than Enron paid. Dynegy's
revenue of $29.5 billion was 71 percent less than Enron's.

                       Consulting Work

     John Coffee, Adolf A. Berle professor of law at Columbia
University Law School, said he is concerned about the $27 million
Enron paid Andersen for non-audit work. ``If you had an auditor
that wasn't trying to cross-sell other services with more profit
potential, would it have been as acquiescent?'' Coffee asked.

      Andersen's Tabolt defended the firm's consulting work for
Enron. ``We help improve the quality of financial reporting by
helping clients understand the accounting rules and how to apply
them,'' said Tabolt. ``In doing this, we follow the rules of the
profession and the SEC.''

     In the Waste Management and Sunbeam cases, shareholders and
the SEC alleged that Andersen allowed the companies to inflate
earnings and revenue. The firm agreed last week to pay $20
million to settle a malpractice lawsuit over its audit work for
Waste Management. Last June, Andersen agreed to pay a $7 million
civil fine, the largest ever imposed by the SEC against a Big-
Five accounting firm.

                        'Black Eyes'

     In April, Andersen agreed to pay $110 million to settle a
securities fraud class action suit filed over its accounting work
for appliance maker Sunbeam Corp. The appliance maker filed for
bankruptcy protection in February.

     ``Andersen now has three black eyes in a row,'' said Coffee,
who addressed the National Institute on Class Actions of the
American Bar Association on Friday in San Francisco.  The group's
members are lawyers who have collected billions of dollars for
investors in securities fraud class action suits against public
companies.

     ``There's a beauty contest going on,'' said Coffee,
referring to meetings taking place at the conference. He said law
firms are courting some of Enron's institutional investors for
the right to represent them against the energy company and its
auditor.

     Andersen's Tabolt said the SEC hasn't notified the firm that
it is under investigation in connection with its work for Enron.

     Coffee expressed concern that SEC Chairman Harvey Pitt,
who took over the agency in August, may not be as aggressive
in pursuing accounting fraud as his predecessor, Arthur
Levitt. As a private lawyer, Pitt represented major
accounting firms.

     ``Anyone who violates the law, and I do mean anyone,
will be held to the same high standards the agency has
applied for nearly seven decades,'' said Pitt in an
interview. ``There are no special rules for any class of
violator.''  He declined to comment on Enron and Andersen
because of the agency's investigation.


Dynegy Calls SEC's Probe of Enron `Financial Noise' (Update1)
2001-11-12 06:59 (New York)

Dynegy Calls SEC's Probe of Enron `Financial Noise' (Update1)

     (Adds Enron share trading in Germany in 14th paragraph.)

     Houston, Nov. 12 (Bloomberg) -- Dynegy Inc. Chairman Chuck
Watson said he's convinced Enron Corp.'s trading operations are
sound and described disclosures about affiliated partnerships that
helped drive Enron's stock down 67 percent in three weeks as
``financial noise.''

     Dynegy agreed Friday to buy Enron for at least $23 billion,
including at least $8 billion in stock and $15 billion in assumed
debt. In an interview after the merger announcement, Watson and
Enron Chairman Kenneth Lay discussed how the Houston-based
companies reached agreement less than three weeks after Enron's
shares began plunging.

     ``All the financial noise about the partnerships, maybe it
has damaged the Enron brand a bit,'' Watson said. ``But I'll tell
you what it hasn't impacted, and that's the high regard that the
industry places on'' Enron's trading business, he said.

     Enron last week restated earnings for four years to include
losses from three affiliated partnerships, reducing earnings by
$586 million.

     Six employees, out of Enron's 20,000, may have improperly
benefited from the partnerships, Lay said.

     ``I'm sorry those six people seem to have gone somewhat over
the edge in their dealings or transactions, but you can't be
absolutely protected from that in any business,'' he said.

                        Lost Effectiveness

     Lay didn't specify which six people he was referring to. He
removed Andrew Fastow, who helped set up and ran many of the
affiliated partnerships, as chief financial officer on Oct. 24. An
Enron securities filing says Fastow made more than $30 million off
two of the partnerships.

    Fastow ``had lost his effectiveness because of all the press
coverage'' on the affiliates, Lay said.

     Treasurer Ben Glisan and Kristina Mordaunt, a managing
director and a corporate counsel for an Enron division, also were
fired, Enron said in a corporate filing on Thursday. Former
employees Michael Kopper, Kathy Lynn and Anne Yeager were in a
position to profit from partnerships, the filing said.

     ``You trust people, you accept their representations and
proposals,'' Lay said. ``Sometimes when you do that, you get
surprised and disappointed.''

      Both executives said they expect antitrust regulators to
approve the merger because the two companies own different types
of assets and won't dominate any market.

    ``There really isn't anything that lays on top of each
other,'' Watson said Friday night. ``We're not in the pipeline
business and they are. We're in the generation business, and
they're really not.''

     Dynegy shares rose 6.2 percent on Friday after terms of the
Enron purchase leaked to the press. Watson expects the acquisition
to add 90 cents to 95 cents a share, or 35 percent, to Dynegy's
2002 earnings. Enron is selling for $10.41 a share, one-fifth the
average price over the past 12 months.

     Enron stock climbed 96 cents to $9.59 in Germany as 54,497
shares traded.

                            Cash Crunch

     The rapid decline of Enron threatened to bankrupt the company
and disrupt energy markets. Enron handles an estimated one-quarter
of U.S. electricity and natural-gas trades. A falling credit
rating made it difficult for the company to raise capital needed
to back trades.

     As part of the purchase, ChevronTexaco Corp., which owns 26
percent of Dynegy, agreed to provide Enron with $2.5 billion.

     ``What we found when looked under the hood is that the core
of Enron was still there and working as well as ever,'' Watson
said. ``That business was pristine and had nothing to do with the
partnerships.''

     Dynegy began taking steps toward the acquisition in late
October, when Watson called Lay to offer assistance with Enron's
growing financial crisis, the two men said. That led to a Saturday
morning meeting in Lay's kitchen.

     ``He even made me a breakfast roll,'' Watson said.
     ``He didn't eat it,'' Lay said.
     Lay said he won't be an active manager in the new company.
Watson said Friday that he and Lay hadn't discussed a severance
package.

     As head of Enron, Lay had refocused the Houston operator of
U.S. natural-gas pipelines on trading and international expansion,
boosting reported revenue 20-fold since 1995 to $100.8 billion
last year. He said he doesn't regret the strategy.

     ``Clearly, Enron has gotten involved in business that hasn't
turned out well,'' Lay said, pointing to money-losers Azurix Inc.,
created to supply water and build related projects around the
world, and NewPower Holdings Inc., a seller of electricity to
homes and small businesses. ``But you have to keep in mind, too,
that 12 years ago we weren't in the wholesale merchant (trading)
business. Today that's an incredibly valuable franchise.''

     The trading business, which accounts for about 97 percent of
Enron's revenue, buys electricity, gas and other commodities from
producers and sells them to end users such as utilities and
industrial customers. It also advises big business customers on
energy use and sells them gas and electricity.

                     Reassessing Steel, Lumber

     Watson said the new company will keep trading coal, gas,
power and petroleum products, and plans to expand by buying assets
and using them to develop trading. ``We'll just have to reassess
over time whether we stay in'' trading of steel, lumber and other
non-energy commodities, he said.

     Enron wants to shed its 65 percent stake in Dabhol Power Co.
in India, which is owed $64 million in overdue bills from a state
government agency that has refused to pay the power prices Enron
was promised in contracts.

     ``We have strong legal remedies and we're heading down the
path toward arbitration, but we'd still very much like to work out
a settlement with the government,'' Lay said. Potential buyers
have balked at Enron's $1 billion asking price for Dabhol.

     Neither man would comment on whether Dynegy plans to cut jobs
after the merger, or what will happen to the naming rights to
Enron Field. The Major League baseball stadium is home to the
Houston Astros, and Enron paid $100 million to have its name on
the ballpark.

     ``The name of the company is now Dynegy,'' Watson said.
     Dynegy's acquisition requires approval from U.S. securities,
antitrust and energy regulators. Watson expects soon to share
details of the new Dynegy with regulators from the European Union
and U.K., where Enron operates a trading desk and owns a water
company and two power plants.

     ``I don't know if we are required to do so, but we will talk
to them anyway,'' Watson said.

     ``We don't think there are going to be any problems,'' Lay
said.



Citigroup, J.P. Morgan Mull $500 Mln Enron Stake, Dow Says
2001-11-12 03:06 (New York)


     London, Nov. 12 (Bloomberg) -- J.P. Morgan Chase & Co. and
Citigroup Inc. may invest $250 million each in Enron Corp., the
company they are advising in its agreed takeover by Dynegy Inc.,
to stop credit downgrades, Dow Jones Newswires reported, citing
people familiar with the matter.

     Dynegy agreed Friday to buy the largest energy trader for at
least $23 billion, including at least $8 billion in stock and $15
billion in assumed debt. Moody's Investors Service maintained an
investment grade rating on Enron after the two banks told the
credit agency they were mulling a $500 million investment,
bolstering the company's financial outlook, the paper said.

     Moody's decision removed the threat that a junk rating would
create a cash crunch by forcing Enron to repay early $3.3 billion
of bonds. Last month, J.P. Morgan and Citigroup gave Enron a $1
billion credit line, using the company's pipeline systems as
collateral, the paper said.

     The investment, which raises conflict of interest issues, may
take several weeks to complete, the paper said.
     Citibank and J.P. Morgan spokesmen declined to comment.
Moody's spokesman also wouldn't comment.

(Dow Jones Newswires 11-12)



Enron Corp. Raised to `Hold' at Prudential
2001-11-12 07:26 (New York)

     Princeton, New Jersey, Nov. 12 (Bloomberg Data) -- Enron Corp. (ENE US)
was raised to ``hold'' from ``sell'' by analyst Carol Coale at Prudential
Securities.  The target price is $10 per share.

Hedging Bets on the Enron-Dynegy Deal
By James J. Cramer <<mailto:jjcletters@thestreet.com>>

RealMoney.com
11/12/2001 07:25 AM EST

This Enron (ENE:NYSE - news - commentary) deal is anything but definitive. In fact, it has so many loopholes in it that one has to believe that Dynegy (DYN:NYSE - news - commentary) may be going through the whole thing just to learn from the master -- or to learn what not to do, depending on your ethics. 
I can't recall a deal with this many breakup provisions: pipelines going here, money going there, money from Chevron (CVX:NYSE - news - commentary) , not Dynegy, caps on liabilities. 
To me it seems to be a bit of a charade. I don't think, personally, there is anything at Enron besides one pipeline that will generate a couple of hundred million in cash and lots of liabilities, some known, others not. 
The idea that Enron's traders and its trading desk are an asset is under heavy assault. Why would you want to buy something that may have made no money? 
On top of all of that is the possibility of massive antitrust action brought by consumers for what may have been a scheme to keep electricity off the California market. 
Go ahead, short Dynegy and go long Enron. Just make sure you have calls on Dynegy and puts on Enron to put. You'll need them. 
Random musings: See you on CNBC's "Squawk Box."