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Enron Mail |
**Please check the front page of today's issue of Gas Daily for articles entitled, "FERC Underestimates Air Effects of Competition, Study Says" and "Dynegy May Renegotiate Enron Takeover."
___________________________________________________________________________________________ US Physical Gas Prices End Up; Still $1 Below Nymex 11/26/2001 Dow Jones Energy Service Citigroup Has $2.38B Less To Lose On Enron Due To Swaps 11/26/2001 Dow Jones Capital Markets Report Enron falls 14 pct on mounting concerns over Dynegy deal 11/26/2001 AFX News Enron shares slide lower as merger doubts intensify. 11/26/2001 Reuters English News Service Enron lawsuit seen as wake-up call for pensions. 11/26/2001 Reuters English News Service US Corp Bonds-Bonds tighten, analysts fret on Enron. 11/26/2001 Reuters English News Service Petrobras, Petros, close to buying Enron's stakes in CEG/CEG Rio - report 11/26/2001 AFX News Energy Traders' Perfect Storm Stalls 11/26/2001 Dow Jones News Service India's AV Birla group denies bid for Enron unit. 11/26/2001 Reuters English News Service Enron's Stock, Bonds Drop on Concern for Dynegy Bid (Update8) Bloomberg, 11/26/2001 Dynegy Bonds Slip as Enron Purchase May Harm Credit Rating 11/26/2001 Bloomberg Enron Shares Slides to All-time Low CBS.MarketWatch.com, 11/26/2001 FBI warns energy companies of possible threat to gas pipelines by Osama bin Laden's network 11/26/2001 Associated Press Newswires Heads Urge Pipe Safety Passage. 11/26/2001 Natural Gas Week Enron and Dynegy Discuss Plan to Cut Price of Acquisition 11/27/2001 The Wall Street Journal Fair Shares? Why Company Stock Is a Burden for Many-- And Less So for a Few 11/27/2001 The Wall Street Journal Gas plan is back in the pipeline. 11/27/2001 Financial Times Enron shares off 15% on doubts about deal Dynegy's $9-billion buyout offer might not be completed under original terms 11/27/2001 The Globe and Mail Battered Enron in Search of $1 Billion; Stock's Decline Raises Doubts About Buyout 11/27/2001 The Washington Post Enron India unit, lenders to meet in UK this week. 11/27/2001 Reuters English News Service Enron Talking With Dynegy As They Work To Rescue Deal 11/27/2001 The New York Times U.S. Pipelines a Target / FBI warns gas, oil firms of vague threat 11/27/2001 Newsday Investors bet Enron deal will go bust ; Dynegy could kill deal or drop price 11/27/2001 Chicago Tribune 'Stimulus' for Enron 11/27/2001 The New York Times Top Companies Issuing Debt At a Fast Pace 11/27/2001 The New York Times Enron, Dynegy deal back on table 11/27/2001 Houston Chronicle Sizable staff of 245 lawyers in merger limbo 11/27/2001 Houston Chronicle Bin Laden threat against pipelines taken seriously 11/27/2001 Houston Chronicle Current recession differs from others 11/27/2001 Houston Chronicle Enron Gains on Optimism Dynegy Purchase to Proceed (Update1) 11/27/2001 Bloomberg Pressure Mounts on Enron Buyout Energy: Stock drops to its lowest since '87 on doubts Dynegy deal will go through. Workers sue over shrinking 401(k)s. 11/27/2001 Los Angeles Times Man arrested for issuing e-mail threat to Enron 11/27/2001 The Times of India Calif. Attorney Gen'l to examine Dynegy-Enron deal. 11/26/2001 Reuters English News Service Dynegy May Modify Enron Purchase Terms, People Say (Update2) 11/27/2001 Bloomberg Enron Faces New Employee Suit Alleging Securities Violations 11/27/2001 Bloomberg Enron Plunges, but Dynegy Will Suffer, Too 11/27/2001 TheStreet.com Another Sign Investors Don't Trust Enron 11/27/2001 Dow Jones News Service _______________________________________________________________________________ US Physical Gas Prices End Up; Still $1 Below Nymex 11/26/2001 Dow Jones Energy Service (Copyright © 2001, Dow Jones & Company, Inc.) HOUSTON -(Dow Jones)- U.S. natural gas physical prices mostly rose Monday, but held as much as a full $1 per million British thermal units below the New York Mercantile Exchange's December futures contract, traders said. Pushing prices upward is a mix of next-month's futures values and the impatience of waiting for winter, traders said. Traders covered short positions and balanced out pipeline overruns in usual end-of-month trading. Clouding the procedures were concerns about Enron Corp.'s viability and about terrorism attacks on pipelines, as Attorney General John Ashcroft confirmed warnings received by the FBI and other security agencies. Traders don't expect the cash-to-futures spread to continue much longer, especially with the advent of winter weather and the expiration of the December contract on Wednesday. However, major constrictions were reported over the weekend and Monday at major Gulf Coast to Northeast pipelines, meaning storage is full and there's little incentive to hedge. "People have no place to go (with the gas)," said one trader. In the West, prices strengthened as traders looked ahead to next-month values, one trader said. "There was absolutely no reason to be buying," said one Gulf Coast trader. He saw some weather forecasts predicting cooler temperatures, but those predictions were still above-normal weather patterns. "Winter will be here sometime," he said. Traders also avoided doing physical gas deals with Enron Corp., whose merger with Dynegy Inc. appeared in danger. Enron faces employee lawsuits and a weakening of its bonds. The company is reportedly trying to renegotiate its deal with Dynegy. In the meantime, a trader said Enron's gas bids and offers were well above pricing seen on other boards. December goes off the board Wednesday. It settled at $2.696 per million British thermal units, down 11.7 cents. At the benchmark Henry Hub in south Louisiana, traders paid $1.72-$1.90/MMBtu, up 10 cents on the bid, down 39 cents on the offer. First-of-month November index is $3.16/MMBtu, traders said. Deals at Transcontinental Gas Pipe Line Station No. 65 were done in a $1.72-$1.88/MMBtu range, unchanged on the bid, down 22 cents on the offer from Wednesday's range. November first-of-month index is $3.19/MMBtu, a trader said. At the Arizona-California Border, where gas from El Paso's pipeline begins delivery to Southern California lines, buyers paid $2.03-$2.50/MMBtu, up 55 cents-78 cents. November first-of-month index is $2.95/MMBtu. At the Katy hub in East Texas, buyers paid $1.78-$2.05/MMBtu, up 11 cents-16 cents. November index is $3.01/MMBtu. Houston Ship Channel rose 13 cents-15 cents to $1.84-$2.09/MMBtu. Index is $3.12/MMBtu. At Waha in West Texas, buyers paid $1.88-$2.20/MMBtu, up 33 cents-47 cents. November index is $2.86/MMBtu. -By John Edmiston, Dow Jones Newswires; 713-547-9209; john.edmiston@dowjones.com Citigroup Has $2.38B Less To Lose On Enron Due To Swaps By Christine Richard Of DOW JONES NEWSWIRES 11/26/2001 Dow Jones Capital Markets Report (Copyright © 2001, Dow Jones & Company, Inc.) NEW YORK -(Dow Jones)- Citigroup Inc. (C) is expected to extend a hand to Enron Corp. (ENE) by renegotiating a $690 million payment due Nov. 27. But investors shouldn't be concerned that the financial services giant is too exposed to the embattled energy trading company. Citigroup already may have laid off the loan and other exposure via a series of credit default swap transactions. That means more institutional investors left holding the bag if Enron isn't ultimately rescued from financial collapse by a takeover proposed by Dynegy Inc. (DYN). Over the last few years, Citigroup has entered into at least six transactions that effectively would allow the bank to lay off the equivalent of $2.384 billion in Enron exposure. Citigroup was instrumental in setting up Enron Credit Linked Notes Trust, Enron Credit Linked Notes Trust II and Yosemite Securities Trust I, which together raised $1.750 billion; Enron Sterling Credit Linked Notes Trust and Yosemite Securities Co., which raised a combined GBP325 million; and Enron Euro Credit Linked Notes Trust, which issued EUR200 million. Citigroup, which acts as the default swap counterparty to the trusts, receives the return on the portfolio of single-A-plus-or-better-rated securities, purchased with the proceeds of the offerings, in exchange for providing the payout on the Enron exposure, according to Mary Ryan, director of synthetic securities ratings at Standard & Poor's. As long as Enron remains out of bankruptcy, Citigroup continues to make payments on the notes, Ryan said. If Enron defaults, Citigroup would cease making payments to the trust. The single-A-plus-or-higher-rated securities in the trusts would go to Citigroup in exchange for the same nominal amount of now in-default Enron debt obligations. And with speculation mounting that Dynegy will reduce, or maybe even scrap, its offer to buy Enron, the chances of a such a default-driven transfer would appear to be rising. These notes essentially are synthetic Enron debts, meaning they act like Enron bonds in many respects, but lack key components that make holders true creditors of Enron. For instance, the holders of these notes, because they don't possess actual Enron obligations - and won't unless the company defaults - are not involved in negotiations to restructure or rollover debt. It has been reported that Enron is engaged in active negotiations over the terms of its debts with creditors. The synthetic notes all carry a rating equivalent to Enron's rating of triple-B-minus from Standard & Poor's and Baa3 from Moody's Investors Service. The rating on the securities has been downgraded in recent weeks to reflect the downgrades in Enron's ratings. Citigroup officials did not respond to requests for further details on the transactions. -By Christine Richard, Dow Jones Newswires; 201-938-2189; christine.richard@dowjones.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. STOCKWATCH Enron falls 14 pct on mounting concerns over Dynegy deal 11/26/2001 AFX News © 2001 by AFP-Extel News Ltd NEW YORK (AFX) - Shares of Enron Corp were down 14 pct in midsession trading as concerns continued to mount over the energy giant's acquisition by Dynegy Inc, with investors focusing more and more on the deal's breaking clause, dealers said. At 12.45 pm, Enron shares were trading down 65 cents at 4.06 usd, a decline of 14.0 pct. Dynegy was down 1.60 usd at 38.80, amid broad declines in energy shares as crude prices sank. The DJIA was up 57.70 points at 9,892.86. The S&P 500 was up 6.24 points at 1,143.27. The Nasdaq composite was up 11.94 points at 1,886.99. Dealers said that with Enron shares having slid well below the Dynegy offer price of 9.85 usd a share, the ChevronTexaco affiliate may well reconsider its offer, or walk away from the deal all together. "People are making the bet that perhaps Dynegy may cancel the deal, and that's there a lot more risk in playing the arbitrage," said Jefferies & Co market strategist Art Hogan. The deal with Dynegy contains a "material adverse change" clause, which could be invoked to call the deal off, he said. As part of its due diligence, Dynegy is examining details of Enron's filing with the Securities and Exchange Commission last week, which reportedly contained information it had not received previously. Enron shares have plunged further since the filing, in which Enron revealed a number of new financial problems including a possible obligation to repay a 690 mln usd note due Nov 27. Enron subsequently received an extension on the repayment until mid-December. Since the beginning of the year, Enron shares have lost over 90 pct of their value after it was revealed that the company would post hefty third-quarter charges linked to risky investments by the firm's former chief financial officer. "At this point, with so much smoke around the fire, I think the shares are rightly valued," said Jefferies' Hogan. ng/gc Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: UPDATE 1-Enron shares slide lower as merger doubts intensify. By Janet McGurty 11/26/2001 Reuters English News Service (C) Reuters Limited 2001. NEW YORK, Nov 26 (Reuters) - Shares of troubled energy giant Enron Corp. continued to lose ground on Monday amid fears that the proposed acquisition of the company by smaller rival Dynegy Inc. will fall through. Enron stock was down 61 cents, or 12.9 percent, at $4.13 in active midmorning trade on the New York Stock Exchange. Dynegy has agreed to pay $10.55 per share for Enron. "The market is acting like the deal is not going through or not going through at the original terms," said Michael Heim, an industry analyst at A.G. Edwards & Sons. Heim said that among three possible scenarios - the deal goes through as planned, it is canceled, or it is restructured - the first is the least likely. "Escape clauses" built into the Dynegy-Enron deal give the buyer the option to back out if there is serious deterioration in Enron's business or assets. "Dynegy has a good claim that the 'material adverse condition' clause has already been triggered, either by the $690 million loan being accelerated, earnings (being) down or the ongoing trading business weakness," he said. Last week Enron said it could be forced to pay a $690 million debt this week because of a credit downgrade, but the payment deadline has been delayed until mid-December. Enron's recent admission that lower volumes at its trading business - the crown jewel that Dynegy most covets - could cause low fourth-quarter earnings raises the possibility that the trading business is losing its profitability. Continued lower volumes there would remove a key attraction for Dynegy. "Every day that goes by where Enron trading volumes become less, it decreases the value of the assets Dynegy was trying to buy in the first place," Heim said. "Besides trading and marketing, what value does Enron have?" The majority of Enron's physical assets are spoken for, with partnerships and creditors getting first dibs and Dynegy getting the first right to exercise its option to acquire Enron's Northern Natural Gas pipeline. Dynegy, which is 26.5 percent-owned by energy giant ChevronTexaco , is to swap 0.2685 share of its own stock for each share of Enron. Shares of Dynegy were down $1.27, or 3.1 percent, at $39.13 in midmorning NYSE trade. Enron agreed to a Dynegy buyout after it was overwhelmed by a series of problems, including a U.S. regulatory probe of off-balance-sheet dealings by its officers, a $1.2 billion cut in shareholder equity, and cuts in its credit ratings. Enron subsequently restated its earnings, but investor unease snowballed and its share began tumbling. The shares were above $90 in August 2000. Heim said he was not sure that EnronOnline, Enron's online trading platform, is the premier property it once was. "Two years ago it had some value, but now others have been able to duplicate it. It's not the computer systems - it's the traders and network that Enron had. If those go away, the value lessens. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: Enron lawsuit seen as wake-up call for pensions. 11/26/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, Nov 26 (Reuters) - A Washington, D.C., lawyer said Monday he hopes heavy losses suffered by Enron Corp. employees will spur Congress to limit employee investments in their employers' stock through 401 (k) retirement plans. "How many workers have to lose both their jobs and their retirement savings before Congress steps in and puts a stop to this by placing a cap on the amount of company stock that can be in a 401 (k) plan?" lawyer Eli Gottesdiener asked. Gottesdiener released a statement Monday saying he had filed a lawsuit on behalf of employees of the beleaguered energy giant who have lost an estimated $850 million on Enron stock held in their 401 (k) retirement accounts. The suit is the third one filed against Enron that alleges the company breached its fiduciary duty to employees by encouraging them to invest in its stock at artificially inflated prices. All three suits seek class-action status. Enron's shares have fallen from a high of $90 in August 2000 to less than $5 today, their decline accelerating since Oct 16 amid a series of disclosures about its deteriorating finances. Like many other companies, Enron makes matching contributions to its employees' 401 (k) retirement accounts in its own stock. It also requires them to hold the stock they receive in matching contributions until they turn 50. Enron employees were also prevented from selling Enron stock held in retirement accounts for several weeks from mid-October due to a change in the retirement plan's administrator. Gottesdiener said investment advisors recommend investing no more than 15 percent of a portfolio in a single stock, but that participants in 401 (k) plans offering employer stock as a choice typically hold 33 percent of their portfolio in that stock. "Congress sensibly placed a 10 percent limit on company stock in traditional defined benefit plans back in 1974, but at the behest of the corporate lobby, it placed no such cap on defined contribution plans," he said. The absence of such a cap in defined-contribution 401 (k) plans was "completely indefensible," he said. Gottesdiener's suit alleges that Enron violated federal securities law by offering and selling Enron stock to employees without issuing a prospectus. If proven, this would give workers the right to reverse their purchases, he said. Gottesdiener is also involved in class action pensions litigation against New York Life Insurance Co. and SBC Communications Inc.. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: US Corp Bonds-Bonds tighten, analysts fret on Enron. 11/26/2001 Reuters English News Service (C) Reuters Limited 2001. By Jonathan Stempel NEW YORK, Nov 26 (Reuters) - U.S. corporate bonds outperformed Treasuries on Monday as traders edged back to their desks following the Thanksgiving Day weekend, in the midst of a broad revival for corporate bonds of all stripes. In secondary trading, spreads, the yield difference between the bonds and comparable maturity U.S. Treasuries, tightened about 0.01 percentage point. "I would expect a continuation of the tightening, especially with Treasury interest rates going up," said one trader. "Absolute corporate yields are starting to look pretty attractive." Corporate bonds, especially junk bonds, have outperformed Treasuries this month as investors developed a new tolerance for risk. Though absolute returns for investment-grade corporate bonds are negative, they are even worse in the Treasury market, where investors appear more convinced that the current U.S. economic downturn won't be deep or long. "The successes in Afghanistan and some milder-than-anticipated economic data have combined to increase investor appetite for risk," wrote fixed-income research service CreditSights Inc. in a report dated Monday. "While the severity and swiftness of the bond market's correction was a surprise, it hasn't changed our basic view of U.S. corporate bonds and we continue to recommend overweight positions." This week's forward calendar remains quiet. In early trading, 10-year Treasuries rose 10/32, as their yields fell to 4.971 percent. ENRON Market participants are closely watching Houston-based Enron Corp. as the largest U.S. energy trader tries to merge with smaller cross-town rival Dynegy Inc. , keep its investment-grade credit ratings, and manage a load of $9.15 billion of debt and other obligations, much of which is unsecured and coming due within 13 months. Of this debt amount, $690 million could come due by mid-December, and $3.9 billion immediately if Enron falls to junk status. The key to resolution of this matter, some observers believe, is Enron's banks. "The goal of the banks now is to re-cut their exposure to gain as much structural seniority or asset liens as possible, take out fees, raise rates, take down total exposure, and generally improve their risk-profile under multiple scenarios," said CreditSights. "The very bankers who are supplying liquidity through new secured bank lines and who are rumored to be considering equity investments are the ones on the hook (and unsecured) for $3 billion in bank loans," wrote Carol Levenson, an analyst for GimmeCredit, another fixed-income research service. "If Dynegy backs out (in the interest of self-preservation), these vital bank renegotiations might save Enron but leave unsecured bondholders as the patsies." Enron's existing 6.4 percent notes maturing in 2006 and 6.75 percent notes maturing in 2009 were bid on Friday at 57 cents on the dollar, down from around par on October 12, before Enron first reported third quarter results, which it later revised downward. Enron shares have fallen 94 percent this year to their lowest level since early 1989. DATA Investment-grade and junk bond spreads narrowed 0.1 and 0.27 percentage point last week, respectively, to 1.68 and 7.84 percentage points, according to Merrill Lynch & Co. Junk bond spreads have narrowed 1.45 percentage points this month. For the month, junk bonds have returned 2.996 percent, while investment-grade corporate bonds have lost 2.355 percent and Treasuries 3.488 percent, Merrill Lynch said. For the year, the respective bonds are up 4.777, 9.634 and 6.565 percent. For a complete list of upcoming or recently priced bond deals, please click on . Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Petrobras, Petros, close to buying Enron's stakes in CEG/CEG Rio - report 11/26/2001 AFX News © 2001 by AFP-Extel News Ltd SAO PAULO (AFX) - Petroleo Brasileiro SA and its pension fund Petros are close to winning regulatory approval to purchase Enron Corp's stakes in gas distributors CEG and CEG Rio, daily Valor Economico reported. Valor said Petrobras last week reached an agreement with the Regulatory Agency for Public Service Concessions of Rio de Janeiro local authorities, under which it agreed to undertake a series of investments in exchange for approval to acquire Enron's 13.38 pct stake in CEG and its 33.75 pct stake in CEG Rio. It said the deal now passes to Rio de Janeiro governor Anthony Garotinho for approval. as For more information and to contact AFX: www.afxnews.com and www.afxpress.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. TALES OF THE TAPE: Energy Traders' Perfect Storm Stalls By Christina Cheddar 11/26/2001 Dow Jones News Service (Copyright © 2001, Dow Jones & Company, Inc.) Of DOW JONES NEWSWIRES (This story was published originally Friday) NEW YORK -(Dow Jones)- Here's one 2001 outlook that couldn't have been more wrong. Around this time last year, pundits and fund managers were touting "the perfect storm" of market forces that were coming together to make the energy trading business one to watch in 2001. Then came the California power crisis, and allegations of price-gouging and fears of credit defaults began to cloud the outlook for the group. That was followed by renewed volatility in power prices, and this time the prices were headed down, not up. And then came a crushing blow against trading firms - the unraveling of the industry's largest player, Enron Corp. (ENE). Simply put, the perfect storm stalled, and a business once buoyed by high gas prices, strong demand and tight supply now lies in tatters. The stocks of companies whom some say should be valued more like growth stocks than utilities are instead mired at around nine-times earnings - about where traditional utilities trade. And the chance for recovery in 2002? Basu Mullick, portfolio manager of the Neuberger Berman Partners fund, is willing to bet there is. He thinks energy traders deserve at least the same price-to-earnings multiple as the broader market's median, which is currently between 16- to 17-times future earnings, he said. It's just a matter of time before the stocks get there. "They were just recovering from Gray Davis," Mullick said, referring to the governor of California, who had accused "out-of-state" energy traders of artificially inflating the price of power in the state, and triggering the state's energy crisis. "Now, they are recovering from Enron." The fund manager also blames lower commodity prices, warm weather and poor demand for the recent weak performance in the group. "Energy convergence companies are putting up terrific growth rates," he said. "I don't think they should get the same valuation as a garden-variety utility." Still, others think the stock market is continuing to make distinctions between the energy traders by taking a harder look at the companies' strategies and financial disclosures. Enron's precarious financial situation underscores the importance of accounting issues. Although many of Enron's financial problems aren't solely the fault of mark-to-market accounting issues, there has been growing attention paid to this form of financial reporting because of the earnings volatility it can create. Answers Elude Investors Investors are asking hard questions, and not always getting the answers they want. Using mark-to-market methods, a company calculates the fair market value of a commodity position - whether it's a contract, an option, a swap, etc. - at the time, even if the value of the position is realized over a longer period. The problem with this method is the actual cash a company realizes from the position might not be the same value the company calculated in its original assessment. Also, sometimes it isn't easy to calculate the fair value of the commodity position. This is particularly true in instances where the market for the commodity isn't liquid. Over time, companies with the highest level of disclosure regarding their mark-to-market gains will most likely trade at higher multiples to counterparts that provide little or no disclosure, said ABN AMRO Inc. analyst Paul Patterson. Encouragingly, it appears companies may already be responding to the call for added disclosure. According to a survey Patterson conducted, more companies with energy trading units were willing to disclose the details of their mark-to-market accounting practices during third-quarter conference calls compared with those in the second quarter. Patterson said he prefers earnings that are cash-based. "All things being equal, we believe reported earnings that more closely reflect the timely realization of cash have a higher quality associated with them than earnings that do not," he said. He expects investors to become smarter and learn to distinguish between earnings growth through accrual accounting and growth fueled by mark-to-market accounting. At the end of the day, it is not a matter of simply producing profits, but being able to say where those earnings came from, said one investor, who manages a pension fund. Some investors also may be placing a greater emphasis on the cash flow the energy merchants produce. Tim O'Brien, portfolio manager of the Gabelli Utilities Fund, said energy merchants that own the physical power assets to back up their trading positions should trade at a premium to an independent power producers and traditional utility companies. Still, the stocks should be valued at less than the growth rate of the company because of their heavy exposures to commodity prices. Energy merchants include companies such as Dynegy Inc. (DYN), Duke Energy Corp. (DUK) and Dominion Resources Inc. (D). According to O'Brien, the group never deserved to have the price-to-earnings multiples above 20- to 30-times earnings, which were once paid for the stocks. "We all got sucked up by the up-leg of the cycle and forgot just how cyclical these companies are," O'Brien said, adding that the average multiple should be in the high single-digits to the high-teens. As for independent power producers - which are companies without regulated operations that own power plants to generate electricity to sell and trade in the wholesale market - the group may wind up being valued on the basis of the replacement costs of the assets in their portfolio, according to O'Brien. "One analogy is that they are basically like commercial real-estate plays," O'Brien said. That could mean stocks such as Calpine Corp. (CPN), which is already in the lower-half of its trading range, may have further to fall. -By Christina Cheddar, Dow Jones Newswires; 201-938-5166; christina.cheddar@dowjones.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. INDIA: UPDATE 1-India's AV Birla group denies bid for Enron unit. 11/26/2001 Reuters English News Service (C) Reuters Limited 2001. (Recasts with denial, comments from financial institution in paragraphs 5-6) BOMBAY, Nov 26 (Reuters) - The Aditya Vikram Birla Group, a leading Indian conglomerate, on Monday denied newspaper reports it was looking to buy U.S. energy giant Enron Corp's 65-percent stake in the beleaguered Dabhol Power Company. "There has been no expression of interest in Dabhol. We are not interested," a top AV Birla group official told Reuters. Two leading Indian business dailies earlier said the group, whose interests range from textiles to cement and carbon black, is eyeing Dabhol to expand its interests in the domestic power sector. The Economic Times and the Financial Express said the group was exploring the possibility of submitting an expression of interest to Indian financial institutions to buy Enron's stake in the company. An official of state-run Industrial Development Bank of India, the leading financier of the $2.9 billion project in the western state of Maharashtra, said he has not heard from the Birla group. "We have not received any official communication from them," the official, who did not wish to be identified, told Reuters. The spokesman for Dabhol was not available for comment. FIGHTING FOR SURVIVAL Enron Corp, which is fighting for survival in the United States amidst investor doubts over its corporate governance practices, owns 65 percent of Dabhol. General Electric Co and Bechtel own 10 percent each, while the Maharashtra State Electricity Board (MSEB) owns 15 percent. Dabhol and MSEB have been fighting over payment defaults and high tariffs for over a year. The dispute has affected India's efforts to attract foreign investment in the power sector and caused Enron and its U.S. partners to announce plans to exit the project. Tata Power Company Ltd, India's largest private sector utility firm, and BSES Ltd, another utility company and a member of India's largest conglomerate, the Reliance Group, are already in talks to buy Enron's stake. The AV Birla Group has adopted the route of mergers and acquisitions in recent years to consolidate its position in key industries. Last week, one of its group companies, Grasim Industries Ltd, bought a 10-percent stake in India's largest cement maker, Larsen & Toubro Ltd Earlier this year, Indian Rayon & Industries Ltd, another group company, entered the information technology sector by buying out France's Groupe Bull SA's 50.35 percent stake in PSI Data Systems But the group's track record in the power sector has been less than impressive. Two joint ventures with Britain's Powergen Plc to produce over 1,000 megawatts of electricity in two Indian states have not made much headway since they were announced in the mid-1990s. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron's Stock, Bonds Drop on Concern for Dynegy Bid (Update8) 2001-11-26 16:45 (New York) Enron's Stock, Bonds Drop on Concern for Dynegy Bid (Update8) (Adds analyst comment in 4th paragraph.) New York, Nov. 26 (Bloomberg) -- Enron Corp.'s stock price declined to a 14-year low and its bonds plunged 10 points on concern the company won't secure $1 billion in fresh capital, threatening its plan to be acquired by Dynegy Inc. ``The clock is definitely ticking,'' said Jon Kyle Cartwright, a debt analyst at Raymond James and Associates. ``The question is the survivability of Enron.'' J.P. Morgan Chase & Co. and Citigroup Inc. executives met today to line up investors for as much as $2 billion of bonds convertible into stock. The company needs the money to operate until Dynegy completes its $23 billion purchase. Dynegy unveiled its plan to make the acquisition on Nov. 9. Enron shares and bonds, which opened lower, tumbled after 1 p.m. when no announcement for fresh financing was made. Enron's 6.4 percent notes that mature in 2006 plunged to 48 cents on the dollar, down from 55 cents on Friday. The bonds now yield 26 percent. Enron shares declined 15 percent, or 70 cents, to $4.01. Concern that rival Dynegy may change or cancel its bid for Enron has pushed Enron's stock down 55 percent in the past week. Enron's shares had plummeted 86 percent since mid-October after the company reported a $618 million third-quarter loss and said expansion into water, telecommunications and retail-energy sales cost it $1.01 billion. ``You haven't heard anything from Dynegy today, and that is a bit scary,'' said Andy Palmer, who doesn't hold Enron bonds in the $2 billion he helps manage at ASB Capital Management Inc. in Washington. Part of the third-quarter charge was connected with limited partnerships run by the chief financial officer. He was ousted, and the U.S. Securities and Exchange Commission started an investigation into Enron's accounting. The company earlier this month restated its earnings for the past four years. Talks on $1 Billion Under the buyout, Enron investors would receive 0.2685 Dynegy share for each share held. That valued Enron at $10.41 a share, 21 percent more than Enron's share price that day. On Friday, the buyout valued Enron at $10.85 a share, more than double Enron's closing price of $4.71. The widening of the difference between the value of the offer and Enron's stock price indicates investors doubt the buyout will go through. Shares of Enron traded as low as $3.76 today, rebounding to close at $4.01. The stock was the most active in U.S. trading Wednesday and Friday. Dynegy dropped $1.15, or 2.85 percent, to $39.25. The stock has fallen 30 percent this year. Both companies are based in Houston. Egan-Jones Ratings Co. lowered its rating on Enron's credit today to ``BB-'' from ``BB.'' ``Dynegy needs to show its support, or Enron will slide,'' the firm said in a report. Moody's Investors Service hasn't issued a report on Enron since the company filed its 10-Q quarterly report with the SEC a week ago. The ratings agency's analysts haven't returned calls for comment. Moody's cut Enron's long-term credit rating on Nov. 9, though it maintained an investment grade. `More Problems' ``Time is not Enron's friend,'' said Stewart Morel, co-head of investment grade debt research at UBS Warburg LLC. ``There is increased concern in the market that there may be more problems that are yet to be disclosed.'' On Wednesday, Enron got a three-week reprieve from lenders on a $690 million note due this week, giving the company more time to restructure its finances. Dynegy Chief Executive Officer Chuck Watson said he was ``encouraged'' by the commitment to extend the note payment, as well as the closing of a $450 million credit facility, and that Dynegy remained committed to the merger. Terms of the $690 million note were outlined for the first time in the Enron filing a week ago. Enron also said that it has less than $2 billion in cash and credit lines left. If the company's cash reserves run too low, Enron's credit rating may be cut below investment grade. That would trigger $3.9 billion in debt repayments for two affiliated partnerships. Enron said in the filing that fourth-quarter profit might be hurt by a drop in its trading business. Companies such as Aquila Inc. and Mirant Corp. have reduced their activity with Enron because of credit concerns. ``Should the Dynegy deal fall through, we don't view it likely that Enron would be able to remain as a stand-alone company,'' Youngberg of Edward Jones said. ``Without Dynegy, the credit rating will fall, causing their trading business to dry up further.'' Enron, the biggest energy trader, once handled about a quarter of U.S. gas and power transactions. Enron's bankers met with leveraged buyout firms and two industrial companies to seek an investment, the New York Times reported last week. J.P. Morgan Chase & Co. and Citigroup Inc. agreed to terms that give each of them a $250 million equity stake as part of a transaction to be completed today. Dynegy Bonds Slip as Enron Purchase May Harm Credit Rating 2001-11-26 15:16 (New York) Dynegy Bonds Slip as Enron Purchase May Harm Credit Rating New York, Nov. 26 (Bloomberg) -- Dynegy Inc. bonds have fallen as much as 9 percent this month on investor concern the energy trader's proposed $23 billion purchase of rival Enron Corp. will erode its credit rating. Dynegy's 6.88 percent coupon notes due in 2011 are trading at $932 per $1,000 face value, down from $1,024 last month, according to Merrill Lynch & Co. data. Yield on the debt has risen to 7.9 percent from 6.5 percent as investors demand more return to compensate for the increased risks of the securities. Dynegy's credit is rated ``Baa3'' at Moody's Investors Service, the lowest rung of investment grade, and ``BBB+'' at Standard & Poor's, two levels higher. Each ratings company said it may cut Dynegy's credit rating if it buys Enron, which comes with about $15 billion in debt and a regulatory inquiry into financial partnerships set up to keep debt off its books. ``If you put Dynegy and Enron together it will have a detrimental effect on Dynegy's credit rating,'' said Tim Nelson, senior credit analyst at U.S. Bancorp Piper Jaffray Cos. in Minneapolis, which holds Dynegy bonds. Dynegy's 7.45 percent coupon notes due in 2006 are trading at $1,019 per $1,000 face value, down from $1,085 last month, according to Merrill. The notes yield almost 7 percent, up from 5.4 percent. Enron's credit is rated ``Baa3'' at Moody's and ``BBB-'' at S&P, the lowest level of investment grade. Both ratings companies are reviewing the credit for a possible downgrade and say Dynegy's buyout plan is what's keeping the grades above junk. ``I don't think right now anybody knows exactly what Enron is,'' said Mark Simenstad, who holds Dynegy bonds in the $5 billion he helps manage at Lutheran Brotherhood. ``Dynegy has proven to be pretty well-managed over the years so you have to give them the benefit of the doubt here,'' Simenstad said. ``The hope is that if there's something they don't understand they'll walk away.'' Dynegy has $3.9 billion of bonds outstanding, most of which come due between 2002 and 2011, according to Bloomberg data. Shares of Houston-based Dynegy, which topped $47 two weeks ago after Chief Executive Chuck Watson said the Enron purchase would boost earnings by at least 35 percent next year, fell $1.30 to $39.10 in mid-afternoon trading today. Enron's shares, down 92 percent this year, fell as much as 80 cents, or 17 percent, to $3.91, a the lowest since 1987. Enron Shares Slides to All-Time Low By CBS.MarketWatch.com 4:53 PM ET Nov 26, 2001 HOUSTON (CBS.MW) -- Enron shares fell as much as 20 percent Monday, crashing through the $4 level for part to set an all-time low and cast additional doubt on the energy merchant's plan to be acquired by rival Dynegy. Enron (ENE) set a new all-time low of $3.76 Monday afternoon before closing at $4.01, off 70 cents. More than 60 million shares changed hands, making it the most active issue on the New York Stock Exchange. The stock has lost about half its value since Dynegy announced an agreement to buy Enron on Nov. 9 and more than 85 percent of its value in the past month. Meanwhile, shares of Dynegy (DYN) lost $1.15, or 2.8 percent, to stand at $39.25. The collapse in Enron's share price has made it more likely that Dynegy and Enron will have to renegotiate the terms of their original deal, in which 0.2685 of a Dynegy share would be exchanged for each outstanding Enron share. However, the Financial Times reported that Dynegy remains confident of its ability to complete a deal for Enron, which has been seeking $500 million in private equity capital to shore up its finances. "We continue to hear reports the Enron's energy marketing and trading business, once the crown jewel of the company, has eroded badly with counterparties only willing to do shorter-term deals," A.G. Edwards & Sons analysts Charles Fishman and Douglas Fischer wrote in a research note Friday. Enron investors do not believe that the merger is likely to occur under the current terms, the analysts said. Chance of Dynegy backing out _______________________________________________________________________ On Monday, Michael Heim, also of A.G. Edwards, attributed Enron's latest stock drop to "growing belief that the likelihood of the (merger) deal is not so likely." He pointed out that the outlook for Enron is "not very favorable" but in the meantime, it's doing everything it can to stay "afloat" while working on closing the deal. Last week, Enron said it got a bank extension on a $690 million note to mid-December. The note was originally set to come due in 2003, but was bumped up to Nov. 26 due to a rating downgrade at Standard & Poor's. <http://cbs.marketwatch.com/news/story.asp?guid=%7B81418CA4%2D11A5%2D4C7C%2DA602%2DCF3DA4BCAA7B%7D< The payment by itself is manageable because Enron has about $2 billion in cash on its hands, Heim said, but "the event moves Enron's merger one step closer to the point in which Dynegy is able to exercise the merger's material adverse condition clauses and back out of, or restructure, the merger deal." Heim has a "sell" rating on the stock. FBI warns energy companies of possible threat to gas pipelines by Osama bin Laden's network By H. JOSEF HEBERT 11/26/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. WASHINGTON (AP) - The FBI has warned energy companies that Osama bin Laden may have approved plans to attack North American natural gas pipelines and facilities if he is captured or killed. Natural gas producers and pipeline companies continued to be on a high state of alert, industry executives said Monday, although they declined to discuss the latest warning, which was sent in a memo to industry security officials last week. In Bismarck, Williston Basin Interstate Pipeline officials put employees on notice that they need to implement security measures, spokeswoman Laura Lueder said. The company, a subsidiary of MDU Resources, serves North Dakota, South Dakota, Montana and Wyoming. "The company always had security measures outlined for these kind of situations, but it did update the measures following the Sept. 11 attacks," Lueder said. Attorney General John Ashcroft confirmed the FBI warning, though he expressed some doubt that attacks would be conditioned on bin Laden's capture or death. "It didn't take anything specific to trigger the attacks on the World Trade Center or the Pentagon," said Ashcroft when asked about the alert at a news conference. Even so, "those are the kinds of reports which we take seriously." The alert did not single out a specific target, but referred to natural gas supplies including the more than 260,000 miles of gas pipelines and hundreds of pumping stations and other facilities. "We have received uncorroborated information that Osama bin Laden may have approved plans to attack natural gas supplies in the United States," said the memo, according to several industry sources, who spoke on condition of anonymity. "Such an attack would allegedly take place in the event that either bin Laden or Taliban leader Mullah Omar are either captured or killed," the alert continued. The FBI alert said the information came "from a source of undetermined reliability" and that "no additional details on how such an attack would be carried out, or which facilities would be targeted" could be learned. Since the Sept. 11 terrorist attacks, the energy industries - including operators of nuclear power plants, refineries, pipelines and power grids - have scrambled to increase security on a belief that they could be singled out for another round of attacks. One industry source characterized the FBI warning as similar to one issued earlier this month on potential attacks against West Coast bridges that prompted security alerts. In that case, no further evidence of potential terrorist activity emerged. The alert was sent on Nov. 17 from FBI headquarters to agency field offices, which then forwarded the information to industry officials. The alert prompted the American Petroleum Institute, which is the lead industry group coordinating with the FBI and Energy Department on security matters, to issue a memo last Wednesday to oil and gas companies. Energy industry executives were reluctant to discuss the latest alert, or their security measures, although several confirmed the memo and said additional precautions have been taken. Still, the potential for a terrorist attack has left some industry officials jittery. "We prefer to keep a low profile," said an official of one of the largest natural gas pipeline companies, agreeing to speak only on background so that the company would not publicly be singled out. "Our facilities are on high alert and they have been since Sept. 11," said Laurie Cramer, a spokeswoman for the Natural Gas Supply Association, which represents natural gas producers. There are 263,000 miles of natural gas transmission lines crossing the country and another million miles of local distribution lines. Although most of the lines are buried, aerial surveillance of major pipelines has been increased and security tightened at pumping stations, industry officials said. Access to facilities has been restricted as well, officials said. Also, some detailed information about location of pipelines and other energy infrastructure has been taken off some corporate and government Internet sites. But the industry is in a quandary over how much information should be withheld about the location of pipelines, which often must be clearly marked to prevent someone from accidentally rupturing one when digging. The availability of maps also has helped to promote acceptance of pipelines in communities. "We want people to know where they are" to prevent accidents, said Benjamin Cooper, executive director of the Association of Oil Pipe Lines. But he acknowledged the desire for public disclosure now is being tempered somewhat for security concerns. "The biggest danger to natural gas pipelines on an ongoing basis is (the line) being hit by a backhoe or heavy equipment," said Kelly Merritt, a spokesman for Columbia Gas Transmission Corp., one of the country's biggest pipeline companies. While a rupture of a gas or oil pipeline could cause significant problems, industry experts emphasized that most lines are relatively isolated and even a major break in a line can normally be repaired fairly quickly. Heads Urge Pipe Safety Passage. 11/26/2001 Natural Gas Week P8 © 2001 Energy Intelligence Group. All rights reserved WASHINGTON, D.C. - A letter to US Transportation Secretary Norman Mineta urged passage of an effective and responsible pipeline safety bill. In the letter, released last week, pipeline leaders offered their assistance to the department and said, "Our industries have joined together to address both regulatory and legislative pipeline safety issues in a unified fashion." Signing the letter were 14 leaders of the oil and natural gas transmission and distribution pipeline industries and the leaders of the five key trade associations, which include the American Gas Association, American Petroleum Institute, Association of Oil Pipe Lines, American Public Gas Association and Interstate Natural Gas Association of America. The letter came with the industry's unified position paper calling for regulatory and legislative action on pipeline safety. The industry is urging an adequately staffed and funded Office of Pipeline Safety and other measures to increase safety and enhance public confidence. Enron and Dynegy Discuss Plan to Cut Price of Acquisition By Rebecca Smith and Robin Sidel 11/27/2001 The Wall Street Journal Page A3 (Copyright © 2001, Dow Jones & Company, Inc.) Enron Corp., struggling to save its two-week-old deal to be acquired by Dynegy Inc., was in advanced discussions with Dynegy to cut the price of the all-stock transaction by more than 40% to about $5 billion, according to people familiar with the matter. Beleaguered Enron also was in continuing negotiations to extend the maturity dates of some of its borrowings in order to stem a growing liquidity crisis, these people said. Enron has total debt of about $13 billion. Increasingly, analysts are worried that the giant energy-trading concern's relatively few hard assets are so encumbered by debt that they can't be used to support further borrowing. Enron stock slid to its lowest level in over a decade at 4 p.m. yesterday on the New York Stock Exchange, falling 70 cents to $4.01 a share. Over the past few months, about $60 billion of Enron's stock value has evaporated, a process that has accelerated since mid-October when the company announced a quarterly loss and a subsequent reduction in its equity base. Since then, revelations that company executives profited from partnerships used to move assets on and off Enron's books have spooked investors and triggered a Securities and Exchange Commission investigation. Recently, the company has twice restated earnings for past periods amid indications that its vaunted energy trading business is showing some signs of stress. The move to renegotiate the acquisition agreement, and particularly to slash the number of Dynegy shares that Enron holders would receive, only two weeks after the pact's signing is virtually unheard of in corporate transactions. While terms are sometimes altered due to unanticipated developments, that typically doesn't happen until a transaction is nearly completed. Enron had hoped to finalize arrangements and make an announcement yesterday that would calm its anxious investors, but the situation remained fluid throughout the day. As of yesterday evening, the revised deal still hadn't been formalized. The deal is critical for Enron. In recent weeks, credit-rating agencies have indicated they will refrain from further cuts to Enron's credit rating so long as a Dynegy purchase appears probable. But if that deal collapses, downgrades could occur that would put Enron below investment grade and in violation of credit agreements with counterparties. This in turn could deal a savage blow to Enron's commodity-trading business that is its lifeblood. Negotiators for the two companies returned to their home bases of Houston yesterday after spending much of the holiday weekend meeting in suburban New York where they tried to agree on new provisions to the deal, which was announced Nov. 9. Both Dynegy and Enron declined to comment on the discussions. One apparent sticking point in the talks was arriving at a new stock-exchange ratio. Under the current acquisition agreement, Dynegy would exchange 0.2685 share for each Enron share tendered. Based on yesterday's New York Stock Exchange closing price of $39.25 for Dynegy shares, down $1.15, Enron holders stand to receive $10.53 a share for their stock, or a total of about $9 billion. People close to the discussions said the new ratio is expected to be less than 0.15 share of Dynegy stock for every share of Enron stock, which would value Enron at less than $6 a share, or about $5 billion. Another contentious issue concerns the amount of additional capital Enron needs to shore up its finances. A week ago, the company disclosed it may have to post hundreds of millions of dollars or more to honor collateral calls before the end of the year. The problem for potential lenders is finding good assets to back these continued infusions of capital sought by Enron. As part of the original merger agreement, Dynegy already has injected $1.5 billion into Enron, receiving in exchange preferred stock in its Northern Natural Gas Co. pipeline system that runs from the upper Midwest to Texas. Under the agreement, if the acquisition falls apart, Dynegy "will have the right to acquire 100% of the equity in the Northern Natural Gas subsidiary," thus giving it "the full value of its investment." But that arrangement is raising questions on Wall Street about whether creditors are throwing good money after bad. Northern Natural Gas already is heavily encumbered with debts. In addition to $500 million in unsecured public debt and $1.5 billion put in by Dynegy and co-investor ChevronTexaco Inc., a bank consortium led by J.P. Morgan Chase & Co. recently put in an additional $450 million in cash backed by Northern's assets. The bank consortium also provided $550 million to Enron, against which assets of Enron's Transwestern Pipeline Co. unit were pledged. This system, a network between Texas and California, is the only other domestic gas-transportation system fully owned by Enron. That brings total indebtedness to nearly $4 billion for two Enron pipeline systems that only generated transportation revenue of $77 million and $41 million, respectively, in the third quarter. Enron's entire natural-gas pipeline business, which includes two other partially owned systems, produced pretax earnings of $85 million for the third quarter, flat with the year-earlier period. Some observers said that if the Enron deal to be acquired by Dynegy falls apart, this could set the stage for a fight among the different classes of creditors for a priority claim on the pipeline assets. --- Jathon Sapsford contributed to this article. Fair Shares? Why Company Stock Is a Burden for Many -- And Less So for a Few --- Workers Often Must Hold On To Stakes Held in 401(k)s; Top Brass Have Options --- Hedging for the `Upper Tier' By Ellen E. Schultz and Theo Francis 11/27/2001 The Wall Street Journal Page A1 (Copyright © 2001, Dow Jones & Company, Inc.) In the 1990s, as the stock market climbed year after year, many corporations and their employees entered into a marriage of convenience: The company would dole out its own shares as compensation and benefits. Employees would have a steadily appreciating asset that encouraged loyalty and created an incentive to work hard for the company's success. They're still doing it. Gillette Co., for example, "believes it is important that employee interests be aligned with company interests," says spokesman Stephen K. Brayton, echoing the explanations of dozens of other companies that use their own stock for executive pay, incentive bonuses, or contributions to 401(k) retirement-savings accounts. But as share prices have fallen over the past year and a half, it has become clear that not all stock handouts are created equal. Millions of rank-and-file workers at hundreds of companies have found themselves shackled to big chunks of company stock, while executives are able to exercise wide latitude in what they do with theirs. Because of the law capping tax-deductible executive compensation at $1 million a year, many companies top off their executive pay packages with stock options, as well as bonuses and other incentives that are typically paid in stock, much of it unencumbered. Based on filings with the Securities and Exchange Commission, hundreds of companies use their own stock in lieu of cash as their matching contributions to employees' retirement-savings accounts. And the majority of those restrict the ability of employees to sell the shares and move the proceeds into mutual funds and other alternatives offered through their 401(k)s. Benefits consultants Hewitt Associates found in a recent study that nearly half of 215 firms offering company stock in their 401(k) plans only contribute their own shares to employee accounts, and that 85% of those companies restrict sales of the stock. Gillette doesn't let employees switch out of its stock contributions to their 401(k)s until age 50, according to government filings. At Coca-Cola Co., it's age 53. Procter & Gamble Co., Qwest Communications International Inc. and troubled Enron Corp. -- now facing lawsuits over employees' 401(k) losses -- are among the many others that impose similar restrictions. So far this year, Gillette employees have had to watch the company-contribution portion of their retirement savings shrink by millions of dollars as the share price has fallen 11%. Employees at Coca-Cola have endured a share-price decline this year of 18%. Procter & Gamble shares have been flat. The companies point out that executives participate in the same 401(k) plans as other employees, subject to the same restrictions. Still, the bulk of company stock that executives own is usually held outside such restricted accounts. At Qwest, with a share price down 69% so far this year, top executives and directors have sold a combined $172 million of Qwest shares so far this year, according to SEC data collected by Thomson Financial/Lancer Analytics. Qwest Chief Executive Joseph P. Nacchio alone has sold Qwest shares valued at $89 million. Likewise, many companies offer supplemental savings plans for executives that don't force them to hold company stock. Some top executives at Coca-Cola can participate in a supplemental retirement-savings plan with a guaranteed annual return of 14%. Executives at Qwest are able to contribute as much as 100% of their salaries and bonuses to a supplemental plan in which they can allocate their own and company contributions as they like. Executives also can protect themselves -- without selling their shares and triggering taxes -- by using hedging techniques offered for just that purpose by firms such as Goldman Sachs Group Inc., Eaton Vance Corp. and Bessemer Trust Co. Disclosure of these deals to the SEC is generally required but spotty. "It clearly has been a growing business, and very busy in the last 12 months," says Michael Dweck, head of the Single Stock Risk Management division at Goldman Sachs. (The firms marketing these hedging strategies typically hedge their own side of the transactions to protect themselves, as well.) "People recognize the inherent risk of holding all your wealth in a single stock." His operation generally won't arrange transactions for blocks of stock worth less than $5 million. "It's for the upper tier of management," Mr. Dweck says. For the rest, companies point out, employees have ample opportunity to diversify their retirement-savings portfolios by investing their own contributions in other options offered. Indeed, many workers have ill-advisedly put a lot of their own 401(k) money into their employers' stock. Wyn Triska, a 42-year-old power-plant technician for an Enron unit in Estacada, Ore., says he warned many of his co-workers of the dangers of wagering all their retirement savings on Enron. "Even when Enron was going up," he says, "I never put a cent into it -- it just doesn't make sense to load up on one stock." Nonetheless, even he has been unable to sell the stock that Enron has contributed to his 401(k) as the share price has plummeted from $86 a little more than a year ago to around $4 now. Under the company's 401(k) rules, he can't sell until age 50. For many rank-and-file workers, risk-averse or not, their 401(k)s are their largest assets, apart from their homes. So holding company stock they can't sell has become a source of resentment and frustration. Federal pension law leaves 401(k) plans largely outside the realm of regulation. But lately, some employees have taken their frustration to the courts. Just this month, in three separate lawsuits -- the latest filed yesterday -- participants in Enron's 401(k) plan allege that Enron misled them about the risks of investing in the company's shares. The suits, all filed in Federal District Court in Houston, note that the company "locked down" the retirement plan from Oct. 17 to Nov. 19 to make administrative changes. That prevented all employees, regardless of age, from selling any Enron shares in their 401(k)s as the stock price collapsed amid financial turmoil at the company and an SEC investigation into its accounting practices. Enron says it doesn't comment on pending litigation. Those lawsuits, along with a handful filed against other companies recently, don't take on directly the practice of forcing employees to accept and hold company stock in their 401(k)s. That's perfectly legal. So whatever the outcome, a company would still be able to restrict employee sales of company-stock contributions to 401(k) before the price declines. "Even when they've had gains, they can't really lock them in because they can't diversify," says Randall Shoker, an Oxford, Ohio, financial adviser. Michael Green knows that. The 35-year-old investment specialist joined Dell Computer Corp. in 1995 as a product manager. He and his wife, Lisa, an assistant controller at the company, were thrilled as the stock rose to about $51 a share in late 1999 from $1 in mid-1995, adjusted for splits. But by the late '90s, the couple felt overexposed to Dell. In addition to the Dell stock that the company had contributed to their 401(k) plans, they had received stock options as bonuses. And they had bought a home in Austin, Texas, where the real-estate market is tied in part to the fortunes of Dell, one of the area's biggest employers. The Greens sold some of the stock they received as bonuses. But Dell wouldn't let employees sell shares the company contributed to their retirement accounts until they had been at the company for five years. "I tried so hard to sell," Mr. Green says. "We went around and around." The company changed its policy last year to allow all Dell employees to sell the shares in their 401(k) plan and shift the proceeds into alternatives available through the plan. By then, though, Dell shares had plummeted, erasing $200,000 from the Greens' 401(k) accounts. "That's as much as we paid for our house," Mr. Green says. Both left Dell earlier this year for other jobs. SEC filings show that Dell executives, though subject to the same restrictions on their regular 401(k) accounts, can participate in a supplementary retirement-savings plan that allows them immediately to reinvest the company's contribution in a variety of options. Executives have seized that opportunity: Just 9% of the supplementary retirement plan was invested in Dell stock at the end of last year, according to the company's latest 11K filing, compared with about 50% of Dell's 401(k) plan. Dell spokesman T.R. Reid declines to comment on the Greens' circumstances. He says that any employees who lose so much money on company contributions could do so only because they had made a bundle until that point. And providing Dell shares to the employee retirement-savings plan, he says, "certainly provides incentive to not only think but act like a shareholder." The company ended the five-year lock-down rule, Mr. Reid says, because it was no longer necessary to keep employees focused on improving Dell's shareholder value. And he says Dell executives don't have to hold company stock in their supplementary plan because they "receive a significant portion of their compensation in Dell stock," and thus they already "have the broader interests of the company and shareholders squarely in their sights." SEC filings show that Dell executives nonetheless have means to protect themselves from exposure to the company's stock. Michael Dell, chairman and chief executive of the computer company he founded, transferred a total of 4.1 million shares, worth $190.7 million, into so-called exchange funds in several transactions between September 1999 and May 2000. (The shares accounted for about 1.3% of Mr. Dell's total company holdings at the time). Offered by financial firms to the wealthy, exchange funds are, in essence, mutual funds that allow holders of large chunks of a single stock to pool their assets, giving them a stake in a diversified, less-risky basket of securities and, in some cases, postponing tax liabilities. Altogether, the value of Mr. Dell's hedged shares would have fallen in market value by 38%, or $73 million, by earlier this month had he taken no precautions. (The return on the diversified exchange fund isn't disclosed). Until the five-year rule was lifted, employees like Mr. Green could get out of their Dell 401(k) holdings only by withdrawing money from their accounts, paying income tax and a 10% penalty on the withdrawal, and then reinvesting the difference. Or, says Dell spokesman Mike Maher, they could have elected "to take their compensation and not put it in their 401(k), and invest it in some other stock." By doing so, however, they would have forgone the company's matching contribution altogether. Mr. Maher declines to comment on Mr. Dell's transactions. He notes that like executives, regular employees who receive options are free to sel
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