B2B at Enron

Tom,

I am sending you the information about our new B2B unit.
I have talked yesterday with Greg Whalley who is heading the new
unit about the E-commerce project at Wharton and recommended that Enron join
this program.

I have sent him this morning a copy of the materials you gave me.

The meeting with Jeff Skilling has been pushed till the 2nd half of July.
I talked to him briefly twice that Jeff Shankman and I want to discuss with
him building a relationship with Wharton. Jeff Shankman is, by the way, a
great friend of
your institution.

Vince

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COMPANIES & FINANCE: THE AMERICAS: Enron sees bricks and
bytes mix reshaping energy market: Purchase of MG only
a start in
building B2B platforms, writes Hillary Durgin:

COMPANIES & FINANCE: THE AMERICAS: Enron sees bricks and
bytes
mix reshaping energy market: Purchase of MG only a start
in building
B2B platforms, writes Hillary Durgin:
99% match; Financial Times ; 16-Jun-2000 12:00:00 am ;
604 words
By HILLARY DURGIN

If Jeffrey Skilling is right,

Enron's acquisition of MG is only the tip of the iceberg.
Enron's president and
chief operating officer is engineering a fundamental
strategy shift at the
Houston energy company, aimed at making it a dominant
"new economy"
player across various industrial markets.

The Dollars 446m acquisition last month of MG, the
UK-based metals trader,
is only the first of more than Dollars 1bn in estimated
new investments the
company is targeting. It is seeking vehicles on which to
build
business-to-business (B2B) platforms in sectors such as
logistics, chemicals,
agricultural products and pulp & paper.

Mr Skilling wants to take the business model the company
developed in
natural gas and power and apply it to other wholesale
commodity markets. He
argues the electronic platforms it creates will not only
become the principal
B2B sites for those sectors, but reshape those
industries.

As an example, he points to Enron's new e-commerce
platform, EnronOnline,
which has changed the way the company does business with
its customers
while significantly increasing sales.

The company - the largest wholesale merchant of natural
gas and power - saw
wholesale, physical deliveries of natural gas surge 53
per cent in the first
quarter.

Critics argue that Enron's move away from its familiar
energy business into
new industries, where the learning curve is steep and the
competition
entrenched, is risky. Yet a number of industry analysts
point out Enron has
proved it understands markets and how to manage risks
while becoming the
largest importer of coal in the UK, the largest trader of
gas and power in the
US and grabbing an advantage in bandwidth.

"It's a prudent strategy, but it's got to be done in an
orderly way," says Ronald
Barone, analyst with Paine-Webber in New York. "What
they're doing here is
what they've been incredibly successful at doing," he
adds, noting that Enron
posted Dollars 1.3bn in earnings before interest and
taxes (ebit) from its
wholesale energy and services business in 1999, up 34 per
cent from the
previous year.

Earnings from that division accounted for two-thirds of
the company's overall
income before interest and taxes last year, and Mr Barone
sees the unit's ebit
increasing 15-30 per cent annually over several years.

As with gas and power and now broadband, where Enron is
standardising
contracts and creating a market in bandwidth, it wants to
create markets by
entering as a physical player and providing merchant,
risk management and
financial services over the internet.

"We will provide electronic commerce, but we will provide
liquidity and we will
provide settlement, or fulfilment of that contract," Mr
Skilling says. "That is an
extremely powerful model. If you look at other B2B sites,
they don't do that."

Mr Skilling argues Enron's e-commerce platform will
triumph over the other,
bulletin board-type exchanges, where striking a deal
depends on two parties
hooking up and working through uncertainties over timing,
price, credit and
fulfilment.

Not everyone shares that view. Some energy companies, for
example, would
rather not do business with a competitor. BP Amoco
recently purchased a 3
per cent stake in Altra Energy Technologies, a Houston-
based, neutral
wholesale energy exchange. With Koch Industries and
American Electric
Power, it also committed to carry out a fixed volume of
transactions on the
site to lend it liquidity.

Just as in gas and power and now broadband and metals,
Enron believes it
needs networks of strategic physical assets. In acquiring
MG, Enron got a
stable of warehouses, lending it a strong physical
position.

"It should provide (MG) with a more vibrant, more active
physical spot market
in more markets in the world," says Greg Whalley, chief
executive officer of
Enron Net Works, the new division Enron is launching to
identify and enter
commodity markets. He argues that in metals and other
markets, Enron will
deliver better pricing, price risk management services,
cross-commodity
transactions and flexible transactions for a wider range
of customers.

Mr Skilling says there are significant rewards for
restructuring an industry.

"If you can take that platform, and you use the
capabilities the bricks bring to
the table, e-commerce the industry and change the
structure, you're selling for
more than a 50 multiple."

Copyright , The Financial Times Limited