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Enron Mail |
Attached is the latest report on the DYNEGY/ENRON deal from CS First Boston Research. Please feel free to contact us if there is anything we can help you with. Thanks, Hank Emery Emery Financial Group of First Union securities Rocky Emery-Managing Director This research has been provided to First Union Securities through an arranged relationship with Credit Suisse First Boston(CSFB). Any questions should be directed through your First Union Securities Financial Consultant. Any contact of a CS First Boston analyst or any other CS First Boston representative is strictly prohibited. THIS FIRST CALL NOTE MUST BE SHOWN IN ITS ENTIRETY, INCLUDING ALL DISCLAIMERS. CREDIT SUISSE FIRST BOSTON CORPORATION Equity Research Americas Gas Utilities Curt Launer 212/538-4269 curt.launer@csfb.com Philip Salles 212/538-4221 philip.salles@csfb.com Andy DeVries 212/325-2518 andy.devries@csfb.com STRONG BUY Target Price: 54.00 (US$) Dynegy Inc. (DYN) ENE Deal Shows Risk Coverage & Est & Valuation Upside Summary After the close on Friday, DYN confirmed that it would acquire Enron (ENE, 8.63, Strong Buy) for 0.2685 DYN shares plus assumption of debt and an equity infusion of $2.5 billion. This values ENE at $10.40 per share based on DYN's Friday close. Our initial analyses show the merger to be additive to pro-forma '02 eps for DYN by 25% to $3.25-$3.30 vs our current estimate of $2.55. We estimate the deal multiples as about 7x '02 eps, 3.2x '02 cash flow, 0.85x book value and 5x EV/EBITDA based on our revised '02 estimates for ENE. We would note that DYN has projected a pro-forma '02 of $3.40-$3.50 per share before cost savings and synergies. We expect the deal to close in 9-12 months pending reviews by the SEC, FTC, FERC and state PSCs. Despite the size of the combined company, we do not expect major divestitures or closing issues because of the lack of asset concentration and the inherent competitiveness of the natural gas and power marketing business. In a report dated Nov 5, we valued ENE at $31 per share. In our view, the deal valuation includes a differential of $20 per share or $17 billion to account for ENEs related party and accounting issues. Because these issues threatened ENEs core businesses, the timing and valuation of the deal for DYN is extraordinarily attractive. We consider alternate bids for ENE to be possible under these circumstances. We expect DYN and other energy merchants to benefit from the removal of risk that ENE would be downgraded below investment grade or file for bankruptcy protection. Pending additional information from conference calls, analyst meetings and other deal related filings; we are maintaining our reported eps ests for DYN of $2.10 for '01 and $2.55 for '02. Our ENE ests are $1.80 for '01 and $1.60 for '02. These estimates assume the deal closes in 4Q'02. Price Target Mkt. Value 52-Week 9 Nov 01 (12 Months) Div Yield(%) ($m) Price Range 38.76($) 54.00($) 0.30 0.7% 14,488.51 57.95 - 31.27 Annual Prev. Abs. Rel. EBIDAX EV/ EPS($) EPS P/E(x) P/E(%) ($m) EBIDAX(x) 12/02E 2.55 16.7 12/01E 2.10 20.3 12/00A 1.43 29.9 Q1 Q2 Q3 Q4 2002E 2001E 0.41 0.40 0.85 0.40 2000A 0.26 0.29 0.55 0.32 ROGIC(12/00A %) 16.1% Net debt(12/00A $m) 3264 Net debt/Total cap.(12/00A %) 45.4% Book value/share(12/00A) 11.60 Number of Shares(m) 339.23 1On 11/09/01 the S&P 500 index closed at 1120.31. 2Economic profit trend. Dynegy is a wholesale and retail energy provider with operations in natural gas, natural gas liquids, coal, and electricity throughout the U.S. and Europe. Viewpoint Continued We maintain our Strong Buy rating for DYN with a target price of $54. We anticipate growth rate and valuation benefits for DYN that will result in increasing our estimates and target price as the deal moves closer to closing. DYN will hold a conference call on Monday, November 12 at 9am EST. The call in number is 888-603-9706. N.B.: CREDIT SUISSE FIRST BOSTON CORPORATION may have, within the last three years, served as a manager or co-manager of a public offering of securities for or makes a primary market in issues of any or all of the companies mentioned. CREDIT SUISSE FIRST BOSTON CORPORATION CREDIT SUISSE FIRST BOSTON CORPORATION Curt Launer 212/538-4269 curt.launer@csfb.com CREDIT SUISSE FIRST BOSTON CORPORATION CREDIT SUISSE FIRST BOSTON CORPORATION Copyright © CREDIT SUISSE FIRST BOSTON, and its subsidiaries and affiliates, 2001. All rights reserved. CSFB may, to the extent permitted by law, participate or invest in financing transactions with the issuer(s) of the securities referred to in this report, perform services for or solicit business from such issuers, and/or have a position or effect transactions in the securities or options thereon. In addition, it may make markets in the securities mentioned in the material presented in this report. PLEASE REFER TO TICKER CSFBDISC FOR IMPORTANT LEGAL DISCLOSURES. = = DYNEGY INC. = = DYN: STRONG BUY First Call Corporation, a Thomson Financial company. All rights reserved. 888.558.2500
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