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Enron Mail |
Rival to Buy Enron, Top Energy Trader, After Financial Fall
The New York Times, 11/10/01 Regulators Struggle With a Marketplace Created by Enron The New York Times, 11/10/01 COMPANIES & FINANCE INTERNATIONAL - Dynegy agrees to $7.8bn rescue bid for = Enron. Financial Times, 11/10/01 COMPANIES & FINANCE - INTERNATIONAL - Accountancy put back under the spotli= ght. Financial Times, 11/10/01 LEX COLUMN - Layed to rest. Financial Times, 11/10/01 COMPANIES & FINANCE INTERNATIONAL - Company troubles leave Houston with a p= roblem. Financial Times, 11/10/01 Dynegy to acquire Enron in $8.9 billion stock deal / New giant moves out of= shadow Houston Chronicle, 11/10/01 The Nation Smaller Rival to Acquire Teetering Enron Power: Energy giant tha= t pressed for deregulation in California is on the brink of collapse. Los Angeles Times, 11/10/01 Dynegy to acquire Enron in $8.9 billion stock deal / New giant moves out of= shadow Houston Chronicle, 11/10/01 POWER PLAY / Lay opened energy firms to work in new markets Houston Chronicle, 11/10/01 POWER PLAY / Purchase elevates Watson's low profile Houston Chronicle, 11/10/01 Dyenegy to acquire Enron in $8.9 billion stock deal / Many fear `unique' pr= oblems Houston Chronicle, 11/10/01 Enron Accepts $8 Billion Buyout Offer From Dynegy; Energy Giant Was Forced = to Negotiating Table After Disclosing That It Had Overstated Earnings The Washington Post, 11/10/01 The Nation NEWS ANALYSIS A Visionary Fallen From Grace Los Angeles Times, 11/10/01 DYNEGY TIMELINE Houston Chronicle, 11/10/01 POWER PLAY / ENRON TIMELINE Houston Chronicle, 11/10/01 POWER PLAY / Enron had been a political heavyweight / Critics decried influ= ence of Ken Lay in White House Houston Chronicle, 11/10/01 POWER PLAY / Sale suddenly switches office outlook downtown Houston Chronicle, 11/10/01 POWER PLAY / Enron Field name may fall as quickly as energy empire Houston Chronicle, 11/10/01 Market forces: Worries over Royal Bank's Enron exposure The Guardian, 11/10/01 Dynegy snaps up Enron for $9.5bn The Times of London, 11/10/01 UK jobs on the line Daily Mail, 11/10/01 Dynegy to get prime downtown real estate in Enron deal Associated Press Newswires, 11/10/01 Enron India Pwr Unit Sale Faces Review After Dynegy Deal Dow Jones Energy Service, 11/10/01 Talks to salvage multibillion dollar Enron India project goes into third da= y Associated Press Newswires, 11/10/01 All eyes in electric industry on Texas as deregulation nears Associated Press Newswires, 11/10/01 Enron Says It's Too Soon to Quantify U.K. Job Cuts (Update1) Bloomberg, 11/10/01 Dynegy to Buy Enron for $23 Billion in Stock, Debt (Update9) Bloomberg, 11/09/01 Dynegy announces $8 billion deal to buy larger rival Enron Associated Press Newswires, 11/09/01 USA: UPDATE 3-Dynegy to acquire Enron for $9 bln. Reuters English News Service, 11/09/01 Enron not California's largest power supplier, but merger could affect pric= es Associated Press Newswires, 11/09/01 Dynegy-Enron merger could mean name change for Enron Field Associated Press Newswires, 11/09/01 Dynegy Buy Of Enron Valued At $23B-$24B With Debt Dow Jones News Service, 11/09/01 Chronology of Enron Corp.'s history Associated Press Newswires, 11/09/01 Fitch Takes Rating Action on Enron & Dynegy on Merger News Business Wire, 11/09/01 ChevronTexaco to Invest $2.5 Billion in Dynegy PR Newswire, 11/09/01 Business/Financial Desk; Section A Rival to Buy Enron, Top Energy Trader, After Financial Fall By ALEX BERENSON and ANDREW ROSS SORKIN 11/10/2001 The New York Times Page 1, Column 2 c. 2New York Times Company With its stock plunging and its finances in doubt, the world's largest ener= gy trader, the Enron Corporation, agreed to be acquired yesterday by the ri= val Dynegy Inc. for about $9 billion in stock and the assumption of $13 bil= lion in debt.=20 The deal is an extraordinary turnabout for Enron, a Houston-based company t= hat had been a driving force behind electricity deregulation nationwide. Its chairman, Kenneth L. Lay, a big contributor to the Republican Party, pr= ovided political influence, while its former chief executive, Jeffrey K. Sk= illing, helped create markets for the trading of electricity and natural ga= s. But last winter, when California's effort to deregulate the electricity = market led to soaring power prices and rolling blackouts, Enron was the sub= ject of much criticism and political anger.=20 Recent disclosures of discrepancies in Enron's financial statements and an = investigation by the Securities and Exchange Commission caused the shares t= o plunge this week to their lowest level in a decade. As other companies be= came wary of doing business with it, Enron -- also facing a potential cash = squeeze -- apparently had little choice but to find a buyer, and a deal was= hastily cobbled together this week.=20 For critics who had complained about Enron's market power and its dominance= , the combination poses additional concerns. Dynegy's acquisition of Enron = will be reviewed by state and federal agencies, led by the Justice Departme= nt and the Federal Energy Regulatory Commission. Analysts said today that t= hey expected scrutiny of the combined companies' holdings in California, wh= ere Dynegy owns power-generating plants and Enron accounts for much of the = trading of natural gas -- fuel for the state's electric power plants.=20 Buying Enron at a deep discount -- it has lost $60 billion in market value = this year -- could make Dynegy the dominant trader of electricity and natur= al gas. But the agreement carries big risks as well. Along with Enron's gas= pipelines and high-technology trading floor, Dynegy will take on Enron's s= ubstantial debt and a web of complex transactions that Enron has spun over = the last decade.=20 In addition to the $13 billion in debt that Enron carries on its books, it = has guaranteed at least $4 billion in off-balance sheet loans, and the hidd= en debt could total as much as $10 billion, said Carol Coale, a stock analy= st with Prudential Securities.=20 Charles L. Watson, Dynegy's chairman and chief executive, said yesterday th= at Dynegy could sort through Enron's tangled finances. ''We know the compan= y well,'' Mr. Watson said. ''It's not like we just started fresh. I'm confi= dent that it's as solid as we thought it was.''=20 The new company will combine Enron's 25,000-mile natural gas pipeline syste= m with the large number of power plants that Dynegy owns worldwide, as well= as Illinois Power, a Dynegy subsidiary that serves 650,000 customers in Il= linois. But its most important asset will be its trading desk. It will be t= he largest energy trader in the nation, trading more than twice as much pow= er and natural gas as its closest competitors.=20 Mr. Watson said the company did not expect to sell significant properties a= nd that the deal should pass regulatory scrutiny. ''There's really not a lo= t of overlap in assets,'' he said.=20 Mr. Watson and Steve Bergstrom, Dynegy's president, will hold those positio= ns in the new company, which will be called Dynegy and remain in Houston. M= r. Lay, who created Enron in the mid-1980's, will not have any role in the = combined company's daily operations. He has been asked to join its board bu= t has not provided an answer. ''The last three weeks haven't been a lot of = fun,'' he said.=20 In a statement announcing the agreement yesterday afternoon, Mr. Watson sai= d he was confident that the merger would produce a strong new company. ''En= ron is the ideal strategic partner for Dynegy,'' Mr. Watson said. ''We will= keep a strong balance sheet and straightforward financial structure as key= priorities.''=20 To shore up Enron's finances, Dynegy will immediately put $1.5 billion into= Enron through ChevronTexaco, the giant oil company, which already owns 27 = percent of Dynegy. Another billion dollars will be injected once the deal i= s completed.=20 Investors appeared comfortable yesterday that Dynegy could make the deal wo= rk. After falling $3, to $33, on Wednesday, when the companies first said t= hey were in discussions, Dynegy rose $5.76 on Thursday and yesterday to clo= se the week at $38.76.=20 ''On paper, it works,'' Ms. Coale of Prudential said. ''The combined compan= y would be the leading trader, the market leader in most of their businesse= s.'' Ms. Coale, who has a sell rating on Enron and a buy rating on Dynegy, = said she planned to keep her buy rating on Dynegy.=20 As it works to have the deal approved, Dynegy will have to persuade Enron's= traders to stay with the combined company. The pain of the stock's 90 perc= ent plunge this year will not be equally shared. Some Enron employees have = held onto their shares and seen their retirement accounts eviscerated. Mean= while, Mr. Lay, Mr. Skilling and other former and current executives sold h= undreds of millions of dollars in Enron stock in 2000 and this year.=20 The companies also have very different corporate cultures. Dynegy emphasize= s teamwork, while Enron is more competitive, said Ehud Ronn, director of th= e Center for Energy Finance Education and Research at the University of Tex= as. Even before the merger was announced, Enron had lost some of its employ= ees to other energy trading companies, Mr. Ronn said.=20 Some investors and analysts say that the problems with Enron's finances may= extend beyond the partnerships that have been the subject of Wall Street's= scrutiny the last month. James Chanos, a short-seller who has been one of = Enron's most vocal critics, said there was increasing evidence that Enron's= energy trading operations were not as profitable as the company had said. = ''There appears to be a culture at Enron of aggressively booking profits an= d deferring or obscuring losses,'' Mr. Chanos said.=20 On Thursday, Enron said in a filing with the S.E.C that it had overstated i= ts earnings by almost $600 million over the last five years. Mr. Chanos sai= d more restatements were possible, noting that the filing disclosed partner= ships had been used to hedge almost $1 billion in losses in 2000 and this y= ear. So far, the losses from those partnerships remain off Enron's financia= l statements, Mr. Chanos said.=20 Enron's stock had been under pressure for most of this year, as the company= ran up large losses with failed efforts to expand outside its core trading= operation. In August, Mr. Skilling resigned as chief executive, and Mr. La= y resumed control of daily operations.=20 Still, the company appeared financially sound until last month, when it dis= closed that its shareholders' equity, a measure of the company's value, dro= pped by $1.2 billion because of deals disclosed only hazily in its financia= l statements. The announcement unnerved investors, who wondered whether Enr= on had found ways to inflate its profits and move debt off its balance shee= t, and led the S.E.C. to begin an investigation.=20 Mr. Lay tried to reassure investors that Enron's finances were in order and= that its businesses remained strong. But the last three weeks have brought= a series of damaging revelations about partnerships that Enron formed with= some of its top executives, including its former chief financial officer, = Andrew S. Fastow.=20 With questions mounting, the major credit-rating agencies began to downgrad= e Enron's debt, putting additional pressure on the company. If Enron's debt= rating falls below investment grade, it would be forced to repay $3.3 bill= ion in loans that it had guaranteed.=20 To strengthen its balance sheet and bolster its stock, Enron turned to big = investors like Warren E. Buffett in search of billions of dollars of financ= ing. When the financing did not quickly appear, its stock fell further.=20 By this week, some major energy traders were refusing to extend credit to E= nron, worrying that the company would be unable to make good on its contrac= ts. The Mirant Corporation, an Atlanta-based power plant owner and electric= ity trader, sharply curtailed its trading with Enron this week. ''We're tra= ding with them on a very limited basis,'' said James Peters, a Mirant spoke= sman. ''It's not business as usual.''=20 On Wednesday, Enron's stock fell as low as $7 a share, its lowest level in = more than a decade. That day, news of the Enron and Dynegy talks leaked out= .=20 By late Wednesday, the boards of the two companies had tentatively agreed t= o a deal. But Dynegy refused to go ahead until it learned whether Enron's c= redit rating would remain investment grade and was comfortable with the eff= ect of the deal on its own rating. The deal moved forward yesterday after D= ynegy was assured Enron's debt was not in danger of being lowered to junk s= tatus soon after the deal was announced, according to company officials.=20 Dynegy and Enron had provided Standard & Poor's and Moody's Investors Servi= ce, the main credit agencies, with statements showing them what a combined = company might look like and asked the ratings agencies for an expedited rev= iew of the transaction, Mr. Watson said.=20 Under the deal, Enron shareholders will receive 0.2685 share of Dynegy stoc= k for each Enron share, or $9.80 based on Dynegy's closing price on Thursda= y. Enron's stock gained 22 cents yesterday, to $8.63.=20 ''I never thought our stock price would be at this level,'' Mr. Lay said ye= sterday.=20 Enron's shareholders will own only 36 percent of the combined company, and = Dynegy will name at least 11 members of the company's 14-member board.=20 If the deal falls apart, Enron or Dynegy will have to pay a breakup fee of = $350 million.=20 To protect Dynegy's and ChevronTexaco's cash infusion, the money will go to= an Enron unit that owns the Northern Natural Gas Pipeline. If the merger i= s not completed, Dynegy will have the right to buy the unit.=20 An army of bankers and lawyers advised the companies. Lehman Brothers Inc. = acted as financial adviser and Baker Botts and Akin, Gump, Strauss, Hauer &= Feld acted as counsel for Dynegy. J. P. Morgan & Company and Salomon Smith= Barney acted as financial advisers for Enron, and Vinson & Elkins and Weil= Gotshal & Manges acted as the company's counsel. Pillsbury Winthrop served= as counsel to ChevronTexaco. Chart: ''A Marriage of Strength and Weakness'' A merger of Enron and Dynegy= would bring together two of the country's biggest energy companies -- and = save Enron from potential collapse. Graph tracks the weekly closes of Enron= shares from 1999 through 2001. Top North American gas marketers SALES, OF = BILLION CUBIC FEET PER DAY* Enron: 24.6 Reliant: 13.2 Duke Energy: 12.8 BP:= 12.3 Mirant: 11.8 Dynegy: 10.9 Top North American power marketers SALES, O= F MILLION MEGAWATT HOURS* Enron: 212.5 American Electric Power: 134.5 Duke = Energy: 118.1 Reliant Resources: 86.1 PG&E National Energy Group: 73.2 Dyne= gy: 70.1 *Figures are for the 2nd quarter of 2001. (Sources: Bloomberg Fina= ncial Markets; Simmons & Co.; Natural Gas Week)(pg. C2)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C Regulators Struggle With a Marketplace Created by Enron By JEFF GERTH with RICHARD A. OPPEL Jr. 11/10/2001 The New York Times Page 1, Column 2 c. 2001 New York Times Company WASHINGTON, Nov. 9 -- For years, the Enron Corporation used its political m= uscle to build the markets in which it thrived, pushing relentlessly on Cap= itol Hill and in bureaucratic backwaters to deregulate the nation's natural= gas and electricity businesses.=20 Its achievement, as one Enron executive said today, in creating a ''regulat= ory black hole'' fit nicely with what he called the company's ''core manage= ment philosophy, which was to be the first mover into a market and to make = money in the initial chaos and lack of transparency.'' Now, Wall Street's dissatisfaction with Enron's secretive ways has delivere= d the company into the arms of its much smaller Houston rival, Dynegy Inc.,= in a deal worth about $9 billion in stock and the assumption of $13 billio= n in debt. The combination of the two companies, energy experts and lawmake= rs said today, poses a novel set of challenges for regulators still struggl= ing to grasp the complexities of the marketplace that Enron invented.=20 ''We're in a supersonic-speed era of electronic trading with a horse-and-bu= ggy-era regulatory system to protect consumers,'' said Representative Edwar= d J. Markey, a Massachusetts Democrat who has devised legislation to close = the regulatory gap.=20 Dynegy's acquisition of Enron is expected to be reviewed by numerous state = and federal agencies, led by the Justice Department, the Federal Trade Comm= ission and the Federal Energy Regulatory Commission.=20 Analysts said today that sharp scrutiny would be given to the combined comp= anies' holdings in California, where Dynegy owns generating plants and Enro= n controls a large part of the market for trading natural gas -- the fuel f= or a big share of the state's electric power plants.=20 ''Dynegy would now have a greater ability to take the dominant position in = gas and raise the price of electricity,'' said Frank Wolak, a professor of = economics at Stanford University.=20 Mr. Wolak, a consultant to the Justice Department on a 1999 antitrust case = that led to limits on another merger of electricity and natural gas compani= es in Southern California, said he was skeptical that regulators were up to= the task of reviewing today's deal.=20 The transaction ''is something the Department of Justice needs to look at, = and they are going to have a hard time looking at,'' Mr. Wolak said. ''And = it's beyond the ability of the F.E.R.C. to look at.''=20 Pat Wood -- named chairman of the federal energy commission earlier this ye= ar with the backing of Kenneth L. Lay, the chairman of Enron -- acknowledge= d in an interview today that the agency had ''a long way to go'' in matchin= g the sophistication of the companies it regulates.=20 But he said that the commission had made great strides in grappling with th= e new risk management techniques pioneered by Enron, Dynegy and other energ= y companies. It is hiring more experts, he said, adopting more restrictive = rules on how much ''market power'' one party can control and requiring more= disclosure of certain energy transactions.=20 In an interview this evening, Charles L. Watson, the chairman of Dynegy, sa= id he did not believe that regulators reviewing the deal with Enron would r= equire the sale of any assets. ''We haven't really identified any pitfalls = that require any sort of asset divestiture,'' he said. ''There's not really= any overlap.''=20 A senior executive at one of Enron's largest energy-trading rivals disagree= d. ''I don't think this deal gets through unscathed,'' he said today. ''I'm= sure the Justice Department and the F.T.C. will look closely at the pretty= substantial concentration of market power these companies will have in the= energy-trading area.''=20 Enron is mainly a trader of natural gas and electricity -- indeed, the bigg= est player in both those markets -- and it also owns a network of gas pipel= ines. Dynegy processes and sells natural gas and generates and sells electr= icity. Each company owns a local electric utility, too: Dynegy owns Illinoi= s Power in Decatur, Ill., while Enron owns Portland General Electric in Por= tland, Ore., but last month announced plans to sell it to another Oregon ut= ility.=20 For a decade, as it transformed itself from a gas pipeline operator into th= e nation's biggest energy trader, Enron enjoyed unalloyed lobbying success = in Washington and the enthusiastic backing of Wall Street.=20 In the early months of the Bush administration, Mr. Lay -- whose company wa= s one of the biggest financial backers of George W. Bush's presidential cam= paign -- played a prominent, and some said unusual, role in helping the Whi= te House pick nominees to the federal energy commission. Enron executives m= et with Vice President Dick Cheney, whose energy task force backed many of = the deregulatory initiatives pushed by Mr. Lay.=20 Now, ''the company has become a pariah,'' an Enron executive said today. ''= The Bush administration doesn't want to have anything to do with us.''=20 The problems began with the energy crisis in California, where Enron's outs= poken defense of deregulation, even more than its electricity trading activ= ities, made the company a favorite whipping boy of politicians and consumer= advocates. In the financial markets, meanwhile, Enron's confusing disclosu= res, tolerated when its stock was soaring, drew disdain as the calming of t= he energy storms in California and other parts of the country beat the shar= es down, starting last spring.=20 ''Enron fell victim to their own inconsistencies on transparency,'' Mr. Wol= ak said. As California officials sought to understand why energy prices had= soared out of control, he said, Enron's ''view was that we want everybody'= s data, but if you want ours, get a subpoena.''=20 Energy executives and regulators said that sort of arrogance had long marke= d Enron's attitude about government oversight.=20 Electricity sales had for decades been the job of local utility companies, = operating as monopolies and selling power at regulated rates within their s= ervice areas. A few entrepreneurs, led by Mr. Lay, conceived a different mo= del in which power could be sold by generators or middlemen to big corporat= e users or utilities in faraway regions, at whatever price the market would= bear.=20 In the early 1990's, Congress -- under heavy lobbying by Enron -- passed le= gislation that began to open up electricity sales to marketers. Before long= , Enron became one of the first companies to receive government approval to= sell electricity at market rates. The market for interstate sales of natur= al gas had been freed up a few years earlier, and critics complained that t= raders like Enron were gleaning their profits by stoking volatility in gas = prices.=20 In the mid-1990's, independent gas producers backed legislation in Congress= to allow the creation of a co-operative marketing organization, which, the= y hoped, would have helped stabilize prices.=20 Raymond Plank, the chairman of the Apache Corporation, a gas producer based= in Houston, said that the big gas marketing and trading companies, includi= ng Enron, successfully lobbied to kill the plan, leaving prices as volatile= as ever.=20 ''It was a great concept,'' Mr. Plank said. ''We could have headed off the = problems we have today.''=20 Enron's final lobbying success came last year. With a strong push from the = company's lobbyists, Congress passed futures trading legislation that exemp= ted Internet energy trading platforms like EnronOnline, the industry leader= , from oversight by the Commodity Futures Trading Commission. Enron takes t= he other side of trades on its exchange. In traditional markets like the Ne= w York Mercantile Exchange, which remain subject to oversight, the exchange= acts as a middleman between buyers and sellers.=20 Under Mr. Watson, Dynegy has been less of a pathbreaker than Enron, and tho= ugh California politicians denounced it, too, as a profiteer during the ene= rgy crisis, most analysts say it has been less aggressive than Enron in bot= h its business practices and its lobbying.=20 Indeed, the rival energy-trading executive today predicted ''a huge culture= clash'' as the Houston neighbors merge. ''Blood will flow in Houston over = the integration of the trading operation,'' he said.=20 But regulators may find Dynegy easier to deal with.=20 Earlier this year, the federal energy commission asked for comments on whet= her it should tighten scrutiny of dealings between natural gas pipelines an= d energy-trading shops owned by the same company.=20 Enron wondered what all the bother was. ''Would stricter rules prevent real= affiliate abuse that current rules do not,'' it wrote in a regulatory fili= ng, ''or would they instead merely restrict the activities of some of the m= ore successful participants in the marketplace?''=20 Dynegy, by contrast, painted a grim picture and invited regulators to crack= down. ''Abuses abound,'' it said, ''because of financial windfalls, diffic= ulty of detection, lengthy investigations and increased complexity of the m= arket.'' Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 COMPANIES & FINANCE INTERNATIONAL - Dynegy agrees to $7.8bn rescue bid for = Enron. 11/10/2001 Financial Times © 2001 Financial Times Limited . All Rights Reserved THAL LARSEN.=20 Dynegy last night agreed a rescue bid of about $7.8bn for Enron, after the = rival energy group narrowly escaped having its credit ratings cut to junk s= tatus. If successful, the all-stock bid will allow Dynegy to take over a pioneer o= f energy trading that is many times its size in the electricity and gas mar= kets, while also providing urgently-needed liquidity to the fallen star.=20 Dynegy offered almost 0.27 of its own shares per Enron share. Dynegy's stoc= k closed at $38.76, up 6.2 per cent, yesterday, valuing the bid at $7.8bn, = or 21 per cent above Enron's closing price. Enron was up 2.6 per cent at $8= .63.=20 The combined company will also receive an immediate cash injection of $1.5b= n from ChevronTexaco, which owns 27 per cent of Dynegy, and a further $1bn = from ChevronTexaco when the deal closes.=20 The infusion is expected to avert a funding crisis caused by Enron's fallin= g trading volumes and its customers' demands for collateral which followed = a series of blows to its reputation.=20 Dynegy will use the $1.5bn infusion to acquire preferred stock collateralis= ed by Enron's pipeline assets; in return ChevronTexaco will be granted righ= ts over $1.5bn of Dynegy stock.=20 JP Morgan Chase and Citigroup demanded similar security for a $1bn loan ext= ended this month.=20 Moody's Investors Service cut its rating on Enron's senior unsecured debt y= esterday morning from Baa2 to Baa3 - just one notch above junk status. Any = deeper downgrade would have forced Enron to sell stock to cover about $3.3b= n of obligations, and could have deterred Dynegy. Moody's kept the ratings = under review for further downgrades, given "the potential for increased mar= gin requirements from counterparties".=20 However, the agency said it would treat a substantial capital injection as = "a stabilising event". The deal is likely to face intense regulatory scruti= ny, given the large share the combined companies would have in the energy m= arkets.=20 The bid represents a reversal of fortune for Enron, which will effectively = be humbled by its smaller Houston rival. However, some analysts expressed r= eservations, as Enron faces a Securities and Exchange Commission inquiry in= to off-balance sheet transactions, and a restatement of its accounts has ye= t to clear up questions about the true state of its financial dealings.=20 Carol Coale, of Prudential Securities, said: "We believe that either Dynegy= had material exposure to Enron's trading contracts or that it is trying to= rescue its competitor by saving the liquidity in the commodities markets."= =20 Reporting by Andrew Edgecliffe-Johnson and Robert Clow in New York, Sheila = McNulty in Houston and Peter Thal Larsen in London .. See Lex.=20 © Copyright Financial Times Ltd. All rights reserved.=20 http://www.ft.com. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 COMPANIES & FINANCE - INTERNATIONAL - Accountancy put back under the spotli= ght. By ADRIAN MICHAELS and RICHARD WATERS. 11/10/2001 Financial Times © 2001 Financial Times Limited . All Rights Reserved Arthur Andersen, Enron's auditor, is understood to have approved the contro= versial off-balance sheet arrangements that lie at the heart of the energy = company's decision to overhaul its accounts earlier this week.=20 However, in at least one case the auditor may not have been given full info= rmation, while the involvement in the disputed transactions of four people = employed by Enron has only recently come to light. Andersen has already bee= n hit by lawsuits from Enron shareholders filed in Oregon and Harris County= , Texas - a popular venue among plaintiffs' lawyers given its history of bi= g jury awards. The legal actions are the latest blow to an auditing profession still reeli= ng in the aftermath of a series of accounting scandals that have blown up i= n recent years. On Wednesday, Waste Management said Andersen would pay $20m= to settle a suit brought by shareholders in the trash hauler alleging prof= essional malpractice. The Securities and Exchange Commission has already ag= reed a $7m settlement with Andersen over the alleged audit fraud.=20 The Enron actions could also turn out to be one of the first tests of new a= uditor independence rules set by the SEC. The energy company paid Andersen = $25m for its audit last year and $27m for other services.=20 An Andersen spokesman refused to comment on whether the auditor had vetted = the complex off-balance sheet arrangements used by Enron to manage its trad= ing risks and offload debt. However, he added: "We do help companies unders= tand accounting rules and how to apply them."=20 In a regulatory filing on Thursday, Enron indicated that its decision to re= state its accounts to include two off-balance companies was based on "curre= nt information", suggesting that full details had not been available before= .=20 However, a third accounting change was based on a new "assessment", Enron s= aid, raising questions about the auditor's earlier judgement.=20 Under the previous commissioner Arthur Levitt, the SEC attacked companies t= hat indulged in "earnings management" and accountants who suffered from con= flicts of interest between audit and consulting work. The accounting firms = say audit and consulting work can co-exist.=20 © Copyright Financial Times Ltd. All rights reserved.=20 http://www.ft.com. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 LEX COLUMN - Layed to rest. 11/10/2001 Financial Times © 2001 Financial Times Limited . All Rights Reserved Being in the business, Dynegy should have a better idea than other possible= buyers of what it is taking on. Presumably it has been given a fuller and = franker explanation of Enron's off-balance-sheet mess than its investors, b= ut it can scarcely have been able to carry out what normally counts as due = diligence.=20 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 in= dependent analysis at these times? If Dynegy injects $1.5bn of cash up fron= t, courtesy of Chevron Texaco and secured on the pipeline assets, that aver= ts the immediate crisis. An exchange ratio of 0.27 would value Enron's stoc= k at $8bn. At about $10.67 a share that is a 27 per cent premium, but more = pertinently compares with $34 on the eve of the October earnings call and $= 83 on New Year's Day. There are no rivals for this year's prize for shareho= lder value destruction. Others have gone, but did Ken Lay, Enron chief exec= utive, know what was going on? Whatever the answer, it reflects poorly on h= im. The merger raises antitrust questions. Dynegy might be a fifth of Enron's s= ize, but it is the second biggest energy trader. But while Enron has few fr= iends in the public markets it still has some in high places. Dynegy's offe= r puts a floor beneath Enron's share price. Paying bottom dollar provides s= ome insurance for its shareholders. As more emerges on the financial struct= ure and the state of the core trading business, the question is whether tho= se who declined the opportunity start to take an interest or pat themselves= on the back.=20 © Copyright Financial Times Ltd. All rights reserved.=20 http://www.ft.com. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 COMPANIES & FINANCE INTERNATIONAL - Company troubles leave Houston with a p= roblem. By SHEILA MCNULTY. 11/10/2001 Financial Times © 2001 Financial Times Limited . All Rights Reserved COMPANIES & FINANCE INTERNATIONAL - Company troubles leave Houston with a p= roblem - Energy trader has played a vital role in its home city, writes She= ila McNulty.=20 When Sam Soliman, senior vice-president of Koch Industries, the second-larg= est privately held company in the US, remarked earlier this year on the bui= lding boom in downtown Houston, he could not help but be alarmed about the = city's prospects: "I always get worried when I see a lot of new constructio= n." He was right to be so circumspect. In a matter of months, three of Houston'= s corporate landmarks - Compaq Computer, Continental Airlines and Enron - h= ave come under pressure.=20 Compaq is in the process of being acquired by Hewlett-Packard; Continental = has had to lay off 12,000 employees; and energy trader Enron has gone from = being the leader of Houston's business community to its biggest liability.= =20 The fourth most populous city in the US is reeling from the latest demise a= mong its corporate citizens.=20 "It's a body blow," says Charlie Savino, executive vice-president of the Gr= eater Houston Partnership, a business organisation.=20 Enron is not only one of the city's biggest employers; it has led the redev= elopment of downtown Houston, making it somewhere pleasant to live for the = first time in decades.=20 At the centre of its efforts is the Enron Field, which the company financed= to bring professional baseball - and its fans - back into the city centre.= =20 On the periphery are Enron's contributions to Houston's social development.= =20 The company matches all employee donations made to non-profit organisations= , for up to $15,000 per employee, per year.=20 It also makes donations to non-profit organisations for which its employees= offer their time.=20 Kenneth Lay, Enron chief executive, has long been the "go-to guy" to get so= mething done in Houston.=20 Enron's status brought Houston status; as the biggest energy trader in the = US, it made the city the centre of energy trading. EnronOnline, its interne= t trading platform, has drawn some of the brightest minds to the city to wo= rk on what has become the world's biggest web-based transaction system.=20 Enron was so secure in its standing that it was building a new 40-storey of= fice building adjoining its 50-storey tower.=20 Beside that, bulldozers and cranes have been putting the finishing touches = to a massive new parking garage.=20 Employees had just started to move into the new towers when a series of dis= closures about Enron's financial position began to undermine the company an= d send investors fleeing for cover.=20 Enron staff, once known for being both brilliant and arrogant enough to pro= ve it, are coping with their dramatic reversal in status in a wide variety = of ways.=20 As they left work yesterday, many brushed by in their smart-casual polo shi= rts and khakis, refusing to say a word about what was unfolding.=20 One man, looking exhausted, braved a grin and said: "Just keep smiling. The= world goes on. Companies go through problems all the time, just like we do= in personal life."=20 One woman felt she had to laugh at the irony: she moved to Enron last year = to protect herself from job losses in the more traditional energy businesse= s. At that time, Enron was considered the safest place to be in the industr= y.=20 That Dynegy, another Houston-based energy trader, has emerged as Enron's sa= viour is being received positively by staff, who praised its technology and= processes.=20 The Houston business community may be hoping that a merged group might be b= etter for the city than a stand-alone Enron, as a combined business would b= e bigger and stronger.=20 But John Olson, of Sanders Morris Harris, a local investment banking and se= curities firm in Houston, notes that a merger is likely to lead to job loss= es, as assets are sold and businesses are streamlined.=20 Already, he says, many Houston citizens, big holders of Enron's stock, had = lost out on its share slide. "The ripple effects on the city will be immeas= urable," he says.=20 © Copyright Financial Times Ltd. All rights reserved.=20 http://www.ft.com. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 NEWS Dynegy to acquire Enron in $8.9 billion stock deal / New giant moves out of= shadow LAURA GOLDBERG Staff 11/10/2001 Houston Chronicle 3 STAR 1 (Copyright 2001) Enron Corp., a mainstay of Houston's corporate landscape that helped turn t= he city into a global energy trading powerhouse, will disappear in a turn o= f events that would have been unthinkable a month ago.=20 In a deal that will unite two hometown rivals, Dynegy announced Friday even= ing it would buy the beaten-down Enron in a stock deal worth almost $8.9 bi= llion, plus the assumption of $12.8 billion in debt. The purchase will end Enron's reign as the world's largest energy trader, c= atapulting a company to the top that in many ways has been in Enron's shado= w.=20 "This could be viewed as Dynegy being the savior of industry in rescuing En= ron, the largest energy trader, and restoring market liquidity," said Carol= Coale, a stock analyst with Prudential Securities in Houston, who follows = both companies.=20 A much bigger Dynegy - with annual revenues exceeding $200 billion and $90 = billion in assets including pipelines and power plants - will emerge with C= huck Watson, its current chairman and chief executive, keeping those roles = in the combined company.=20 Layoffs are expected, but executives said it was too early to say how many.= Dynegy has almost 1,600 employees in Houston; Enron has more than 7,000 he= re.=20 For Watson, the deal is all about growth.=20 "It accelerates our strategy some three or four years," he said shortly aft= er the deal was announced. "This is just a financial bonanza really for bot= h companies."=20 This isn't the way Ken Lay, Enron's chairman and chief executive, ever thou= ght his years of work would turn out.=20 "This would not have been my dream case," Lay said in an interview with the= Chronicle shortly after the deal was announced. "I would not even have con= templated it three or four weeks ago."=20 Lay has been offered a seat on the combined company's board, but hasn't dec= ided yet whether to take it. He won't have any management role once the dea= l closes.=20 He helped take Enron from a staid pipeline company created from a 1985 merg= er to a trading machine that wheels and deals in gas, electricity, financia= l contracts used to help companies manage risk and other commodities.=20 But Lay said he believed selling Enron was the best option for its sharehol= ders, employees and the city considering the company's current battered sta= te.=20 "This is the best way to provide certainty to protect this wholesale market= ing and trading franchise which is so valuable," he said, adding that Enron= looked at two or three other alternatives as it tried to strengthen its ba= lance sheet and add cash into its operations.=20 Lay said it's not his preference to sell Enron and see its name disappear.= =20 "It happens to be the best alternative," said Lay. "I'm a realist. I knew w= hat needed to be done."=20 Among Enron's troubles: The Securities and Exchange Commission is investiga= ting business deals Enron did with two investment partnerships run by its f= ormer chief financial officer, its credibility on Wall Street is close to z= ero, a pile of shareholder lawsuits and its credit rating, which it relies = on to successfully run its core trading business, has been lowered.=20 While other questions had hung over Enron earlier this year, the path to it= s end really began Oct. 16, when the company released third- quarter earnin= gs and reported significant financial losses related to the two investment = partnerships.=20 That set in motion a spiral of events leading to Friday's announcement.=20 Watson called Lay on Oct. 24 to see if he could do anything to help dispel = rumors that Dynegy had stopped trading with Enron.=20 That conversation led to a meeting at Lay's house three days later, at whic= h the two started talking about a deal.=20 As these things go, the deal came together quickly, especially with so many= question marks hanging over Enron.=20 "I think it's important to understand that Ken and I have known each other = for some 20 years," Watson said. "We have a good understanding of what they= do and how they do it. We knew that their franchise was solid."=20 Under the terms of the deal, which is expected to close in six to nine mont= hs:=20 Enron shareholder's get 0.2685 share of Dynegy per Enron share. Based on Fr= iday's closing stock prices of $8.63 for Enron and $38.76 for Dynegy, Dyneg= y is paying $10.41 an Enron share - or a 21 percent premium. That's a far c= ry from late January when Enron's closing price hit $82 a share.=20 Dynegy will immediately inject $1.5 billion in Enron to help shore it up. D= ynegy will get that money from ChevronTexaco, which owns about 26 percent o= f Dynegy.=20 In return for that money, Dynegy will get preferred stock and other rights = in Enron's Northern Natural Gas pipeline system. Should the deal not close,= Dynegy has the right to buy all of Northern Natural Gas.=20 At the deal's closing, ChevronTexaco will provide another $1 billion to the= combined company.=20 Enron will have the right to designate at least three board members for the= combined company, which will have 14 board seats.=20 Steve Bergstrom, Dynegy's president, and Rob Doty, Dynegy's chief financial= officer, will keep those roles in the new company. Greg Whalley, currently= president and chief operating officer of Enron, will become an executive v= ice president at the combined company.=20 The deal contains a $350 million breakup fee that Dynegy would get if anoth= er suitor came in and Enron decided to take a better offer.=20 Watson also said the deal contains escape clauses to protect Dynegy should = it be necessary, but he doesn't expect any surprises.=20 "We looked under the hood and guess what, it's just as strong as we thought= it was," he said.=20 The deal must be reviewed by a variety of government regulators, though Wat= son isn't expecting any antitrust problems.=20 Dynegy will talk to analysts and investors on a conference call Monday, att= empting to convince them of the deal's value. Dynegy expects the merger to = result in $400 million to $500 million in annual savings.=20 "On paper, it looks good," said Coale, the analyst. "We still remain concer= ned about the uncertainties that shroud Enron . . . The risks continue to b= e what we don't know about Enron. We just hope Chuck and his team do all th= e necessary due diligence, which is going to take more than a couple weeks.= "=20 There are also concerns about merging two different cultures.=20 "Looking at cultures, the two companies are very different," she said. "Dyn= egy is a little bit of a fraternity. Chuck started this company and I'm sur= e he has a heartfelt emotion toward making things work at Dynegy. Enron is = a mercenary, aggressive, cutthroat culture."=20 While both are energy traders, Enron has pursued a strategy of shedding ass= ets, while Dynegy has continued to make asset purchases.=20 At the start of the year, Enron was still heralded as an innovator for othe= rs to emulate. Since, a series of problems began chipping away at Enron's i= mage.=20 But such concerns were mostly pushed aside for as long as the company's sto= ck price performed well and its core energy trading business turned out hig= her and still-higher profits.=20 The company's woes became more serious and quickly multiplied after it made= troubling financial disclosures in its third-quarter earnings report Oct. = 16.=20 It disclosed that day it had taken a $35 million loss and reduced sharehold= ers equity by $1.2 billion related to ending business dealings with two inv= estment partnerships formerly run by Andrew Fastow, its chief financial off= icer.=20 The disclosures heightened Wall Street's ongoing concerns that Enron's fina= ncial reporting was too difficult to understand and skimped on details. It = also led to fears that Enron would be on the hook for billions of dollars r= elated to other financial vehicles.=20 Days later, Enron revealed that the SEC was investigating transactions betw= een Enron and the partnerships, called LJM Cayman and LJM2 Co-investment. I= t also replaced Fastow and has been hit with a growing number of shareholde= r lawsuits.=20 Then, the company's credit rating was downgraded, which raised questions ab= out its ability to manage its core energy trading business.=20 As Wall Street's questions grew, Enron retreated into silence, leaving anal= ysts and investors to speculate on worst-case scenarios, which fed fears th= at company was facing a cash-crunch and caused investors to keep dumping th= e stock.=20 That in turn, led some of Enron's trading partners to shift business elsewh= ere and raise their credit requirements to do business with Enron, which in= turn, raised even more fears.=20 Thursday, Enron said it is restating its finances as far back as 1997 to in= clude losses related to a number of complex partnerships it created.=20 . . .=20 DEAL AT-A-GLANCE=20 Company name: Dynegy.=20 Key players: Chuck Watson, Dynegy's current chairman and CEO, will remain c= hairman and CEO. Enron Corp.'s CEO and Chairman Ken Lay has been offered a = seat on Dynegy's board.=20 The trade: 0.2685 share of Dynegy for each share of Enron Corp.=20 Value of the deal: $8.85 billion in stock and $12.8 billion in Enron debt.= =20 Dynegy's close Friday: $38.76=20 Enron's close Friday: $8.63 a share.=20 Status of Enron Field name: Unknown. However, Dynegy registered the name ww= w.dynegyfield.com on Thursday.=20 . . .=20 MORE STORIES=20 Enron Corp. paid $100 million to put its name on the Houston Astros' new do= wntown home. Now that the energy giant is being bought, the name may soon b= e history.=20 The sale of Enron Corp. will likely punish Houston's downtown office market= , emptying more office space at a time when several new buildings are going= up.=20 "Never make predictions, especially about the future," Ken Lay once wrote i= n an essay concerning the world's energy needs. Enron's chief executive mig= ht be taking those words to heart today.=20 Dynegy's Chuck Watson has always maintained a low profile, prompting some p= eople to label him as the most influential Houstonian you've never heard of= .=20 See these stories and more in Business.=20 . . .=20 The companies=20 Profiles of two Houston energy giants that announced their merger Friday:= =20 DYNEGY=20 Headquarters: Houston=20 Chairman and CEO: Chuck Watson=20 Revenues in 2000: $29.4 billion=20 Employees: 6,000 worldwide=20 Electricity sales (2000): 137.7 million megawatt hours=20 Gas sales (2000): 10.9 billion cubic feet per day=20 Business segments: Dynegy Marketing and Trade; Dynegy Midstream Services, I= llinois Power; Subsidiary, Dynegy Global Communications=20 History: The company traces its roots to 1984 when the investment banking f= irm Morgan Stanley, the law firm Akin, Gump Strauss, Hauer & Feld and six n= atural gas pipelines teamed up to create a natural gas marketing firm calle= d U.S. Natural Gas Clearinghouse Ltd. Chuck Watson joined the company in 19= 85 and the operation was revamped, the pipeline partners bought out, and th= e name shortened to Natural gas Clearinghouse. In 1995, the company purchas= ed Trident NGL Holdings, quadrupling its liquids business. The company went= public for the first time under the new name NGC Corp. that same year. In = 1996, NGC merged with Chevron's gas and gas liquids business. The firm purc= hased its first power plants with the acquisition of Destec in 1997 and cha= nged its name to Dynegy in 1998 to reflect expansion beyond natural gas. Th= e company has continued to grow through acquisitions.=20 . . .=20 ENRON=20 Headquarters: Houston=20 Chairman and CEO: Ken Lay=20 Revenues in 2000: $100.8 billion=20 Employees: 20,000 worldwide=20 Electricity sales (2000): 590.2 million megawatt hours=20 Gas sales (2000): 28.3 billion cubic feet per day=20 Core areas: Enron Wholesale Services; Enron Energy Services; Enron Transpor= tation Services=20 History: The company was formed in 1985 as a result of the merger of Housto= n Natural Gas and InterNorth, a natural gas company based in Omaha, Neb. Th= e deal integrated several pipeline systems to create the first nationwide n= atural gas pipeline system. In 1986, Ken Lay, CEO of Houston Natural gas, w= as named chairman and CEO, and the name "Enron" was chosen. In 1989, Enron = began trading natural gas commodities through its GasBank, a precursor to t= oday's wholesale trading business. Enron made its first electricity trade i= n 1994 and eventually became the world's biggest marketer of electricity an= d gas. Photo: 1. Ken Lay, chairman and CEO of Enron Corp., listens at a Friday new= s conference as Chuck Watson, chairman and CEO of Dynegy, discusses his com= pany's acquisition of Enron (color); Graphs: 2. Deal At-A-Glance (b/w, text= ); 3. More Stores (b/w, text); 4. The companies (b/w, p. 16, text)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 BUSINESS POWER PLAY / Lay opened energy firms to work in new markets MICHAEL DAVIS Staff 11/10/2001 Houston Chronicle 3 STAR 3 (Copyright 2001) THE famous baseball manager Casey Stengel was smart to advise, "Never make = predictions, especially about the future," Ken Lay once wrote in an essay o= n world energy needs.=20 Lay might be taking those words to heart today. As the chairman of Enron Corp. predicted not long ago, "We can see some ver= y significant growth with several years to come."=20 Once considered one of the shining stars of the energy business, Lay has wa= tched the company he helped create melt down around him in a matter of week= s.=20 And as of Friday, he was left to ponder an offer to serve as a member of th= e board for the new company formed from Enron and its chief rival - no long= er a chairman or a chief executive.=20 Perhaps that's the way he wants it.=20 When he turned over the chief executive's post at Enron to Jeffrey Skilling= earlier this year, it seemed like the first move of his orderly exit from = the company he had helped create in the mid-1980s.=20 Eleven months later, Skilling is gone and Lay has had to preside over the d= eath of Enron.=20 What had begun as a stodgy natural gas pipeline company had been molded and= expanded by the two men into a diversified financial giant with its hands = in countless markets from oil and natural gas to water and broadband.=20 It seemed Lay, 58, who is an economist by profession, had also cemented his= reputation as an elder statesman in the energy industry, the man who had o= pened the business world's eyes to the array of possibilities that energy c= ompanies could explore for growth away from their traditional roles.=20 With the implosion of Enron in the past month, Lay's legacy now seems tarni= shed. The man who was once referred to as an "energetic messiah" has been f= orced to sell off his creation in a fire sale to rival Dynegy in a hastily = arranged deal. Lay's approach is reflected in the design of the building En= ron is constructing across from its existing tower on Smith Street. Looking= down on the massive trading floor are two offices built for Lay and Skilli= ng.=20 The offices were considered symbolic of the company's openness and its phil= osophy of melding executives with the rank and file. Lay reportedly spurned= the express elevator to ride to his 50th-floor office to spend more time w= ith employees.=20 That sort of hands-on approach Lay brought to the company may be another ca= sualty, analysts said.=20 "I would be surprised if he had much of a role in running things from a day= -to-day perspective," said Brian Youngberg, energy analyst with Edward Jone= s in St. Louis. "I think Dynegy will be running the ship and plug in some E= nron executives."=20 As the dust settles on Enron, the question is being raised as to whether th= e company became too big for one or two men to run in a hands-on fashion.= =20 "Ken Lay helped build Enron from being just a pipeline company, but over ti= me the company got so big and complex that it was too hard for one or two s= enior executives to completely oversee things and to know fully what was go= ing on in the operating companies," Youngberg said.=20 Raised on a farm in Missouri, Lay is well-known not just as chairman of Enr= on but as a former undersecretary of the Interior Department and one of the= people who has helped shape Houston's destiny in the past 20 years. He is = considered instrumental in keeping Major League Baseball in Houston by supp= orting the construction of Enron Field.=20 But his lasting legacy will likely be as one of the key people who helped c= reate the huge natural gas futures market in the United States, which was n= onexistent as recently as the late 1980s. He also will be remembered as the= man who led others to view the energy business as one integrated market an= d not individual fiefdoms.=20 "Ken Lay really did educate his peers to understand the broadness of his bu= siness," said Amy Jaffe, a senior energy analyst with Rice University's Jam= es A. Baker III Institute for Public Policy. "Whether his retirement is und= er positive or negative circumstances, he has left a huge legacy on the ind= ustry."=20 Jaffe sees Lay as the person who got oil and gas executives to break out of= the old mentality and explore new technologies such as fuel cells and wind= power. He also was a leading proponent of natural gas and power deregulati= on.=20 He will leave Enron a wealthy man, although much less so since the company'= s stock nose-dived. His current contract pays him a base salary of $1.4 mil= lion a year and a bonus of $7 million. It was due to expire in December 200= 3.=20 This is not the first time Lay has had to rescue Enron. In 1987, Enron was = rocked by the disclosure that rogue traders at its Enron Oil Co. had left t= he company holding the bag for about $1 billion in trading liabilities. Bef= ore disclosing it to the market, the company worked the trading loss down t= o about $142 million.=20 "We learned a lot, certainly in a bad way," Lay said of the incident in an = interview earlier this year. "We put in place probably the best risk manage= ment and control system, not just in our business, but in any industry."=20 Some see irony in the fact that Dynegy CEO Chuck Watson will likely prevail= over Lay despite Lay's almost cult status among business leaders and busin= ess school professors.=20 "Chuck Watson was underrated in his role in forming the natural gas market = in the United States. He was the man who realized the enormous potential of= the natural gas market," Jaffe said. "It's true that Enron came in with a = lot of advertising and built up a big position, but maybe there is some poe= tic justice that the man who really started the natural gas clearinghouse c= ould wind back up as the dominant player in the industry."=20 ...=20 THE PLAYERS=20 1985-present: Enron Corp., various top management posts, currently chairman= and CEO 1984-1985: Houston Natural Gas Corp., chairman and CEO 1981-1984 T= ransco Energy Co., president and chief operating officer Board memberships:= Compaq Computer Corp., Eli Lilly & Co. and Trust Company of the West Educa= tion: University of Missouri, master's degree, economics, 1965: doctorate, = economics, Membership: Energy Advisory Board secretary; National Petroleum = Council member Photo: Ken Lay=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 BUSINESS POWER PLAY / Purchase elevates Watson's low profile GREG HASSELL Staff 11/10/2001 Houston Chronicle 2 STAR 3 (Copyright 2001) AS the chairman of a company that employs 6,700 workers and rakes in annual= revenues of $29.4 billion, Chuck Watson is hardly an anonymous executive i= n Houston.=20 But the head of Dynegy Inc. has always maintained a low profile, prompting = some people to label him as the most influential Houstonian you've never he= ard of. He steers clear of the political arena and the limelight of the cit= y's big social soirees. He doesn't live in River Oaks, but lives in the sam= e neighborhood near Champion's Forest where he's lived for years. When they donated $1 million worth of land for the relocation of his church= , Windwood Presbyterian, Watson and his wife, Kim, tried to donate anonymou= sly.=20 "We talked about that a lot, and they reluctantly agreed that it wouldn't t= ake a rocket scientist to figure out who in this congregation would be able= to do something like that," Senior Pastor Kevin Rudolph said.=20 When fellow church member Merle Davidson recently offered to let Watson dri= ve a luxurious new Bentley for a weekend, Watson readily agreed.=20 "He enjoyed the car," said Davidson, general manager of Post Oak Motor Cars= . "But when I asked him, `Should I order you one?' he shook his head."=20 "I don't know if I could drive such a high-profile car," Watson said.=20 It's not that Watson objects to a fancy ride; he drives a top-of- the-line = Mercedes. But he's not a showboat and isn't comfortable attracting attentio= n to himself.=20 "He doesn't act like a big shot," said Tilman Fertitta, the chairman of Lan= dry's Restaurants, who likes driving a Bentley and zipping around in a heli= copter. "Chuck's not all caught up in the Houston hustle-and-bustle thing."= =20 Like it or not, Watson is about to step out in a big way. If Dynegy complet= es the acquisition of Enron for $8.85 billion in stock, Watson will become = captain of Houston's largest company. He will step right into the center of= the city's business stage, taking from Enron Chairman Ken Lay the mantle o= f most powerful businessman in a city where commerce and the deal have alwa= ys come first.=20 Those who know Watson say he should have little trouble adapting to his hig= her profile and is ready for the many demands that will inexorably follow.= =20 "Chuck is a guy who knows what he wants and goes and gets it," Fertitta sai= d. "He is not intimidated."=20 In fact, when longtime friend Steve Patterson read about Enron's nose-dive = and the collapse of its stock, he instinctively knew Watson would close in = on a deal.=20 "I thought: `You know what, Chuck will try to buy Enron. It just fits. It's= the big bold move that Chuck would try to make,' " said Patterson, senior = vice president of the Houston Texans football team. Watson owns 15 percent = of the Texans, the largest chunk outside of the piece owned by club founder= Bob McNair. Watson also owns the Houston Aeros hockey team.=20 Like Enron Chairman Ken Lay, Watson was a pioneer in the deregulation of th= e energy business. He was one of the early innovative forces that shaped th= e world of trading electricity and swapping natural gas.=20 Watson was born 51 years ago on the Great Lakes naval base north of Chicago= . His father worked for the Navy, which moved the young Watson clan around = early and often. Chuck Watson had attended more than 20 schools in nine sta= tes when he graduated from Oklahoma State University in 1972 with a degree = in economics.=20 After a 13-year career at Conoco, Watson joined a fledgling company called = U.S. Natural Gas Clearinghouse in 1985. NGC was a consortium of gas pipelin= es that had the backing of a financial- services company and a local law fi= rm, but conflicts among the partners hamstrung the little company.=20 Watson would not join the company until it was overhauled and most of the q= uarreling partners were bought out. Watson's vision was to buy the gas and = take title to it, aggregate big volumes and leverage that to make bigger de= als and negotiate better rates from the pipelines that moved the gas around= .=20 In short, the company moved beyond being a broker and became a wholesale st= ore for natural gas.=20 "He is a visionary in the energy business," said Bob McNair, a longtime fri= end who founded Cogen Technologies and later sold the company to Enron for = $1.1 billion. "Chuck will come across as this relaxed, country person. Not = some sophisticate. But that is disarming. He is very creative, and he is ve= ry smart."=20 While NGC initially concentrated on gathering, moving and trading natural g= as, the business has broadened along with the quickening pace of energy der= egulation. Now called Dynegy, short for Dynamic Energy, the company has evo= lved into an outfit that sells power directly to commercial and industrial = users of electricity and natural gas. It also has built a communications di= vision to capitalize on increasing demand for high-speed communication serv= ices.=20 Last year the company recorded an astounding 230 percent rise in net income= , as well as a 91 percent jump in operating revenues. Dynegy's stock climbe= d 218 percent last year.=20 "The success of Dynegy is a tremendous story," Patterson said. "It is amazi= ng the growth and the value he has been able to achieve."=20 According to some of those who've have done business with him, Watson is no= t just bright, he is extraordinarily tough.=20 "He is a very aggressive person, a tough negotiator. He bores in," said Geo= rge Mitchell, founder of Mitchell Energy and the man who carved The Woodlan= ds out of the piney forest."He is a very confident person. Unlike Ken Lay, = who is a smoother type personality who works with people, Watson is going t= o do it his way. They are both very good business people, but they are very= different."=20 While willing to give power to his subordinates, Watson is a hands- on CEO = who is unmistakably Dynegy's commanding force.=20 "Chuck is very, very intense . . . He burns," said former Houston Mayor Bob= Lanier. "In negotiations, he gets down and learns all the details himself.= "=20 How tough Watson is willing to be came to light in his contentious dealings= with Houston Rockets owner Les Alexander. Watson owned the master lease to= the Summit, later renamed the Compaq Center, which committed the Rockets t= o playing there through 2003. Eager to break the deal, Alexander tried nego= tiating and litigating his way out of the lease, all to no avail.=20 The battle deepened as the two men competed unsuccessfully to get a NHL hoc= key team in Houston and feuded over how a hockey team would share in the re= venues of a new stadium proposed for downtown.=20 Angered at the deal Alexander was able to get for the Rockets, at the expen= se of a hockey franchise, Watson spent about $100,000 out of his own pocket= to help defeat the stadium referendum. It was his one overtly political ac= t here, and some say it was the decisive blow to Alexander's aspirations.= =20 "There are a lot of people I'd much rather have a contest with," Lanier sai= d of Watson.=20 Alexander and Watson were later able to settle their differences, and Watso= n supported the second arena referendum, which passed. A basketball arena i= s now under construction downtown.=20 "I'm not surprised to see Chuck Watson make an aggressive move like this," = Alexander said Friday evening. "He understands the industry as well as anyo= ne; and therefore, he's in the best position to assess the risk and take ad= vantage of the opportunity."=20 Like most opportunities, the deal also represents a sizable risk. Taking ov= er Enron is a huge reach for Dynegy, which will try to swallow a company th= at was five times bigger when measured by revenues.=20 Watson will need all of his shrewdness and ferocity to untangle the mess th= at is Enron and merge two operations that were each, in their own way, tryi= ng to reinvent the energy business.=20 "I have some concerns for my friend," McNair confessed. "It is a tremendous= challenge. I know he'll handle it well, but this will be a very demanding = business."=20 ...=20 The Players=20 1989-present: Dynegy, chairman and CEO=20 1985: NGC, Dynegy's predecessor, president=20 1972-1985: Conoco, var
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