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Don't Bet It All On Your Employer ; The plunge of Enron stock serves as a w=
arning that workers should not invest too much in their company Time Magazine, 12/03/01 Pick One Stock; Our annual Love Only One stock-picking contest. Forbes Magazine, 12/10/01 The Informer Forbes Magazine, 12/10/01 Can shoppers save the economy?; Four-star defense; An anthrax enigma; Smoke= out; Gore, capitalist; Falling star; Forward Spin U.S. News & World Report, 12/03/01 Enron, Dynegy Work to Salvage Merger Deal The Wall Street Journal, 11/28/01 Deals & Deal Makers: Banks, Too, Have Stake in Enron Merger --- Stature, Mo= ney Are Both on the Line The Wall Street Journal, 11/28/01 Energy-Trading Market Survives Enron for Now The Wall Street Journal, 11/28/01 Business World: Enron Is History, Says History The Wall Street Journal, 11/28/01 Trying to Restore Confidence in Enron to Salvage a Merger The New York Times, 11/28/01 Enron, Dynegy pursue the right price Houston Chronicle, 11/28/01 Cooperation from Enron key in probe Houston Chronicle, 11/28/01 Dynegy Completes $600 Mln Purchase of U.K. Gas Storage Assets Bloomberg, 11/28/01 Natural Gas, Electricity Trading Appears Resilient, WSJ Reports Bloomberg, 11/28/01 J.P. Morgan, Citigroup Have Stakes in Enron Purchase, WSJ Says Bloomberg, 11/28/01 Enron's 401(k) Savings Plan Was Set Up for a Fall: David Wilson Bloomberg, 11/28/01 Enron Receives Proposal for $1 Billion Investment, FT Says Bloomberg, 11/28/01 GLOBAL INVESTING - Enron faces lawsuits over handling of pension plan ENERG= Y TRADER'S EMPLOYEES ALLEGE ... Financial Times, 11/28/01 COMPANIES & FINANCE THE AMERICAS - Enron works to save Dynegy bid. Financial Times, 11/28/01 WORLD STOCK MARKETS - Black clouds of pessimism hang over Wall Street AMERI= CAS. Financial Times, 11/28/01 Enron's Many Victims Los Angeles Times, 11/28/01 Dynegy Asks Enron for New Terms The Washington Post, 11/28/01 Dynegy Refigures Enron Offer Takeover: Buyer lowers price; energy trader's = stock stabilizes. Rating agencies show restraint. Los Angeles Times, 11/28/01 Ratings agencies agree to hold off on ratings move on Enron for now - WSJ AFX News, 11/28/01 Dynegy Completes BG Storage Ltd Buy Dow Jones News Service, 11/28/01 Dynegy Completes Acquisition of UK Natural Gas Storage Assets Business Wire, 11/28/01 INDIA: India's ONGC says rejects BG offer on fields. Reuters English News Service, 11/28/01 AUSTRALIA: Pacific Hydro to select wind turbine maker. Reuters English News Service, 11/28/01 Dynegy confirms it's renegotiating Enron deal The Daily Deal, 11/28/01 Dynegy confirms move to renegotiate Enron takeover Chicago Tribune, 11/28/01 USA: UPDATE 6-Enron, Dynegy hammer away at new merger deal. Reuters English News Service, 11/27/01 New negotiations for Dynegy purchase of Enron sends shares higher Associated Press Newswires, 11/27/01 USA: Enron woes bite into its energy trading. Reuters English News Service, 11/27/01 Enron/Dynergy Renogotiate MergerCNNfn CNNfn: Markets Impact, 11/27/01 Enron Board Agrees to Lower Dynegy Purchase Price, Paper Says Bloomberg, 11/27/01 Enron Finding It Harder to Trade, Competitors Say (Update2) Bloomberg, 11/27/01 Personal Time/Your Money Don't Bet It All On Your Employer ; The plunge of Enron stock serves as a w= arning that workers should not invest too much in their company Sharon Epperson 12/03/2001 Time Magazine Time Inc. 79 (Copyright 2001) Steve Lacey, 45, an emergency-repair dispatcher for a utility company in Sa= lem, Ore., has a personal life that reads like a holiday greeting card. He = recently married his longtime love, and after packing boxes over Thanksgivi= ng weekend, they are set to move into their dream house in the country, jus= t in time for Christmas. Lacey's retirement plans, however, are in ruins. H= e works for the embattled energy-trading firm Enron, and has all his 401(k)= savings in Enron stock, which plunged from $90 a share in late 2000 to $4.= 71 at the end of last week.=20 Much of that decline has come since October when Enron reported it had lost= $638 million in the third quarter and later admitted it had overstated ear= nings from 1997 to 2000. As their life savings shriveled, all Lacey and his= co-workers could do was watch. From Oct. 17 to mid-November, Enron blocked= its employees from shifting investments in their 401(k) accounts, while it= switched to a new plan administrator. Lacey has joined a federal lawsuit that accuses Enron of breaching its fidu= ciary duty to employees by encouraging them to invest in Enron stock even a= fter executives became aware of serious financial problems that would hurt = the stock price. "There was a lot of promotion inside the company to invest= in Enron and help us grow, so everybody got into it," Lacey told TIME's Ca= thy Booth Thomas. Enron says it doesn't comment on pending lawsuits.=20 Lacey and his colleagues could not have anticipated that they would be stuc= k with a plummeting stock. But their woes should be seen as a warning not t= o hold too much of your employer's stock in your 401(k) and to regularly mo= nitor the diversification of your investments.=20 Like Enron's, many firms' 401(k) plans can have blackout periods lasting fr= om a few days to a few weeks when they change plan administrators. "That's = not necessarily wrong or illegal," says Alden Bianchi, chairman of the empl= oyee-benefits group at the Mirick O'Connell law firm in Westborough, Mass. = Employees need to make sure their 401(k) investments are diversified at all= times--in case they can't shift them for a while.=20 Like Enron, many other big firms match employee contributions with company = stock. Your allocation to that one investment can grow very quickly. And yo= u might not be allowed to reallocate those matching funds into other invest= ments until age 50 to 55. At the end of last year, a whopping 39% of total = assets in profit sharing and 401(k) plans were invested in the stock of the= sponsoring company. Among employees who are allowed to hold their employer= 's stock in their 401(k) account, 18% invested half or more of their saving= s in that stock.=20 Financial planners will tell you it's a mistake to bet so much on a single = stock--especially that of the company you work for, whose fortunes already = affect your job security and career advancement. Planners often advise inve= stors to hold as little of their employer's stock as they can--say, only th= e amount the company gives them as a matching contribution. Then they shoul= d shift assets out of even that matching stock into a mix of diversified st= ock-and-bond mutual funds as soon as they are old enough to do so. Similarl= y, if your employer gives you options to buy company stock, don't buy and h= old the stock; cash it in and invest the proceeds in a diverse blend of sto= cks and bonds or mutual funds.=20 Remember that it's your responsibility to arrange your investments so that = they can survive any financial trouble your employer might suffer. As finan= cial planner Clare Wherley of New Providence, N.J., says, "It's not the com= pany's responsibility to make sure your investments go up."=20 Sharon Epperson is a correspondent for CNBC Business News. E-mail her at sh= aron.epperson@nbc.com=20 DIVERSIFY YOUR 401(K) ASSETS=20 Steve Lacey invested 100% of his savings plan in his employer's stock. Expe= rts say even the average worker, who holds 39% of his 401(k) assets in comp= any stock, is poorly diversified=20 Average allocation of assets in employee profit-sharing and 401(k) plans=20 Company's stock 39.2% Stock funds 35.4% Bond funds 5.9% Cash/Money market 3= .4% Other 16.1%=20 Source: Profit Sharing/401(k) Council of America COLOR PHOTO: SUSAN SEUBERT FOR TIME COLOR CHART=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Pick One Stock; Our annual Love Only One stock-picking contest. Andrew T. Gillies and Megan E. Mulligan 12/10/2001 Forbes Magazine 176 Copyright 2001 Forbes Inc. Bearish Wall Streeters again dominate our annual Love Only One stock-pickin= g contest. 2002 may not be so easy.=20 Our year-end Love Only One contest invites analysts and money managers to s= tick their necks out by choosing one stock to buy or to sell short. Those w= ho beat the market over the next 12 months get return invites. Our 12 bulls, with an 18% average decline, fared somewhat better than the S= &P500, which fell 20% from Nov. 13, 2000 to Nov. 1, 2001. Not much to write= home about. But it was a great year to finger rotten stocks. Our five bear= s' picks fell an average 56%. Four bears qualified to reenter, and three ch= ose to do so.=20 ProFund Advisors' William Seale hit the bull's-eye by selecting Transmeta a= s a stinker. In the past year the stock has fallen 95%. He's back this year= with a rap on Carnival Corp. Already, one big cruise line, American Classi= c Voyages, has declared bankruptcy. Now Carnival, despite being stronger th= an most cruise operators, will suffer as the heavy burden of overhead is sp= read among fewer vacationers, he says. At a recent $23 Carnival is trading = at 16 times estimated 2002 earnings per share and is eminently shortable.= =20 Stephen N. Worthington of Barbary Coast Capital Management foresaw trouble = with the burn rate and debt load at wireless service provider Metricom, tra= ding a year ago at $15.75. Nice call. In July 2001 the company filed for Ch= apter 11 protection.=20 This year Worthington sees trouble brewing on the balance sheet of PacifiCa= re Health Systems. He cites an impending writeoff of the HMO's intangibles = (mostly goodwill), now 42% of assets.=20 Martin Weiner of Comstock Partners correctly anticipated that a sagging mar= ket would dent enthusiasm for stock trading, as he picked broker Charles Sc= hwab, which fell 57%. For 2002, Weiner estimates a 20% drop in capital spen= ding for the semiconductor industry. So he says you should short Applied Ma= terials, the big supplier of chipmaking equipment.=20 Two new bears sign on for the year ahead: Timothy Ghriskey of Ghriskey Capi= tal Partners and Cengiz Searfoss, portfolio manager at West Broadway Partne= rs. Ghriskey sees a slide in Nestle, as investors lose their appetite for f= ood stocks in an eventual market rebound. Searfoss targets Eastman Kodak fo= r the stiff competition it confronts in a low-margin business.=20 Now for the bulls. Jean-Marie Eveillard, manager of the First Eagle SoGen G= lobal Fund, gained 21% with timber producer Rayonier. For next year Eveilla= rd still likes timber, as well as real estate and gold stocks. His choice f= or our contest is Security Capital, a holding company for a number of real = estate investment trusts and private real estate entities.=20 Morgan Stanley chief investment strategist Byron Wien rode retailer Target = to a 23% increase. Now he likes Oracle, arguing that it will outlast its co= mpetitors and that its share price already reflects the technology spending= downturn.=20 Thrya Zerhusen, manager of the ABN AMRO/Talon Mid Cap Fund, beat the market= last year with a 9% gain on American Power Conversion, the manufacturer of= backup power supplies. Now she opts for Unisys shares, at just 0.5 times s= ales and 9 times her 2002 earnings estimate.=20 Six new bulls join the contest. Subodh Kumar, chief investment strategist a= t CIBC World Markets, picks Intel on the theory that chip companies lead te= chnology rallies. Michael Mauboussin, chief U.S. investment strategist with= Credit Suisse First Boston, goes for Enron, suggesting that the acquisitio= n by Dynegy will take place on current terms. Enron shares are trading at a= 19% discount to their Dynegy value.=20 Anna Dopkin, manager of the T. Rowe Price Financial Services Fund, consider= s troubled insurer Safeco a promising turnaround. Wendy Trevisani, associat= e portfolio manager with Thornburg Investment Management, says E-Trade will= succeed with its diversification from pure trading into banking and lendin= g products.=20 Kurt Von Emster, portfolio manager of MPM BioEquities Fund, bets on Regener= on Pharmaceuticals: "This biotech has a prolific pipeline, a hoard of cash = and fantastic science." Sandi Gleason, a portfolio manager with Kayne Ander= son Rudnick, recommends Syncor International on the strong projected growth= of its radiopharmaceuticals business.=20 To track current quotes on these stocks, go to www.forbes.com/love.=20 The Long and Short of It=20 Eight newcomers, plus nine reigning winners from last year's contest, enter our annual Love Only One scrum.=20 Name/affiliation=20 Stock Price=20 Buzz Richard E. Cripps/Legg Mason=20 Computer Sciences $33.94=20 higher government tech spending Anna Dopkin/T. Rowe Price=20 Safeco 31.28=20 new management David Elias/Elias Asset Mgmt=20 J.P. Morgan Chase 36.34=20 cheap at 11 times 2002 estimated EPS Kurt Von Emster/MPM Capital=20 Regeneron 22.09=20 obesity drug in phase-3 trials Jean-Marie Eveillard/First Eagle SoGen Funds=20 Security Capital 18.67=20 market shift into real estate Grace Keeney Fey/Frontier Capital Mgmt=20 General Mills 47.00=20 predictable & sustainable profits Sandi Gleason/Kayne Anderson Rudnick=20 Syncor International 29.59=20 recession-proof growth Subodh Kumar/CIBC World Markets=20 Intel 25.94=20 new products & aggressive pricing Michael J. Mauboussin/Credit Suisse First Boston=20 Enron 11.99=20 market overreaction; Dynegy deal Wendy Trevisani/Thornburg Investment Mgmt=20 E-Trade 6.79=20 growing bank & mortgage business Byron R. Wien/Morgan Stanley Dean Witter=20 Oracle 14.17=20 long-term winner in tech Thyra Zerhusen/ABN AMRO Funds=20 Unisys 9.35=20 services account for 70% of sales SHORT-SELLERS=20 Timothy Ghriskey/Ghriskey Capital Partners=20 Nestle S.A. 53.02=20 P/E well above 9-year average William Seale/ProFund Advisors=20 Carnival 22.65=20 decline in travel & high overhead Cengiz Searfoss/West Broadway Partners=20 Eastman Kodak 26.80=20 heavy debt & digital competition Martin Weiner/Comstock Funds=20 Applied Materials 36.99=20 reduced spending in chip industry Stephen Worthington/Barbary Coast Capital Mgmt=20 PacifiCare Health System 18.26=20 razor-thin margins, dying business 2001 Roundup=20 Collectively, our bulls barely outperformed the market's 20% decline over the course of the contest. The bears had more fun-on average their picks tumbled 56%.=20 Name/affiliation=20 Ticker Stock change* Michelle R. Clayman/New Amsterdam Partners=20 BBOX Black Box -20% Richard E. Cripps/Legg Mason=20 T AT&T -5 Gail Dudack/independent strategist=20 CPHD Cepheid -25 David Elias/Elias Asset Mgmt=20 HD Home Depot 3 Jean-Marie Eveillard/First Eagle SoGen Funds=20 RYN Rayonier 21 John R. Hickman/Juricka & Voyles=20 DSWT Duraswitch -30 Mark C. Jordan/AG Edwards=20 CDO Comdisco -96 Grace Keeney Fey/Frontier Capital Mgmt=20 TMO Thermo Electron -18 Ron H. Muhlenkamp/Muhlenkamp Funds=20 SFP Salton -51 Byron R. Wien/Morgan Stanley Dean Witter=20 TGT Target 23 Martin Whitman/Third Avenue Value Funds=20 AVX AVX -29 Thyra Zerhusen/ABN AMRO Funds=20 APCC Amer Power Conv 9 SHORT-SELLERS=20 Lou A. Cardinali/Fiero Brothers=20 KKD Krispy Kreme 57 Mark Coffelt/First Austin=20 JNPR Juniper Networks -87 William Seale/ProFund Advisors=20 TMTA Transmeta -95 Martin Weiner/Comstock Funds=20 SCH Charles Schwab -57 Stephen Worthington/Barbary Coast=20 MCOM Metricom -99 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Departments The Informer Janet Novack, Justin Doebele, William P. Barrett, Lynn Cook, Benjamin Fulfo= rd, Daniel Fisher 12/10/2001 Forbes Magazine 54 Copyright 2001 Forbes Inc. Almost Makes Boesky a Saint=20 The U.S. Tax Court says Chicago-based FMC Corp. can't take a $218 million t= ax deduction for theft losses blamed on the big mid-1980s insider trading s= candal involving infamous arbitrager Ivan F. Boesky. The court held that FM= C's complaint--Boesky's dealings caused it to pay that much more to buy bac= k its own stock--was erased when it lost a nontax case making the same clai= m against an investment firm whose employee had leaked then-Forbes 400 memb= er Boesky the information. FMC, the court said, was asserting the "remarkab= le proposition" that its own shareholders had received too much. --Janet No= vack Watch What We Do, Not What We Say=20 Goldman Sachs Group is preparing to sell shares of a real estate investment= trust it created consisting of commercial property in Japan. A big pitch: = Rental yields are juicy compared with other investments available to domest= ic investors. Yet sources say Goldman itself is holding back on signing a l= ease for new digs in Tokyo, expecting rents to drop in coming months, which= could happen. An ongoing building boom is expected to add a glut-inducing = 25% to downtown Tokyo prime office space by 2004. No comment from the vener= able Goldman. --Justin Doebele=20 Regulators Get Hang of Law=20 After criticism on this page and elsewhere, NASD Regulation, the brokerage-= owned regulatory agency, is finally moving to make it harder for errant sto= ckbrokers to hide their sins from investors. Under proposed rules, brokers = who settle (i.e., pay money to end) a client's arbitration claim before a h= earing would generally no longer be able to keep the matter out of an NASDR= database accessible to the public. Also, NASDR would drop its legally absu= rd position that it had to honor expungement orders won by brokers in state= courts even if it wasn't a party. --William P. Barrett=20 A Buying Opportunity, Y'all?=20 Energy-company mergers--Enron-Dynegy and Chevron-Texaco--likely will help s= well the office vacancy rate under Houston's glittering skyline from a tigh= t 2% to a not-so-tight 15%. Also heading south: prime space rent, already c= heap by major-city standards at $27 per square foot per year. Big landlord = losers: Canadian real estate investment trust TrizecHahn and Fort Worth's C= rescent Real Estate Equities. --Lynn Cook=20 Soap Opera=20 In Japan, Sanyo, the big appliance maker, has just rolled out a washing mac= hine the company claims needs no detergent at all. Soapmakers are foaming a= t the mouth as they try to disprove the new contraption's effectiveness. Am= id the claims and counterclaims, machine sales appear brisk. --Benjamin Ful= ford=20 If Your Company Wants to Put Its Name on a Stadium, Think About Selling=20 With the sudden collapse of its stock, Enron becomes the latest public company to join the growing list of big firms whose share price underperformed the market after buying the naming rights to a professional sports arena. --Daniel Fisher=20 VENUE/CITY=20 YEARNAMED PERFORMANCEVS. S&P 500* 3Com Park/San Francisco=20 1995 -186% Pro Player Field**/Miami=20 1996 -171 PSINet Stadium/Baltimore=20 1999 -111 Compaq Center/Houston=20 1998 -95 CMGI Field/Foxborough, Mass.=20 2000 -69 Bank One Ballpark/Phoenix=20 1996 -65 Cinergy Field/Cincinnati=20 1996 -63 Coors Field/Denver=20 1991 -52 Enron Field/Houston=20 1999 -52 Network Associates Coliseum/Oakland=20 1998 -48 Adelphia Coliseum/Nashville=20 1999 -47 Safeco Field/Seattle=20 1998 -35 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Top of the Week Can shoppers save the economy?; Four-star defense; An anthrax enigma; Smoke= out; Gore, capitalist; Falling star; Forward Spin Lisa Stein 12/03/2001 U.S. News & World Report 10 c Copyright 2001 U.S. News & World Report. All rights reserved. Can shoppers save the economy?=20 Seems that when consumers get the blues they go shopping. And that's good n= ews for the nation's wobbly economy. After a second consecutive week of sunnier reports, economists wonder wheth= er their gloom--as well as their growth--forecasts may be in need of tinker= ing. After all, the slowdown was supposed to feel like a recession by now.= =20 But don't tell that to shoppers: Michigan's consumer sentiment index actual= ly rose in November to 83.9. The Conference Board's index of leading econom= ic indicators went up 0.3 percent in October while retail sales jumped 7.1 = percent.=20 What's more, for the fourth consecutive week, initial jobless rates dipped,= this time to 427,000. The economy, in fact, is suddenly beginning to look = a lot like it did on September 10--not robust maybe, but not hopeless eithe= r. Some optimistic analysts were ready to break out the champagne.=20 "These data scream that the biggest job losses are now over," says Ian Shep= herdson of High Frequency Economics. Adds economic adviser Joel Naroff: Suc= h "positive news could lead to a much happier holiday than anyone could hav= e dreamed of two months ago."=20 Four-star defense=20 Pentagon commanders are assigned to keep tabs on almost every country in th= e world--except the United States. Now there may be a commander in chief--o= r CINC, in Pentagon-speak--for the homeland too. If the brass get its wish,= CINC USA will oversee fighter jets, National Guard troops, chemical-weapon= s experts, and other forces that defend America's skies, borders, and citie= s. It's not a new idea. But until September 11, critics concerned about vio= lating restrictions on the domestic use of military troops had rebuffed it.= The bigger issue now is identifying a single authority--one who reports to= the president--who would oversee the military defense within U.S. borders.= The Pentagon wants to give the responsibility either to the North American= Aerospace Defense Command, or NORAD--which monitors the nation's skies--or= to Joint Forces Command, which develops new fighting concepts.=20 A point of friction: the role of the National Guard, which is clinging to i= ts tanks and artillery even though the Pentagon sees it as better-suited fo= r domestic guard duty.=20 An Anthrax Enigma=20 Clueless In Connecticut=20 Investigators are scouring the home of Ottilie Lundgren, the 94-year-old Co= nnecticut woman who died of inhalation anthrax. The suspected culprit: her = mail. Nearby postal workers were prescribed a regimen of antibiotics while = officials questioned relatives and tested the home for traces of the lethal= spores. "This is a very unusual case that we hope will give us more clues,= " says Jeff Koplan, director of the Centers for Disease Control and Prevent= ion.=20 But officials say Lundgren's death--like that of Bronx hospital worker Kath= y Nguyen--could yield more questions than answers.=20 Smokeout=20 Tobacco Wars=20 Beware lighting up in your home in Montgomery County, Md. If the smell offe= nds your neighbor, you could face a hefty fine. The suburban Washington, D.= C., county last week passed one of the nation's stiffest antismoking packag= es, treating tobacco smoke the same as other pollutants like asbestos and r= adon. Violators could be fined as much as $750. "This does not say that you= cannot smoke in your house," says council member Isiah Leggett. "What it s= ays is that your smoke cannot cross property lines."=20 Tobacco companies threaten legal action; ditto, the American Civil Libertie= s Union.=20 Gore, Capitalist=20 Taking Care Of Business=20 Just days after a consortium of newspapers decided Al Gore might have won t= he Florida recount and become president if only he had insisted that the ov= ervotes be counted as well as the undervotes--you remember overvotes and un= dervotes, don't you?--Gore announced he was forsaking politics for money, a= t least for now. Gore will become vice chairman of Metropolitan West Financ= ial Inc., a financial services company in Los Angeles. Avoiding the big que= stion--will he keep the beard?--the former veep said: "For more than 25 yea= rs, I have worked on business and economic issues from the perspective of a= public servant engaged in public policy. I am eager to learn more about bu= siness as an active executive of this dynamic and community-oriented compan= y."=20 While some of Gore's former aides had hoped their ex-boss would join a thin= k tank pending another run for the presidency in 2004, they now insist that= a private-sector job doesn't take him out of the race.=20 Falling Star=20 The Art Of The Deal=20 Early this year, Enron executives groused that Wall Street didn't appreciat= e their innovative business model, arguing that the company was severely un= dervalued at $80 per share. If only investors showed that kind of disrespec= t for Enron today. The beleaguered Houston energy trader's stock price tumb= led to as low as $4 last week, threatening a merger deal with Dynegy that i= s seen as Enron's best survival hope. The latest free fall came after Enron= disclosed the severity of its credit crunch to regulators.=20 Both Dynegy and Enron insist the deal's still on, and Enron's shares recove= red slightly after its lead lender gave it more time to pay off a $690 mill= ion loan. Still, it could take six to nine months to finalize the deal.=20 Forward Spin=20 HELPING HANDS Congress returns from Thanksgiving recess to work that will i= nvolve a lot of giving and no small measure of thanks. The defense appropri= ations bill will get early and generous attention, followed by an economic = stimulus bill that will be greeted with hands extended, asking that time-ho= nored question: Where's mine?=20 NEXT STOP? The last day in November is the deadline for ending sanctions ag= ainst Iraq. That seems highly unlikely given the uncertainty over any role = Baghdad might have played in propping up Osama bin Laden or even in support= ing terrorist attacks.=20 FAIL-SAFE After dismal academic performance and a projected $1.2 billion de= ficit, Philadelphia's school district will now be under the watchful eye of= not only Pennsylvania Gov. Mark Schweiker but also Edison Schools Inc. Sch= weiker backed off a proposal to allow Edison to take over school management= . Instead, the private company will serve as consultants and help in recrui= ting new managers for the troubled school district. Picture: Can shoppers save the economy? (WILL LESTER--INLAND VALLEY DAILY B= ULLETIN / AP); Picture: REFLECTED GLORY. President Bush lauded Robert F. Ke= nnedy last week as the Justice Department renamed its main building to hono= r the former attorney general and liberal icon. (JIM LO SCALZO FOR USN&WR);= Picture: Ottilie Lundgren (IMMANUEL LUTHERAN CHURCH / AP); Picture: Gov. M= ark Schweiker (DAN LOH--AP)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron, Dynegy Work to Salvage Merger Deal By Rebecca Smith and Gregory Zuckerman Staff Reporters of The Wall Street Journal 11/28/2001 The Wall Street Journal A3 (Copyright © 2001, Dow Jones & Company, Inc.) Top executives of Enron Corp. and Dynegy Inc. raced to salvage a deal to co= mbine the two energy-trading companies amid growing signs that Enron is fac= ing cash-flow problems as a result of a sharp downturn in its core trading = business.=20 The executives' task gained urgency amid worries that Enron's debt may soon= be downgraded to junk status by leading credit-rating agencies. After hold= ing talks with executives of Enron and Dynegy, representatives of Moody's I= nvestors Service Inc., Standard & Poor's Ratings Group and Fitch Inc. agree= d to hold off on making any ratings move yesterday, people familiar with th= e discussions said. J.P. Morgan Chase & Co. and Citigroup Inc.'s Citibank, = which are shepherding the merger and have already loaned $1 billion and agr= eed to invest an additional $500 million in the merged company, may arrange= still more funding for Enron, these people said. "I hope they err on the conservative side and stockpile cash," said Ralph P= ellecchia, analyst for Fitch, the credit-rating agency.=20 With few viable options remaining, Enron's board late yesterday informally = agreed to a new share-exchange ratio of 0.12 shares of Dynegy for each Enro= n share tendered, down more than 50% from the original offer of 0.2685 Dyne= gy share for each Enron share, according to one person familiar with the si= tuation. But the talks were still fluid as of late yesterday.=20 The latest proposed share-exchange ratio values Enron at $4.91 a share, or = a total of $4.17 billion. This would compare with the original value of $10= .98 a share, or $9.33 billion. In exchange for reducing the purchase price,= some members of the Enron team were insisting on more control over the mer= ged company. Dynegy also was considering an additional $250 million cash in= vestment in Enron. Dynegy, together with ChevronTexaco Inc., has already in= jected $1.5 billion into Enron in an effort to stabilize the company.=20 Talks between Enron and Dynegy were said to be tense and occasionally acrim= onious.=20 At 4 p.m., Enron shares were up 10 cents to $4.11, while Dynegy shares were= up $1.64 to $40.89, in New York Stock Exchange composite trading.=20 Talks between Enron and Dynegy began in earnest over the weekend to cut the= price of the all-stock transaction after Enron's share price had plummeted= in the wake of disclosures that its future earnings wouldn't be as high as= originally anticipated. On Nov. 9, Dynegy originally agreed to buy Enron a= fter the emergence of damaging revelations concerning a series of deals tha= t allowed Enron executives to profit personally at the expense of the compa= ny and its shareholders. Those deals are now the subject of a Securities an= d Exchange Commission investigation.=20 While struggling to keep the planned merger alive, Enron also has been seek= ing to extend the maturity dates of some of its borrowings. Enron has a tot= al of about $13 billion of debt, of which about $9 billion comes due by the= end of next year. The company may find itself on the hook for an additiona= l $7 billion in off-balance-sheet debt and another $3.9 billion in potentia= l liabilities, related to troubled investment partnerships, if its credit r= ating drops to below investment grade, says Mr. Pellecchia, the Fitch analy= st. A cut to a junk-status credit rating could deal a fatal blow to Enron, = which needs huge sums of cheap money to keep its trading operations alive.= =20 Enron, nowadays, seems to be generating less cash from that business, which= accounted for more than 90% of its profit in the most recent quarter. In t= he five weeks since Enron's problems became widely known, its trading partn= ers have sought to protect themselves by shifting deals elsewhere from the = dominant EnronOnline trading exchange and to limit their exposure to the Ho= uston-based company. About a week ago, Enron said it had about $1.6 billion= in cash, which surprised analysts who expected a number at least $1 billio= n higher given the most recent infusions from Dynegy and the banks.=20 Enron spokeswoman Karen Denne said the company "is continuing to meet all o= ur obligations." She added that trading activity at the EnronOnline unit ha= d been "below average" in recent days, but that the company believes "it ha= s stabilized."=20 Analysts say cash on hand doesn't appear to be enough to keep Enron alive f= or long, given the reluctance of its trading partners and creditors. Rebecc= a Followill, an analyst at Howard Weil in Houston, says that Enron needs a = bigger cash hoard than ever to rebuild confidence. She reckons Enron needs = $4 billion to $5 billion on hand while the merger deal winds its way throug= h shareholder and regulatory approvals.=20 ---=20 Robin Sidel and Jathon Sapsford contributed to this article. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Deals & Deal Makers: Banks, Too, Have Stake in Enron Merger --- Stature, Mo= ney Are Both on the Line By Jathon Sapsford and Kara Scannell Staff Reporters of The Wall Street Journal 11/28/2001 The Wall Street Journal C1 (Copyright © 2001, Dow Jones & Company, Inc.) As important as completing the Enron Corp.-Dynegy Inc. merger is for the tw= o companies, it is almost as critical for the banks that have backed it.=20 J.P. Morgan Chase & Co. and Citigroup Inc. have emerged as prominent financ= iers and cheerleaders behind the problem-plagued transaction, putting hundr= eds of millions of dollars of their own money into Enron in hopes of keepin= g the deal alive. Late yesterday, that effort continued, with the banks scr= ambling for new terms to avoid a credit downgrade that could scuttle the de= al. But in addition to putting their money behind the proposed merger, the two = lending giants have also staked their reputations -- and perhaps even some = of their prowess in the mergers-and-acquisitions business itself -- on comp= leting this transaction.=20 Both J.P. Morgan and Citigroup officials have said privately that the pendi= ng deal is a bellwether. That is because it could illustrate how big bankin= g institutions can use their lending muscle to offer customers one-stop sho= pping, thus usurping business from the other, more-traditional investment-b= anking institutions.=20 Because the banks offered financing to Enron on short-notice to grab the ad= visory business, the deal has the "potential for either giving a boost to a= bank's stature on the street or to sling some mud in its face," said Samue= l Hayes, professor of finance at Harvard Business School. "This is a high-s= takes assignment."=20 And an expensive one, if the deal doesn't happen. Each bank has commitments= outstanding to Enron, in the form of various loans, of roughly $700 millio= n to $800 million, according to officials familiar with the matter, and rou= ghly half of that is in unsecured debt. The two companies, these officials = say, have also committed an additional equity investment of $250 million ea= ch so far, though there is a possibility Enron could get more.=20 As mergers go, the deal is relatively small, and it has gotten smaller in r= ecent days as investors have hammered lower Enron's stock, which at 4 p.m. = yesterday stood at $4.11, up 10 cents in composite trading on the New York = Stock Exchange.=20 But on Wall Street, the importance of the deal goes well beyond its size, w= here the transaction is seen as a high-profile example of the new era of fi= nance in which large financials exploit the crumbling walls between once-se= parate businesses like lending, underwriting and mergers advisory.=20 Goldman Sachs Group, an investment bank that doesn't traditionally extend l= arge loans to clients, was denied a piece of the merger business because it= declined to extend the sort of loans that J.P. Morgan and Citigroup provid= ed last week.=20 Should this deal fall through, it will make Goldman look smart. "There is a= lot more to this deal for the banks than just [mergers and advisory] fees,= " says Andy Collins, an analyst at U.S. Bancorp Piper Jaffray.=20 It is also seen as well as a major test of the decision in 1999 to repeal D= epression-era laws under the Gramm-Leach Bliley Act.=20 For decades, the U.S. financial system effectively banned commercial banks = from lending to the same clients they served as an investment bank. The thi= nking was that commercial banks, the federally insured guardians of deposit= s, shouldn't be betting in the securities markets with depositor money.=20 Now with those laws repealed, some worry about risks creeping back into the= system. Roy Smith, a business professor at New York University, says the b= anks' lending to the same clients from which they seek to win securities bu= siness could encourage banks to over-lend for the purpose of closing deals.= =20 "You can't believe the chairman of the bank is up at night thinking about t= his," says Mr. Smith.=20 The banks, while conceding some exposure to Enron, decline to confirm speci= fic amounts, citing client confidentiality. But in private conversations, b= anks say they regularly sell loans to companies in which they may be too ex= posed in an active secondary market. Moreover, they use other credit deriva= tives to effectively transfer the risk of loans to other investors.=20 Some of the recent documentation of Enron debt suggests that much of the de= bt has been diversified across many investors. In May 2001, for example, Ci= tigroup and J.P. Morgan arranged a large $2.25 billion credit facility for = Enron, part of the total of approximately $13 billion in debt on Enron's ba= lance sheet (not including commitments to other financial institutions).=20 Those two banks, as lead arrangers of that financing, helped divide that lo= an up among 50 different banks, according to Loan Pricing Corp., a research= institute the follows the lending business. Many of those banks divided th= eir shares into even smaller pieces and sold them off to other investors. O= ne banker familiar with the matter said that, all told, more than 100 finan= cial institutions have exposure to Enron.=20 Yet J.P. Morgan and Citigroup, who have served as the top underwriters of t= his debt, would rather avoid being blamed for letting Enron's debts go bad.= Even more importantly, they also hold their own portion of that debt. Thus= , both banks recently provided an additional credit line to Enron totaling = $1 billion.=20 That additional lending, while enhancing the value of existing loans to Enr= on, is also relatively safe because it is secured with hard assets. Should = Enron default, the banks would take an interest in that collateral. "That a= dditional credit line is bullet proof," says one banker.=20 The banks, ultimately, have had a string of successes with similar strategi= es with other firms, though few are as high-profile as Enron. These two ban= ks, for example, are credited with saving companies like Lucent Technologie= s from a financial crisis earlier this year with a similar combination of f= inancing and investment banking advise. But speaking privately, bankers con= cede that a failure of the Enron deal would smart beyond what the damage mi= ght be to the banks' loan portfolio.=20 "If it falls apart," says Mr. Hayes, the Harvard professor, "it will be a s= ource of embarrassment."=20 ---=20 Robin Sidel contributed to this article. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Energy-Trading Market Survives Enron for Now By Wall Street Journal staff reporters Peter A. McKay in New York, Chip Cum= mins in Washington, and Alexei Barrionuevo and Thaddeus Herrick in Houston 11/28/2001 The Wall Street Journal C1 (Copyright © 2001, Dow Jones & Company, Inc.) Enron Corp.'s precarious financial condition has unnerved investors and tra= ding partners, but the largely invisible natural-gas and electricity tradin= g industry that it helped build appears relatively resilient -- at least so= far.=20 Veteran traders say many firms began to take precautionary steps a month ag= o against an energy-market meltdown related to Enron, when the first tidbit= s of the Houston-based company's woes were reported. Trading volume has mov= ed from the popular EnronOnline electronic platform to other venues, some t= raders have unwound complex financial bets, and others have simply worked a= round their onetime trading partner. As a result, insiders say natural-gas prices, in particular, haven't really= been affected so far by Enron's problems, and any impact is expected to be= moderate.=20 Unlike a traditional commodities exchange, open to all, natural gas and ele= ctricity are traded privately, with many transactions reflecting deals betw= een two players. EnronOnline, for instance, acts as both the buyer and sell= er, setting the price for which it will buy or sell commodities such as nat= ural gas or electricity. Players such as Enron, which had transformed itsel= f from a natural-gas pipeline company, make money by buying and selling ene= rgy many times over, capturing the difference between bids from buyers and = offers from sellers. But actual trading strategies are tightly kept secrets= , which has made the business difficult to track and assess.=20 While the energy market has held up amid Enron's woes, it remains edgy, esp= ecially given the uncertainty about what might happen if Dynegy Inc.'s agre= ement to acquire Enron is aborted. "Companies have stopped doing business w= ith Enron to the best of their ability," says Art Gelber, principal of Gelb= er & Associates, a Houston energy-consulting and asset-management firm. But= , he adds, Enron has such an enormous presence in the energy-trading market= place that it is impossible to stop doing business with the company altoget= her. "We have customers with long-term commitments to Enron, and they're sc= ared to death," Mr. Gelber notes. "If they had to start anew, it wouldn't b= e with Enron."=20 For the most part, major natural-gas producers, such as Devon Energy Corp. = of Oklahoma City, say they have made adjustments in their contracts with En= ron. Devon currently has a few contracts for physical gas sales to Enron to= taling less than 1% of Devon's total gas sales, said Darryl Smette, Devon's= senior vice president of marketing. So far, Enron has met all its obligati= ons.=20 At the same time, other trading players have stepped in to fill the void. T= hose benefiting most include American Electric Power Co., Duke Energy Corp.= , Koch Energy Trading, Morgan Stanley, El Paso Corp. and Dynegy itself, acc= ording to traders who deal with Enron.=20 "We certainly see a lot of customers calling us, more trying to revive rela= tionships that have been dormant for a while," says one trading executive.= =20 The relative calm is surprising to those both inside and outside the market= s, because so many of the natural-gas and electricity trades are intertwine= d.=20 Last year, the value of energy-based contracts outstanding among the 12 big= traders tracked by Swaps Monitor, a trade publication, more than tripled o= ver 1999 to $2.19 trillion. Electricity trading accounted for $365 billion = of that amount, up from just $39 billion the year before. Yet just 10 compa= nies accounted for about 60% of the electricity traded in North America, ma= king the companies highly dependent on each other.=20 Even Enron employees have tried to head off a crisis, notes the head of pow= er trading for one big energy-trading company, who asked not to be identifi= ed. He says Enron traders have worked for several weeks with traders at oth= er firms to make arrangements in the event that Enron contracts need to be = liquidated or the partners decide Enron isn't creditworthy enough.=20 To do this, Enron traders have been pairing Enron customers up with each ot= her. For instance, a customer who bought electricity from Enron at a certai= n price is being matched up with another customer who sold electricity to E= nron. The three-party transaction allows two Enron customers to meet their = power needs while at the same time reducing their exposure to Enron.=20 "Enron has been cooperating in packaging large deals to enable people to do= that," this trader explains. The traders may have a motive, he says, addin= g that "the people who are helping you are likely to be looking for a job i= n two months."=20 Companies have been unwinding exposure to Enron for several weeks, adds thi= s trader, who estimates that many companies are likely to have reduced expo= sure by about half by now.=20 If more bad news rocks Enron, the power and natural-gas markets may move up= ward -- though excess supply and low prices are likely to make any sort of = spike relatively insignificant, compared with the volatility of a year ago.= =20 Still, the perception that Enron might not be able to deliver against its p= ositions has nudged natural-gas prices a little, says Guy Gleichmann, senio= r energy trader at Barkley Financial. He estimates that natural-gas prices = have an "Enron premium" of about 25 cents built in; gas closed at $2.62 a m= illion British thermal units in New York Mercantile Exchange trading yester= day.=20 Even in a worst-case scenario, however, most traders assume that whoever ta= kes control of the company's assets will probably handle delivery of commod= ities against its contracts, he says.=20 "Enron has caused some short-term price moves, but it's not a big part of w= hat the market is going to do in the long run," says Bill O'Neill, director= of commodity research at Merrill Lynch & Co. "You have to remember that th= e fundamentals for energy, particularly demand, are not too good right now,= because of the economy."=20 Indeed, natural-gas storage is nearly full, and so far, warm fall weather h= asn't helped demand any. "A growing inventory of natural gas should have a = moderating effect on any transitional difficulties that might arise because= of a continued downward path for Enron," says Jon Rasmussen, an economist = at the Department of Energy's Energy Information Administration.=20 One clear impact has been on EnronOnline, Enron's electronic trading arm th= at had become the dominant energy e-trading platform in recent years, accou= nting for as much as 25% of the country's natural-gas and electricity deliv= eries. The rival IntercontinentalExchange Inc. has reported a 34% jump in i= ts weekly electricity volume since October, 13% in natural gas, and a 45% i= ncrease in crude oil. The Atlanta-based concern is owned by about 100 energ= y and metals traders, brokers and banks.=20 Other traders have returned to doing trades over the phone, a less transpar= ent method than pulling prices off a screen. "This is doing a lot to re-est= ablish human contact," says one trading executive. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business World: Enron Is History, Says History By Holman W. Jenkins Jr. 11/28/2001 The Wall Street Journal A19 (Copyright © 2001, Dow Jones & Company, Inc.) Back in the mid-1980s, a pipeline executive called Ken Lay was fishing arou= nd for a name for his company, produced by a merger of Houston Natural Gas = and Omaha-based InterNorth. He consulted with consultants, politicked with = politicians, and came up with a moniker. The company would be called "Enter= on."=20 Three weeks later, fed up with the wisecracks from a press that had looked = up the dictionary definition of "enteron" (n. the intestine), he changed th= e company's name again. Henceforth it would be known as Enron. A columnist less devoted to high standards of decorum might be tempted to e= xtend the metaphor of the company's misbegotten name. In recent weeks, afte= r all, we've seen Enron's stock collapse over indigestible accounting and t= he emergence of dealings between the company and its senior officers that e= xude an odor of genuine malfeasance. The evidence is far from clear, but fo= r the sake of Mr. Lay's reputation one hopes these missteps will prove one = more case of a company fooling itself rather than setting out deliberately = to defraud the markets.=20 Enron grew to be much more than a pipeline hauler of natural gas, becoming = the pre-eminent trader and marketer of all kinds of energy contracts and a = vocal proponent of deregulation. Now, all but overnight, it's kaput, just w= aiting to find out if its fate will be bankruptcy or absorption by an erstw= hile rival.=20 We cannot help be put in mind of another commodity wunderkind in the 1970s,= Phibro (short for Philipp Brothers). Hard to believe, but Phibro was once = a name that made grown men quiver on Wall Street. Fattened by trading profi= ts from the great commodity inflation of the 1970s, which some mistook for = a permanent new age of scarcity, it scooped up the Street's oldest partners= hip, Salomon Brothers, tucking it into its back pocket and renaming the com= bined firm Phibro-Salomon. Here was a powerhouse of unlimited potential, in= vestors told themselves.=20 Flash ahead to California's electricity meltdown earlier this year. Enron s= aw its revenues quadruple partly as a result of the inflated prices being q= uoted in the California market. Many foresaw a new scarcity megatrend, but = there was no true energy shortage. Posted prices on the California power ex= change may have skyrocketed, but the effective price was zero dollars and z= ero cents, because the utilities had no cash to pay and politicians were th= umbing their noses at piles of IOUs.=20 When prices are zero, suppliers take a hike -- that's what economics teache= s. But once the state government started pumping its own cash into the mark= et, the phony posted prices plummeted and supplies became plentiful again. = Now California is swimming in power and nobody talks about an "energy crisi= s" anymore.=20 You can date the loss of investor confidence in Enron almost exactly to the= moment when the California fiasco began to repair itself. Fortune Magazine= put the inaugural nail in Enron's coffin in March, noting that the company= 's growing dependence on trading had turned it into an oil-patch version of= Goldman Sachs. Goldman's stock sells at a price-earnings multiple of 17, r= eflecting investors' well-founded distrust of trading earnings to be reprod= uced reliably year after year. So why, the magazine asked, was Enron awarde= d a multiple of 60-plus? Mmm . . .=20 Enron did yeoman service as a champion of deregulation. Boss Ken Lay, a bel= iever in technology and the power of markets, was a true visionary, to the = point of annoying people who didn't care for his air of being a man on the = right side of history. The moldering pipeline he took over would certainly = have been an also-ran if he had not thrown Enron headlong into trading and = marketing.=20 But deregulation doesn't confer permanent advantage on anybody. A deregulat= ed environment favors constant innovation and a continual upsetting of plan= s and strategies.=20 Add the fact that, despite the California bubble, there is no reason to bel= ieve energy prices won't continue their long-term relative decline as techn= ology advances more quickly than the depletion of conventional resources. A= dd also the likelihood that information technology will continue to lower t= he barriers to entry to Enron's trading business, which means more competit= ion and shrinking margins. Enron begins to look a lot like Phibro.=20 The great commodity-trading machine was already running down by 1981, when = it bought Salomon and Wall Street was swooning. Inflation was being quelled= by Paul Volcker. The products that Phibro traders bought and sold were inc= reasingly being traded transparently on electronic exchanges. "Four or five= years ago, they used to be able to take other companies to the cleaners, b= ecause they knew where the market was and others didn't," a trader explaine= d. "With everyone knowing, within a few cents, where the price of any produ= ct was, Phibro's ability to make a profit off its superior knowledge disapp= eared."=20 Not only is this true of Enron, but of its would-be bottom fisher, Dynegy, = run by Mr. Lay's Houston homeboy, Chuck Watson. Dynegy's proposed takeover = of its former nemesis was hanging by a negotiation yesterday.=20 While Enron in recent years was selling hard assets and concentrating on el= ectronic market-making, Mr. Watson was doing the opposite. His big play in = the Enron deal is to get his hands on the original HNG-InterNorth pipeline,= now known as Northern Natural Gas. By having both feet planted in the real= business, he claims his firm will be able to make a profitable sideline ou= t of trading despite growing competition and transparency.=20 We'll see. Dynegy and Enron were born at the same time, and of the same mot= ive. Dynegy was originally created by six pipeline companies, a Washington = law firm and Morgan Stanley to take advantage of new opportunities in dereg= ulated natural gas. But the gnats are already circling.=20 Gas producers who have claimed for years that the duo control too much of t= heir fate now insist they shouldn't be allowed to merge. Don't listen to th= e fussbudgets. If this was a business in need of trustbusting, Enron wouldn= 't have been resorting to funny accounting to make its earnings. As Merrill= Lynch's Donato Eassey has pointed out, wholesale margins have been steadil= y thinning as trading becomes more transparent and competitive.=20 Wishful accounting has time and again proved the last refuge of companies w= hose dearly held "visions" were not panning out. Enron prided itself on bei= ng realistic and adaptive, but it failed to see that its own beliefs about = the world needed overhauling. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C THE MARKETS: Market Place Trying to Restore Confidence in Enron to Salvage a Merger By RICHARD A. OPPEL Jr. and ANDREW ROSS SORKIN 11/28/2001 The New York Times Page 1, Column 2 c. 2001 New York Times Company The Enron Corporation and Dynegy Inc. worked yesterday to find ways to bols= ter confidence in Enron's weakened energy-trading business as the companies= ' negotiators continued talks on revising the terms of their merger, execut= ives close to the talks said.=20 The renegotiated deal would cut the value of the acquisition by half, they = said, to roughly $4 billion. Dynegy, they said, was also prepared to invest= at least an additional $250 million in Enron, on top of the $1.5 billion c= ash infusion from Dynegy's biggest investor, ChevronTexaco, included in the= initial deal announced Nov. 9. But Dynegy wants the new cash backed by har= d assets, and the companies were trying to identify and value enough Enron = holdings not already mortgaged to other creditors, the executives said. Before a series of financial disclosures sent Enron's stock into collapse a= nd the company into the arms of Dynegy, its Houston rival, Enron's natural = gas and electricity trading floors did more business than the two largest c= ompetitors combined. They also accounted for the majority of Enron's profit= s by far.=20 But traders and Wall Street analysts said the business had steadily deterio= rated amid questions about the depths of Enron's financial straits. Many tr= aders have curtailed dealings with Enron, and the executives close to the t= alks said Dynegy officials scouring Enron's books were having difficulty th= is week figuring out how much cash the trading operation was generating.=20 The executives close to the talks said that the renegotiated terms for Dyne= gy's acquisition of Enron would lower the price to about 0.13 Dynegy share = for each share of Enron, cutting by half the value of the deal announced No= v. 9, when Dynegy offered 0.2685 share. If a deal is struck at 0.13 Dynegy = share, at yesterday's closing prices, Dynegy would be paying about $5.32 an= Enron share, a 29.4 percent premium over Enron's diminished stock price. T= he premium was 20.6 percent over Enron's closing price on the day that the = deal was announced.=20 Both companies are seeking promises from Enron's bank lenders to extend deb= t repayment dates until after the merger closes. And they are also discussi= ng adding provisions that could limit Dynegy's ability to back out of the c= ombination.=20 The two companies are also working to arrange a cash infusion of $500 milli= on from J. P. Morgan Chase and Citigroup that would provide Enron with desp= erately needed new cash.=20 But there is growing concern that the cash infusion from the banks will not= calm investors' fears or reassure energy traders, leading Dynegy to seek a= n additional $500 million in cash for Enron. Late yesterday, the two compan= ies were hung up over whether Enron, which has already used many of its mos= t prized assets as collateral for loans, has enough assets left to serve as= collateral for the additional money, according to executives close to the = talks.=20 A number of Enron assets were being examined, including some that have alre= ady been used to obtain other loans, the executives said. The assets includ= e: Transwestern Pipeline, a major natural gas pipeline that links the gas-p= roducing basins of Texas and the Southwest with California; Enron's stake i= n other gas-pipeline assets; its 9.8 percent stake, worth about $400 millio= n, in EOG Resources, a former subsidiary that is now an independent publicl= y traded oil and gas company; and its indirect stake in Hanover Compressor,= which manufactures equipment used to increase the pressure of natural gas = and facilitate its flow on interstate pipelines.=20 Yesterday, investors anxiously awaited a report by Moody's Investors Servic= e, which like other major credit-rating firms, currently ranks Enron's debt= at the lowest investment-grade level. If Enron were to lose its investment= -grade status, it could be forced to repay or refinance up to $3.9 billion = in debt, while other traders would probably further curtail business. But b= y late yesterday, Moody's decided not to issue a statement after receiving = assurances from Enron and Dynegy officials that a renegotiated deal would b= e announced soon, the executives said. A Moody's spokesman declined comment= .=20 Executives close to the talks said that they hoped that new cash from Dyneg= y would reassure both Wall Street and the energy-trading markets that Enron= 's trading floor would survive and remain a valuable asset.=20 But analysts and investors are having difficulty figuring how much value th= e trading operation has already lost, and how much the business has been re= duced because of credit concerns.=20 ''I believe Dynegy is probably seeing that deterioration in the core busine= ss and wants to renegotiate the purchase price as a result,'' said Andre Me= ade, head of United States utilities research for Commerzbank Securities in= New York. ''I don't think anyone can estimate the earning power of Enron o= ver the next three to four quarters, and I'm not sure Enron has a good esti= mate.''=20 Mr. Meade said he did not believe that Dynegy's earlier estimate that the a= cquisition would add 90 cents a share to its earnings was ''reliable today,= given how sharply the business seems to have deteriorated.'' By Mr. Meade'= s calculations, if Enron's trading volumes were to fall 50 percent next yea= r -- even if normal volume growth levels returned in 2003 -- that would wip= e out nearly all the value in the stock.=20 Karen Denne, an Enron spokeswoman, said the company had experienced a decli= ne in energy trading volume and in the number of traders doing business wit= h it, but both stabilized yesterday. She declined to elaborate or quantify = the decline.=20 She also said that Enron's trading operation remained profitable, though sh= e could not quantify it, and she also said she did not know whether the com= pany was working on a possible bankruptcy filing or other contingency plans= should its business and liquidity worsen. ''We're moving forward with the = merger,'' she said.=20 Dynegy officials did not return telephone calls yesterday.=20 Shares of Enron rose yesterday on news of a possible revised acquisition ag= reement. They closed at $4.11, up 2.5 percent, or 10 cents. Shares of Dyneg= y closed at $40.89, up 4.2 percent, or $1.64.=20 Though yesterday's gains halted a four-day slide in Enron shares, the stock= is down 95 percent this year after disclosures of major losses as well as = significant accounting errors that led Enron to admit it overstated profits= during the last five years by nearly $600 million.=20 Now, difficulties within Enron's trading operation are exacerbating the com= pany's overall liquidity problems in three ways, according to some analysts= and rival energy-trading executives.=20 First, other traders are requiring Enron to put up greater margin on its tr= ades. On top of that, in some cases Enron's traders are being forced to pay= more to buy natural gas than traders at other companies. This credit premi= um in some transactions has ranged from 3 cents to 6 cents for every millio= n British thermal units of gas Enron buys, these people say.=20 Additionally, many traders, like the Mirant Corporation, have either scaled= back or stopped doing business with Enron, hurting its trading revenue.=20 Mr. Meade of Commerzbank said ''end-use customers and trading counterpartie= s appear to be shifting their business to competitors as a result of Enron'= s credit concerns and are reluctant to increase their exposures to Enron.'' Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Nov. 28, 2001 Houston Chronicle Enron, Dynegy pursue the right price=20 By LAURA GOLDBERG=20 Copyright 2001 Houston Chronicle=20 Dynegy and Enron Corp. continued discussions Tuesday on several issues, inc= luding new terms for Dynegy's deal to buy Enron and an equity infusion for = Enron, according to people familiar with the talks.=20 There was no sense talks were breaking down, but instead there were a lot o= f pieces that needed to be put in place, the people said.=20 Sources told the Chronicle on Monday that the two Houston-based energy trad= ers were negotiating a lower exchange rate for Dynegy's stock deal to buy E= nron.=20 The sources also said Enron and Dynegy were working with a group of banks t= o reach a so-called "override" agreement to extend, until after the merger = closes, maturity dates for certain Enron debt, and that the two energy comp= anies were working to finalize terms for equity infusion into Enron of arou= nd $500 million, expected to come from J.P. Morgan Chase & Co. and Citigrou= p.=20 Dynegy, one source said Tuesday, could also be a contributor to that $500 m= illion.=20 Under the Nov. 9 deal, Enron shareholders would receive 0.2685 share of Dyn= egy stock per Enron share owned. Since then, there have been increasing wor= ries about Enron's core trading business and new troubling financial disclo= sures from Enron.=20 The sources said Tuesday the new ratio being discussed is around 0.15.=20 Dynegy spokesman John Sousa said Tuesday he could confirm only that Dynegy = was in discussions with parties involved in transactions related to the dea= l.=20 Investors appeared optimistic Tuesday that Dynegy and Enron would work out = an arrangement to save the merger. Shares in Dynegy closed up $1.64 at $40.= 89, while shares in Enron closed up 10 cents at $4.11.=20 Wall Street expects Dynegy to either cut its purchase price or walk away. T= hat Dynegy is negotiating a lower exchange ratio shows it is very intent on= keeping the deal together, said Jeff Dietert, an analyst with Simmons & Co= . International in Houston.=20 If the deal falls apart, Enron would likely see its credit rating cut to so= -called junk status, which would trigger a series of negative consequences.= Among them: Enron's ability to run its trading business would be severely = hampered. In turn, Enron could quickly be forced into bankruptcy.=20 Enron's trading operation, which is highly dependent upon access to cash an= d credit, is already suffering. Enron hopes another equity infusion will sp= ur other traders to return the business they've taken elsewhere.=20 "It appears that trading counterparties have moved significant volumes away= from Enron over the past few weeks as a result of credit concerns," Andre = Meade, an analyst at Commerzbank Securities in New York, wrote in a report = Tuesday morning.=20 That new deal terms are being discussed "confirms our fears that Enron's co= re trading and marketing business has been rapidly deteriorating and is wor= th much less today than several weeks ago," Meade said.=20 Tuesday afternoon, word spread among analysts and investors that Moody's In= vestors Service would issue a rating report on Enron before day's end. They= were waiting to see if Moody's would have soothing words on Enron or drop = its credit rating to junk, but no report was released.=20 Enron is expected to lay off employees this week.=20 Nov. 28, 2001 Houston Chronicle Cooperation from Enron key in probe=20 By TOM FOWLER=20 Copyright 2001 Houston Chronicle=20 Federal officials say they are willing to be more lenient with companies th= at cooperate in securities fraud cases, an attitude that could help get Enr= on Corp. off the hook in its current SEC investigation.=20 But it could also put individual executives -- including its former chief f= inancial officer and other former employees -- in the hot seat.=20 In the
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