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Dynegy ready to purchase Enron

Energy marketer Dynegy Inc announced that it will buy its much larger rival, the once mighty but now troubled Enron Corp, for US$8 billion in stock. Dynegy also will assume a hefty US$15 billion in Enron debt.

Friday announcement came after Enron's stock price plummeted about 80 percent over the past three weeks because of concerns that the company wasn't revealing serious financial problems to shareholders.

Under the deal, ChevronTexaco Corp, which owns more than a quarter of Dynegy, would quickly provide about US$1.5 billion. ChevronTexaco also would contribute an additional US$1 billion upon completion of the deal, the companies said.

"With its market-making capabilities, earnings power and proven strategic approach to wholesale markets, Enron is the ideal strategic partner for Dynegy," Dynegy's chairman and chief executive officer, Chuck Watson, said in announcing the purchase.

Watson made it clear he would not tolerate the sort of financial practices that prompted explosive disclosures by Enron this week -- including an admission that more than half a billion dollars in debt had been kept off the company's books.

"As a combined company, we will focus on leveraging our core skill sets and, as always, we will keep a strong balance sheet and straightforward financial structure as key priorities," Watson said.

Enron, the nation's top buyer and seller of natural gas and the top wholesale marketer in the US, had become one of America's 10 largest companies, recording revenue of US$100.8 billion in 2000.

Under terms of the deal, Enron shareholders will receive .2685 Dynegy share for each share of Enron common stock, valuing each Enron share at US$10.41.

That represents a 21 percent premium above Enron's closing price of US$8.63 Friday on the New York Stock Exchange -- but the offering price is much lower than the 52-week per share high of US$84.87 on Dec. 28. Dynegy's shares climbed US$2.26, or 6 percent, to close at US$38.76 on the New York Stock Exchange.

Dynegy's stockholders will own approximately 64 percent of the new company, with Enron's stockholders holding the remainder.

The boards of both companies have approved the transaction, which is expected to close next summer. The deal is expected to save the combined company between US$400 and US$500 million annually.

Watson will remain as chairman and chief executive of the combined company, which will retain the Dynegy Inc name. Kenneth Lay, Enron's chairman and chief executive, will no longer have a role in day-to-day management but has been offered a seat on the combined company's board.

The deal was announced a day after Enron acknowledged it overstated earnings by about 20 percent over the past four years and kept large amounts of debt off its balance sheets through business partnerships now under investigation by the Securities and Exchange Commission.

Early Friday, Moody's Investors Service downgraded Enron's debt ratings to one level above junk bond status and said the company's long-term debt ratings remain under review for further downgrade.

In an SEC filing, Enron said financial statements from 1997 through the first half of 2001 "should not be relied upon" and that outside businesses run by Enron officials during that period should have been included in the company's earnings reports.

The revised statements reduced Enron's profits for those years by US$586 million, from US$2.89 billion to US$2.31 billion. The revisions also increased the company's debt each of the four years, reaching US$10.86 billion -- US$628 million more than previously reported -- by the end of last year.
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