Enron Corp. stock tumbles, Dynergy deal in doubt

Kristen Hays

Friday, Nov. 23, 2001 | 10:12 a.m.

HOUSTON -- Shares of beleaguered Enron Corp. plummeted another 28 percent Wednesday even though it reached a critical agreement to extend a $690 million debt payment.

The stock fell again slightly this morning as the Wall Street Journal reported Dynegy Inc. is under increasing pressure to renegotiate or walk away from its deal to acquire Enron because of the slide in Enron's stock price and mounting financial problems at the energy trader.

Analysts have been questioning whether Dynegy Inc.'s planned $8.9 billion acquisition of its larger rival Enron will survive, particularly as some traders are limiting business with Enron because they don't know if more negative revelations are coming.

"While it is unclear how much weaker the wholesale trading business profile is, it is likely that counterparties will continue to closely monitor and limit their exposure to Enron," Fitch Inc. analyst Ralph Pellecchia said Wednesday.

Enron shares have plunged more than 90 percent over the past several months following the departure of the company's chief executive and an accounting controversy that eventually caused it to restate its earnings since 1997, eliminating more than $580 million of reported income.

Its latest round of woes started Monday, after Enron filed a document with the Securities and Exchange Commission saying it would have to repay $690 million in debt by Nov. 26 because of decreased credit ratings.

Enron also acknowledged a "reduced level of transaction activity" with the company by trading partners.

Shares fell 23 percent Tuesday, then dropped another 32 percent in early trading Wednesday after a report by Goldman Sachs & Co. analyst David Fleischer that questioned whether Enron had enough cash to survive.

Fleischer said Enron had burned through $2.5 billion from Sept. 30 to Nov. 16 and said its cash balance of $1.2 billion was inadequate to meet remaining debt obligations.

Enron responded later in the day with a statement saying that it had received an extension on the debt payment until mid-December, and also was tapping an additional $450 million line of credit.

That news wasn't enough to help Enron's sagging stock price. At the close of regular trading Wednesday on the New York Stock Exchange, shares were at $5.01, down $1.98. The stock fell another 34 cents this morning.

Enron's all-time trading low is a split-adjusted $3.94 on Oct. 27, 1987, according to the Center for Research in Security Prices at the University of Chicago Graduate School of Business. The company traded at a 52-week high of $84.87 in February.

Michelle Foss, director of the Energy Institute at the University of Houston, said Enron's latest round of troubles had to raise concerns about whether the Dynegy-Enron deal will be pulled off.

"It doesn't look like it's going to be able to happen," Foss said Wednesday. "It did look like a decent idea when they proposed the merger, but today I'm sure they'll look at it and see if they can salvage their attempt to buy Enron."

Dynegy Chairman and Chief executive Chuck Watson said in a statement he was "encouraged" by the news of Enron's debt extension and its credit agreement, adding that Dynegy was moving ahead with its acquisition.

But Fitch's Pellecchia said this week's events suggest that Dynegy might renegotiate the deal. He also said that if Dynegy steps away, bankruptcy is highly possible.

Shares of Dynegy closed Wednesday at $39.76, down $1.94 or 4.5 percent, on the NYSE.

UBS Warburg analyst Ronald Barone issued a report Wednesday saying the signs of trader withdrawal was leading him to project that Enron would lose 25 cents per share in operating costs for the fourth quarter -- a switch from his previous projection of a 25-cent per-share gain.

"This, combined with the virtual complete absence of visibility and continued breathtaking surprises in updated financial disclosures is causing us to implement even more conservative earnings and price target assumptions on the company," Barone said.

Raymond James & Associates analyst Jon Kyle Cartwright said Dynegy likely still wants to buy Enron.

"It's too early to put a probability on a prediction that Enron is imploding," he said. "I would like to believe (Dynegy) recognizes the enormous potential value of a healthy Enron trading group and that it's not the type of asset you can acquire out of bankruptcy."

But he also acknowledged the problems Enron faces.

"If the trading operation actually collapses, Enron becomes a Trivial Pursuit question."

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