Message-ID: <26861145.1075840235398.JavaMail.evans@thyme>
Date: Thu, 7 Sep 2000 10:17:00 -0700 (PDT)
From: jeffrey.sherrick@enron.com
To: kenneth.lay@enron.com, joseph.sutton@enron.com
Subject: Janus
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X-From: Jeffrey Sherrick
X-To: Kenneth Lay, Joseph W Sutton
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Ken/Joe,  As I was walking back to my office reflecting on our conversation, 
there are three points that I mentioned but I think got lost in the 
discussion.

1)  This needs to be a stock deal to avoid Indian tax (48%), poorly written 
preferential purchase language and gov't approval.  (Still requires RBI 
approval)  All of the numbers I have in the document assume a stock 
transaction. 

2) RIL is very tax advantaged, currently and for the foreseeable future they 
will be in an NOL position;  therefore, at the numbers we are discussing they 
should see this as an unleveraged return opportunity of 16% (stock purchase 
fully taxed with no basis) to 27% (stock purchase shielded from taxes-- Btax 
scenario).   Again, the tax position makes RIL unique for this transaction 
and a very likely buyer at these numbers.  Few other parties will be as 
positioned to consider a stock transaction of a company with minimal Indian 
basis, accept the operational conditions and be able to close as quickly.  

 3) The idea of coupling the other India assets with the E&P is a good 
strategy if your goal is to ultimately sale, but time is unimportant.   I've 
done multi-asset deals before with a major and the bureaucracy rivals India.  
The due diligence on the multiple assets will eliminate any chance of closing 
this year. In fact, I would be surprised if we could even get a PSA signed 
before year-end on a multi-asset deal, plus the gov't approvals become more 
complex.  

 If the goal is money in the door before 12/31/00,  I favor a buy/sell at 
Ken's number.  If we go to October and don't get the documents in place we 
really haven't lost anything because there is little likelihood of closing 
under a traditional scenario even if we start today.   We will prepare our 
dataroom while the negotiations on the documents take place and be ready to 
bring in bidders by October. If we buy at these numbers I believe we can flip 
the deal within 6-9 months if not sooner since we have operatorship, critical 
mass a major would covet, only one partner and Reliance is not a partner.  

Also,  If we elect to go to a traditional auction, I would strongly suggest 
we keep the E&P separate from the other India assets, at least initially, to 
run the auction with the best chance of getting a PSA signed before 
year-end.   We can always combine them at a later date during negotiations 
once we see how the process is going.  Too many pieces right out of the box 
will be very cumbersome and time consuming.  If we have to combine them to 
get interest, we can do it as we see the need for an enhancement.
 

My final thought, if we do an outright sale to RIL ( not a pre-negotiated 
buy/sell with stipulated closing dates,,, etc.) they will want to do a 
certain amount of due diligence and rightfully so.   They would expect and 
probably demand the same considerations as any other buyer including a 
dataroom visit to pick our brains one more time.  Again this becomes a time 
issue!!  Under the buy/sell scenario we have devised, there is no due 
diligence period, the structure of the deal is stipulated and everything is 
handled via representations and warranties in the pre-negotiated PSA.     


Let me know how and when you wish to proceed.   I will pursue with complete 
dedication whichever option you select.

Thanks for the time to share my thoughts,
jeff