Message-ID: <17953638.1075840929089.JavaMail.evans@thyme> Date: Mon, 12 Nov 2001 06:25:59 -0800 (PST) From: m..schmidt@enron.com Subject: Enron Mentions - 11/09/01-11/10/01 Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: Schmidt, Ann M. X-To: X-cc: X-bcc: X-Folder: \ExMerge - Kitchen, Louise\'Americas\SEC media X-Origin: KITCHEN-L X-FileName: louise kitchen 2-7-02.pst 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 (c) 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 (c) 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 (c) 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 (c) 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 (c) 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 (c) 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 (c) 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 (c) 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, various positions=20 Other: Board member, Baker Hughes; Vice Chairman, Houston Texans=20 Education: Oklahoma State University, business and economics=20 Membership: National Petroleum Council, Interstate Natural Gas Association = of America board member, Edison Electric Institute board member, Natural Ga= s Council founding member Photo: Chuck Watson=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 NEWS Dyenegy to acquire Enron in $8.9 billion stock deal / Many fear `unique' pr= oblems L.M. SIXEL Staff 11/10/2001 Houston Chronicle 3 STAR 1 (Copyright 2001) People who worked for Enron Corp. walked with a special swagger, they knew = they were a part of something special, something unique, one employee said = Friday.=20 But today, it seems as if that something special has evaporated. As rumors and news about the Dynegy buyout leaked out Friday, many of those= who gathered around the base of the Enron Tower to smoke were worried abou= t their fate.=20 Several worried about their job prospects during a time when the economy ap= pears to be sinking into a recession and job losses are mounting across the= nation.=20 Others were concerned that Enron is such an innovator and their jobs so uni= que that they'll have a hard time finding an equivalent job somewhere else.= =20 Many were angry that company officials had made the financial missteps that= got the company into its precarious situation.=20 And others were just unnerved by the uncertainty.=20 "See you Monday hopefully, bro," shouted one Enron employee to another acro= ss its tree-lined plaza.=20 Once the buyout was announced late Friday afternoon and it became clear lay= offs would be coming, one employee seemed to feel a bit better.=20 "It's a relief to know what's going on," she said, asking not to be identif= ied. And, like many, the employee who works on Enron's trading floor was no= t just thinking of her job. Like so many others, her retirement account was= mostly invested in Enron stock.=20 The employee, who asked not to be identified, said she figured her retireme= nt account, lost about $100,000 in value over the past few weeks as Enron s= tock plummeted in value.=20 She even encouraged her college-age children to invest their college funds = in Enron stock. It's all gone now, she said, and that was money they'd need= in the next two years.=20 Jamie Lynn, a 29-year-old coordinator of gas logistics, figured that he los= t close to $400,000 in stock options. But others employees lost millions, h= e said.=20 "It makes me sick to my stomach," Lynn said.=20 While the money losses hurt, he is also feeling badly because he loved his = job - and company - so much.=20 "People walked around downtown with a swagger," he said. "They were proud t= o say they worked at Enron."=20 Lynn can't imagine finding another company with such an exciting culture an= d with such exciting challenges.=20 "I don't want this company to be owned by someone else," he said.=20 But if it had to be sold, he was hoping Shell Oil Co. would be the buyer. S= hell isn't in any of the same lines of business as Enron and they'd have to= depend on Enron employees to keep the place running.=20 While Lynn is lucky because he is already being recruited by other companie= s, other employees were not as upbeat about their opportunities. Several in= formation technology employees such as programmers and software designers w= ere especially worried.=20 The general market for information technology isn't very good right now and= they worried whether Dynegy would need their services.=20 "Maybe I'll have to pack up and go back home," said a software developer fr= om India who is working at Enron on a visa.=20 A programmer discussed her prospects while she waited for a bus. She's prep= aring for a layoff and luckily, has been savingmoney to tide her over in ca= se she lost her job.=20 Other information technology professionals were more upbeat.=20 A systems integrator said he has no doubts that he'll be picked up by Dyneg= y because it needs to know how to run Enron's complicated computer systems.= Besides, he said, he has been recruited by Dynegy several times and said h= e was in a good position to cash in on connections.=20 Others were not as optimistic. Tears filled one employee's eyes as she wait= ed for a ride. Others were too upset to comment. Part of that stemmed from = the feeling that senior executives ran the company arrogantly and for their= own self-interests.=20 When the deal was announced, employees began to turn their minds to more im= mediate details, such as severance packages.=20 In the past, Enron has been generous, an employee said.=20 "Let's hope that tradition continues," she added.=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: Photo: 1. Ken Lay, chairman and CEO of Enron Corp., listens at a Fri= day news conference as Chuck Watson, chairman and CEO of Dynegy, discusses = his company'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 Financial Desk The Nation Smaller Rival to Acquire Teetering Enron Power: Energy giant tha= t pressed for deregulation in California is on the brink of collapse. NANCY RIVERA BROOKS; THOMAS S. MULLIGAN; NANCY VOGEL TIMES STAFF WRITERS 11/10/2001 Los Angeles Times Home Edition A-1 Copyright 2001 / The Times Mirror Company Enron Corp., the once-highflying energy giant whose aggressive efforts to p= rofit from California's energy deregulation made it a target of consumer an= d political backlash, on Friday agreed to be saved from possible financial = collapse through a proposed acquisition by rival Dynegy Inc.=20 The roughly $7.7-billion deal is a stunning plot twist for Houston-based En= ron, which was vilified in California as it was being glorified on Wall Str= eet. In only the last month, a series of disturbing financial revelations p= ushed to the edge of ruin this once-powerful company, whose top executives = had lectured California on its energy foibles and who influenced the direct= ion of national energy policy. Enron muscled its way to the top of the energy heap using aggressive and, i= n the end, financially suspect strategies that proved its undoing.=20 Now, the company that late last year had a market value of $63 billion is w= orth one-tenth that and has agreed to be swallowed by a cross-town competit= or one-quarter its size. Enron's proud and influential chairman and chief e= xecutive, Kenneth L. Lay, who became a focus of bitter attacks by Californi= a politicians and regulators, would lose his job, as would many others at E= nron.=20 Even the name would disappear. The combined company would be called Dynegy = Inc. if the deal receives all the necessary regulatory and shareholder appr= ovals.=20 California officials took no joy in Enron's fate Friday, though there was p= erhaps some sense of retribution from its many critics in the state.=20 "This is basically a rogue corporation," said Sen. Steve Peace (D-El Cajon)= , an outspoken critic of Enron for years who dealt with the company as he c= haired the committee that hammered out the legislative portion of Californi= a's landmark electricity deregulation plan in 1996. "It has from the beginn= ing been a rogue corporation which answered in its mind to a higher law--a = fundamental belief that there are laws of economics that supersede the law = of the land."=20 A Failed Experiment=20 Steve Maviglio, spokesman for Gov. Gray Davis, said that although Enron was= never a major force in California's doomed electricity market, it was outs= poken in support of deregulation.=20 "In a sense, their experiment was much like California's experiment--a fail= ure," he said.=20 Said Harvey Rosenfield, president of the Foundation for Taxpayer and Consum= er Rights in Santa Monica: "Nothing could better illustrate the disaster of= deregulation than the fact that one of its biggest proponents, which reape= d the reward of deregulation, is suffering the consequences."=20 Enron is the world's largest energy trader, handling one of four energy dea= ls in the United States through its online trading operation, EnronOnline. = Since it reported a surprising third-quarter loss on Oct. 16, partly tied t= o shadowy investment vehicles, Enron has endured a huge loss of investor co= nfidence, which brought on a massive cash crunch and some shrinkage of its = trading business.=20 Under the deal announced Friday, Dynegy, invited in two weeks ago after Enr= on fell short in its efforts to line up new financing, would immediately he= lp Enron by pouring $1.5 billion in cash into the company. The money would = be provided by ChevronTexaco Corp., the San Francisco oil company that owns= nearly 27% of Dynegy.=20 Enron shareholders would get 0.2685 Dynegy share for each Enron share, whic= h values the company at about $7.7 billion based on Friday's stock close. D= ynegy shares surged $2.26 to close at $38.76 per share on the New York Stoc= k Exchange; Enron added 22 cents to close at $8.63 per share, still off 89%= year to date.=20 If the deal closes in six to nine months, as the parties expect, Dynegy and= ChevronTexaco would invest $1 billion additionally in the combined company= .=20 "This is just a financial bonanza really for both companies," said Charles = L. Watson, Dynegy chairman and chief executive, who will head the combined = company. Watson said the merger would immediately add to Dynegy's earnings.= =20 Even so, the repercussions of Enron's fall from grace could be far-reaching= . Coming on the heels of California's energy crisis, Enron's troubles may s= low the country's march toward energy deregulation, which Lay and Enron cha= mpioned for years as a potential boon to consumers and the economy in gener= al.=20 But the deal announced Friday will prevent an even worse outcome, energy ex= perts said: the threatened collapse of Enron, which would clog up for a tim= e the business of buying and selling electricity, natural gas and oil. That= could interfere with delivery of energy around the country, they said.=20 "This is an encouraging development for the energy industry," said Stephen = Baum, chairman of Sempra Energy, the San Diego-based parent of Southern Cal= ifornia Gas and San Diego Gas & Electric. "The Enron-Dynegy combination wil= l create a credit-worthy counter-party which will help preserve order in th= e marketplace. It also will reinforce confidence in the energy trading busi= ness going forward."=20 But some in the industry are less pleased.=20 Raymond Plank, chairman of Apache Corp., a Houston-based natural gas explor= ation and development firm, said he is considering a motion to the Federal = Trade Commission against the proposed merger.=20 "There are issues of concentration in a combination of the largest energy t= rader, Enron, and the fifth-largest, Dynegy," Plank said. "California shoul= d be particularly concerned because Dynegy owns power plants there and Enro= n has pipelines and other interests."=20 Troubles Mount as Stock Plunges=20 The swagger that was Enron is long gone. Consider:=20 * Enron's brash chief executive, Jeffrey K. Skilling, touted only months ag= o as one of the young stars of American business, abruptly resigned in Augu= st, citing personal reasons. Enron's stock already had fallen from its high= of nearly $90 per share as investments in water and telecommunications tur= ned sour, a fact that contributed to Skilling's departure.=20 * The Securities and Exchange Commission has launched an investigation of E= nron's controversial dealings with a number of limited partnerships, some o= rganized and run by Enron managers, including Enron Chief Financial Officer= Andrew S. Fastow, who was ousted last month.=20 * In an extraordinary confession Thursday, Enron announced that it had over= stated profit by $586 million, or 20%, during the last five years. The earl= ier financial statements reported to Wall Street and the investing public, = Enron said, "should not be relied upon."=20 * The company also fired its treasurer and a corporate lawyer, both of whom= it said were investors in one of the limited partnerships. Yet some analys= ts questioned whether, even in its admission of accounting trickery, Enron = wasn't still holding something back.=20 * Credit-rating agencies, which already have downgraded Enron's bonds to ba= rely above "junk" status, continue to pore over Enron's books. Analysts hav= e said a further downgrade to the level of junk, or below investment grade,= could precipitate a crisis akin to a run on a bank and threaten Enron's su= rvival while the merger is pending.=20 With its stock crumbling and trading partners leery about its ability to pa= y its debts, Enron was forced to walk hat in hand down Houston's Energy All= ey to negotiate a saving takeover by Dynegy, the rival once jokingly dismis= sed as "Enron Lite."=20 In the trading markets where Enron still holds a leading but increasingly v= ulnerable position, other players already are stepping up to grab a bigger = share of the business. Even if Enron's trading operation survives more or l= ess intact, under the wing of a Dynegy or some other company, experts said = it may never regain its former level of dominance.=20 "Enron has been a very innovative shop, willing to spend considerably to es= tablish new markets," said analyst Andre Meade of Commerzbank Securities in= New York. "If that culture is not kept, everyone loses."=20 Skilling and mentor Lay had worked for a decade to create both a new kind o= f company and a new set of markets for it to play.=20 In large part, they succeeded. Enron transformed itself from a traditional = gas pipeline company into a high-tech global trader of everything from elec= tricity to pollution credits to aluminum. The company's overarching strateg= y was to pare its physical assets to the minimum to get the maximum profit = bang from its intellectual capital: the ranks of MBAs and PhDs that filled = its Houston trading floor.=20 Rather than maintain its own expensive gas fields and power plants--which i= t relegated to stodgy utilities and oil companies--Enron would handle every= thing by contract, relying on a network of suppliers to obtain, store and d= eliver the goods while the company focused on squeezing out the best price.= =20 Dynegy, in contrast, has invested in such energy assets, including three po= wer plants in Southern California. It uses those assets to back its trading= operation, which is much smaller than Enron's.=20 Enron pulled off a migration from the "dirty" extreme of the oil patch, the= asset-intensive domain of drillers and explorers, to the "clean" end, wher= e all the deals are done on a computer screen. It also was a migration from= lower profit margins and lower risk to high margins and high risk.=20 Shannon B. Burchett, chief executive of Risk Limited Corp., an energy-orien= ted strategic-management consultancy in Dallas, compared Enron to the inves= tment bank Salomon Bros., where he used to work in the former PhiBro commod= ities unit.=20 Enron, Burchett said, embodies "a Wall Street culture that happens to be in= Houston."=20 Wall Street certainly "got it," or thought it did.=20 Accounting Rules Pushed to the Limit=20 At Enron's zenith last year, when its stock peaked near $90 a share and it = was pushing into esoteric markets for weather derivatives and fiber-optic b= andwidth, Enron seemed to be a one-company wave of the future.=20 Enron's aggressiveness, brainpower and willingness to back radical new idea= s with serious capital helped it acquire an aura that in some ways was its = undoing, analysts said.=20 Investors accorded Enron's stock a price-to-earnings valuation that was con= sistently higher than those of its peers, reflecting the view that its cutt= ing-edge business model could consistently deliver faster-growing profit th= an its competitors.=20 To keep profits arcing ever upward to justify the outsize valuation, Enron = began pushing the accounting rules as hard as it pushed competitors in the = trading arena. It acknowledged as much in its statement Thursday, conceding= that the operations of three of the limited partnerships should have been = consolidated with Enron's own financial statements instead of being held se= parate.=20 By raising capital and running deals through the limited partnerships, Enro= n could keep large amounts of debt and certain volatile assets off its own = balance sheet, while simultaneously booking profit from the partnerships' t= ransactions, analyst Meade said.=20 Deals Backed by Costly Guarantees=20 One risky aspect of some of Enron's deals through the partnerships was what= Meade called a "double-trigger guarantee," under which Enron would pledge = a cash payout if either its bond rating fell below investment grade or its = stock declined below a certain price.=20 The guarantees must have seemed a cheap way to sweeten a deal when Enron's = stock was flying high, but they came back to haunt the company later, when = it had to pay cash to make good on its obligations, Meade said.=20 Other energy-trading companies use similar devices, but Enron carried it to= an extreme and disclosed too little detail to make the process understanda= ble to investors, he said.=20 Enron's magic, like that of the Internet-stock phenomenon, had never been e= asy to understand in the first place. The company had a reputation among an= alysts for providing scanty financial detail and hard-to-grasp explanations= of some of its dealings.=20 But as long as the reported profit kept climbing, Enron kept getting the be= nefit of the doubt.=20 M. Carol Coale, a respected Houston-based analyst for Prudential Securities= , ruefully recalled a time last winter when she told Enron she could find "= no positive catalyst for the stock" and was considering downgrading her inv= estment opinion.=20 Skilling telephoned Coale and asked her to hold off, promising her that the= re was unspecified good news on the horizon that would justify her faith.= =20 "I believed him," Coale said last week in an interview in Houston. She held= her rating steady at that time but has since downgraded Enron to an outrig= ht "sell."=20 Instead of Skilling's promised good news, questions mounted during the spri= ng, and Enron's stock continued a steady decline. Coale and other analysts = were troubled that a large proportion of Enron's earnings seemed to come no= t from its core trading operations but from unusual transactions involving = the company's own stock or that of affiliates.=20 In California, Enron played a key role as chief cheerleader for electricity= deregulation and a key energy middleman in the state. As wholesale electri= city prices soared and the state plunged into its energy crisis late last y= ear, Enron and other out-of-state electricity generators and traders became= favorite targets of California politicians and regulators, who said the co= mpanies were manipulating the market and charging too much for power.=20 But significantly, California was not a directly successful territory for E= nron.=20 Markets in water did not develop as Enron subsidiary Azurix envisioned. And= Enron's plans for selling electricity to retail customers were deferred ev= en as deregulation took effect in 1998 because the state's deregulation for= mulas didn't allow room for retail competition.=20 Lay complained about California frequently and met with the governor to try= to influence the state's moves to repair its energy problems. In an interv= iew in his Houston office in January--overlooking Enron's new headquarters = building, which is still under construction as the company's name disappear= s--Lay said he and other Enron executives had objected to the way Californi= a regulation was set up.=20 "We objected more vehemently than anyone. We opposed the concept of the poo= l," he said, referring to the now-defunct California Power Exchange, in whi= ch most of the state's power was bought and sold in an hourly market. "What= competitive market in the world has a pool? We don't buy our groceries thr= ough a centralized PX."=20 Enron also backed away from building a small power plant in California last= year when the state imposed price caps.=20 One of the loudest complaints by Davis and other California officials was t= hat generators of electricity were playing "games" to get higher prices.=20 They criticized Enron severely, too, even though it was not a major generat= or, because the level of its worldwide trading operations--buying and selli= ng contracts worth billions of dollars in electric power every day--gave En= ron immense sway over pricing and supplies of electricity. They also believ= e that Enron and Lay helped play a part in the reluctance of federal regula= tors for several months to place restraints on the California marketplace.= =20 CEO's Future Role Uncertain=20 "Millions of people in California businesses lost money because this rogue = company succeeded in controlling the government of the United States," said= state Sen. Peace, one of the architects of the state's deregulation plan.= =20 "Ken Lay was a mystic," Peace said. "Whatever he said had to make sense bec= ause he was Ken Lay. It was hero worship.=20 "Many of the people working as economists at the Federal Energy Regulatory = Commission worshiped Ken Lay. As a consequence, the things Enron promoted a= nd pushed for were never challenged, intellectually and otherwise."=20 Lay, who has been asked to sit on the board of the combined company, said F= riday that he had not yet decided whether to accept.=20 He described his time building Enron as "a very long ride. It's been a very= good ride for the most part.=20 "I have to say the last few weeks have not been very much fun," he said.=20 *=20 Rivera Brooks reported from Los Angeles and Mulligan from Houston and New Y= ork. Times staff writer James Flanigan in Los Angeles contributed to this r= eport.=20 *=20 RELATED STORY=20 Fallen CEO: Enron's Lay is a brilliant man defeated by arrogance, associate= s say. A22=20 RELATED STORY=20 Energy crisis: Power firms have seen their fortunes dim in recent months. S= unday Business C1 PHOTO: Dynegy Chairman and Chief Executive Charles L. Watson, right, announ= ces the merger, with Enron Chairman Kenneth L. Lay.; ; PHOTOGRAPHER: Associ= ated Press; PHOTO: "This is just a financial bonanza really for both compan= ies," says Charles L. Watson, Dynegy chairman and chief executive.; ; PHOTO= GRAPHER: Associated Press=20 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 2 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 - will emerge with Chuck 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 electricity gas, electrici= ty, financial contracts used to help companies manage risk and other commod= ities.=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 to 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 a 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 days later, at which 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 The recent talks, Watson said, focused on really understanding Enron's core= business and how it could merge with Dynegy.=20 Added Lay: "Good deals come together fast. Bad deals take a little longer."= =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.=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 Also at the closing, Dynegy's current shareholders will own about 64 percen= t of the combined company, with Enron's current shareholder's owning about = 36 percent.=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 became an executive v= ice president at the combined company.=20 The deal contains $350 million breakup free that Dynegy would get it anothe= r 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 Dynegy will talk to analysts and investors on a conference call Monday, att= empting to convince them of the deal's value.=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 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 about a cash- crunch and the company's short-= term stability.=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 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 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 glumly at a Fri= day news conference as Chuck Watson, chairman and CEO of Dynegy, discusses = his company's acquisition of Enron (color); 2. DEAL AT-A- GLANCE (text); 3.= MORE STORIES (text); 4. The companies (b/w, p. 16, text)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Financial Enron Accepts $8 Billion Buyout Offer From Dynegy; Energy Giant Was Forced = to Negotiating Table After Disclosing That It Had Overstated Earnings Peter Behr Washington Post Staff Writer 11/10/2001 The Washington Post FINAL E01 Copyright 2001, The Washington Post Co. All Rights Reserved Embattled Enron Corp. yesterday accepted a buyout offer valued at about $8 = billion from crosstown rival Dynegy Inc. If the deal is completed, it would= end Houston-based Enron's reign as the leader in the huge energy trading m= arkets that set the prices of power and natural gas in the nation.=20 Its cash dwindling and its credit rating hammered, Enron was forced to the = negotiating table after its recent disclosures that its obligations to a co= mplex web of partnerships involving company officials had caused the tradin= g powerhouse to overstate its earnings and obscure its total debt obligatio= ns. Four top Enron officials have resigned or been replaced since July and,= once Dynegy takes control, Enron's chairman and chief executive, Kenneth L= ay, will also leave the company. Lay said yesterday that he had not decided= whether to accept Dynegy's offer to serve on the combined company's board. "It's been a good ride for a long time," Lay said in a conference call last= night. "The last three weeks haven't been a whole lot of fun."=20 The final deal was announced after the close of stock trading. Enron's shar= es -- which had fallen from $33 to $8 after the disclosures -- ended the da= y slightly higher, at $8.63. Dynegy's stock closed at $38.76, up $2.26.=20 Dynegy offered all stock for the Enron shares, so the total value of the de= al will fluctuate with Dynegy's stock price. Dynegy also said it would assu= me about $13 billion in Enron debt, bringing the total value of the transac= tion to around $21 billion.=20 Dynegy's rescue of Enron will begin with an immediate cash infusion of $1.5= billion, which will be supplied by ChevronTexaco Corp., a major Dynegy sto= ckholder. ChevronTexaco will invest another $1 billion in Dynegy after the = acquisition has passed regulatory review and is completed, which executives= said they expect will take six to nine months as Enron tries to unscramble= the complex partnerships that are now under investigation by the Securitie= s and Exchange Commission.=20 The takeover agreement gives Dynegy an escape clause permitting it to cance= l the purchase if Enron winds up with heavy regulatory fines or legal judgm= ents from shareholder suits tied to its handling of the partnerships.=20 Chuck Watson, Dynegy's chairman and chief executive, said in the conference= call that a close scrutiny over the past two weeks of Enron's financial co= ndition convinced him that the company's trading and pipeline businesses we= re solid. "We looked under the hood, and guess what? It looked just as stro= ng as we thought it was." Watson said he did not think more damaging disclo= sures were forthcoming from Enron.=20 Until the partnership mess, Enron was the nation's dominant energy trader, = and it had front-door political connections to the White House. Lay, its lo= ngtime chairman, raised more then $100,000 for the presidential election ca= mpaign of his friend George W. Bush. Enron rode the growth of energy tradin= g markets beginning in the mid-1990s, as first natural gas, and then electr= ic power sales were deregulated at the wholesale level. Its revenues leaped= from $9.2 billion in 1995 to $100.8 billion last year.=20 During those heady times, the Houston company could choose which questions = to answer about its dealings with related partnerships and its Byzantine bo= okkeeping.=20 "It was always very difficult to get information," said Louis B. Gagliardi,= an analyst with John S. Herold Inc. "They would always rebuff you."=20 Until this fall, the muscular company seemed too big to stumble, said inves= tment manager David Coxe, with Harris Insight Equity Fund in Chicago.=20 Coxe bought 78,000 shares of Enron at $40 a share in August, after wrestlin= g with the decision for months, he said. Then Jeffrey Skilling, Enron's chi= ef executive and strategic mastermind, unexpectedly resigned. The stock, wh= ich had been as high as $90 in August 2000, pitched downward.=20 "Enron seemed so indispensable to the nation's energy markets that I though= t it inconceivable it could implode," Coxe said. "That's how I got sucked i= n."=20 Enron's fall is "classic hubris," Coxe said: a Greek tragedy striking someo= ne who chose to defy the gods -- "in this case, the rules of the system."= =20 Among the rules that Enron now acknowledges it didn't follow were the accou= nting standards that applied to the complex partnerships it created. The pu= rpose of the partnerships, Enron said, was to reduce the risks of investmen= ts in Internet transmission systems and to sell power plants and other asse= ts it no longer wanted.=20 The accounting errors were described in a 20-page SEC filing Enron made Thu= rsday. The errors resulted in a $1.2 billion reduction in the value of shar= eholders' equity. The company also said it had overstated its earnings by $= 586 million since 1997.=20 Enron created partnerships that would buy major assets -- such as a power p= lant -- that Enron wanted to sell, or in other cases, assets such as fiber-= optic cable networks that Enron intended to run but did not want to have on= its balance sheet.=20 The partnerships had outside investors, but the general partner of two of t= hem was Enron's own chief financial officer, Andrew Fastow. He earned $30 m= illion in fees from managing two of the largest partnerships, according to = the SEC document.=20 Enron added to the capital of these partnerships by pledging its stock, or = securities convertible into stock. Some of those stock transactions should = have been counted as loans, resulting in the $1.2 billion drop in sharehold= er equity, Enron now says.=20 Investors are asking why Enron's auditor, Arthur Andersen LLP, did not insi= st that these transactions be handled that way in the first place. Enron's = SEC filing mentions but does not explain some "proposed audit adjustments" = over the past four years that were overruled.=20 Even though, as Enron now acknowledges, it created an information barrier, = masking critical information and violating standard accounting rules, many = financial analysts who were recommending the stock to investors were not pu= shing hard enough to punch through that barrier, some analysts acknowledge.= =20 "It was so complicated that everybody was afraid to raise their hands and s= ay, 'I don't understand it,' " Gagliardi said.=20 The questions are now coming, from a new committee reporting to Enron's boa= rd that will investigate how the company's financial reporting was handled;= from the SEC; and, eventually, from teams of lawyers representing aggrieve= d shareholders.=20 Lay indicated yesterday he had not been aware until recently that Enron emp= loyees other than Fastow had profited from the partnership activity. Enron = directors had approved Fastow's management of the partnerships, but Fastow = quit the partnerships in July and was then replaced as chief financial offi= cer.=20 Enron this week fired Treasurer Ben Glisan and Kristina Mourdant, an Enron = division lawyer, who it said had invested in partnerships that were tied to= one of the major partnerships headed by Fastow. The Enron report to the SE= C describes a central role in these transactions played by Michael J. Koppe= r, an associate of Fastow who left Enron in July to take over Fastow's fina= ncial interests in the partnership, the company said.=20 Enron will hold a conference call next week to discuss what it has uncovere= d about outside partnership investments. http://www.washingtonpost.com=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Financial Desk The Nation NEWS ANALYSIS A Visionary Fallen From Grace JAMES FLANIGAN TIMES STAFF WRITER 11/10/2001 Los Angeles Times Home Edition A-22 Copyright 2001 / The Times Mirror Company A year ago, Enron Corp. Chairman Kenneth L. Lay was on top of the energy wo= rld. As a leading fund-raiser, contributor and energy advisor to the Bush a= dministration, he played a key role in shaping the new president's energy p= olicy. As head of the world's largest energy trading company, he had an eno= rmous influence on the price of energy in California and across the nation.= Enron's highflying stock helped him cash out $123 million in stock options= last year alone.=20 On Friday, with Enron being saved from financial collapse by agreeing to be= acquired by rival Dynegy Inc., Lay's career and reputation are in shambles= . Under the merger, he will be stripped of a management job. His integrity = is tattered, with Enron's controversial financial dealings under federal in= vestigation. Enron investors and employees are chagrined and outraged becau= se the company's stock lost 80% of its value in recent weeks. The rapid rise and fall of Lay, 58, is a story of how a brilliant man with = innovative ideas and a grand scheme to transform the world's energy markets= was overcome with arrogance, associates and critics say. Under Lay, Enron = stretched the limits of the law and took risks that nearly caused its finan= cial collapse, they say. That in turn could have resulted in a widespread d= isruption in energy supplies.=20 "Enron's behavior casts doubt on the integrity of our financial markets. It= is a very serious matter," said Edward R. Muller, an energy investor and f= ormer president of Edison International's Mission Energy subsidiary.=20 "Nobody denies he's smart, but it's a question of integrity," said Raymond = Plank, chief executive of Apache Corp. and an associate of Lay's in Houston= 's vibrant oil and gas industry.=20 Lay and longtime partner Jeffrey K. Skilling, who served briefly as Enron's= chief executive before resigning abruptly in August, rose to prominence in= the last decade through the use of innovative financial techniques designe= d to exploit a reduction in government regulation of energy.=20 Lay transformed world energy industries through his vision of new, market-d= riven ways to finance natural gas and electricity production and transmissi= on.=20 The financial markets that Lay and his Enron associates created had an enor= mous effect on California's disastrous experiment in electricity deregulati= on. Critics say his influence was excessive and misguided.=20 "Ken Lay was a mystic," said state Sen. Steve Peace (D-El Cajon), an outspo= ken critic of Enron. "Whatever he said had to make sense because he was Ken= Lay. It was hero worship. Many of the people working as economists at the = Federal Energy Regulatory Commission worshiped Ken Lay. As a consequence, t= he things Enron promoted and pushed for were never challenged, intellectual= ly and otherwise."=20 Lay, who has a doctorate in economics, had modest beginnings as the son of = a poor country preacher who did farm labor on the side to raise money for h= is children's education. In the Navy in the late 1960s, Lay was assigned to= the Defense Department because of his economic acumen. "He allocated Penta= gon dollars more efficiently in purchasing for the military," said Mark Pal= mer, chief spokesman for Enron.=20 Lay worked for Exxon and other energy firms in the 1970s, amid soaring oil = prices, gasoline shortages and still-regulated natural gas. He headed Houst= on Natural Gas, a predecessor firm of Enron, in the 1980s as falling prices= for oil and natural gas presented grave problems for Houston's energy indu= stries.=20 When the federal government allowed pipelines to carry the gas of any produ= cer, Lay turned Enron into a foremost firm in the new, deregulated industry= . Still, Enron almost went bankrupt in the late 1980s, with natural gas in = oversupply and prices falling.=20 It was then that Skilling, a McKinsey & Co. consultant, suggested to Lay th= at the firm trade long-term contracts for gas, promising to deliver the com= modity to customers at fixed prices, buying and selling contracts of varyin= g maturities "the way mortgage companies deal with mortgages," in Skilling'= s words.=20 The innovation started Enron's rapid growth and rise to prominence as the e= mbodiment of a new kind of energy company. In the 1990s, the federal govern= ment called for deregulation of electricity.=20 Lay saw opportunities. He and Skilling created a market for contracts in el= ectricity in 1994, and by 1996 Enron was the world's leading firm doing suc= h business.=20 Lay's central idea was that, by creating a market of millions of buyers and= sellers constantly taking positions, power supplies could be allocated eff= iciently and prices lowered. Lay liked to lecture, in an avuncular way, abo= ut the new economics of energy trading.=20 "Technology is changing, and there's a lot more value in flexibility and op= tionality. Just about in every industry, you can make them a lot more effic= ient when you have more optionality," Lay said in an interview in January i= n his Houston offices overlooking the sparkling new Enron headquarters buil= ding, which still is under construction.=20 As Enron's business profile grew, so did Lay's political influence. He serv= ed as an energy advisor to both Bush administrations and headed Texas fund-= raising for George W. Bush's presidential campaign. Lay raised $100,000 for= the Bush-Cheney campaign, and with his wife, Linda, Lay contributed anothe= r $100,000 to help finance the inaugural gala this year.=20 As the administration prepared its energy plan, Lay gained national stature= as a preacher of market economics applied to electricity.=20 "There's no way you can centralize a command-control environment and make t= he best decisions to have an efficient, low-cost, reliable electricity indu= stry," Lay said.=20 His sermon was intended for California, which suffered sharply higher price= s for electricity last winter, to the point that private utilities fell int= o or near bankruptcy and the state budget incurred a cost of $12 billion, w= hich Sacramento now is trying to recover through the sale of revenue bonds.= =20 Because Enron, trading billions of dollars a day in power contracts worldwi= de, had an immense effect on electricity prices, Lay's preaching grated on = state officials. Driven to intemperance, state Atty. Gen. Bill Lockyer said= in May that he'd like to "escort" Lay to a prison cell.=20 But more than economic philosophy was behind Lay's goading of California. T= he state's debacle gave energy deregulation a bad name and chilled deregula= tion moves by many other states.=20 That in turn reduced growth prospects for Enron. The promise of continued g= rowth in deregulation had helped make Enron a Wall Street darling. Its stoc= k price, at one point nearly $90 a share versus less than $10 now, pushed u= p the value of Enron stock options, held by almost all employees but owned = in great amounts by Lay, Skilling and other company officers.=20 Lay cashed in last year, converting options for a gain of $123 million, whi= le Skilling gained $62 million by converting his options. As they cashed in= , Enron was encountering other problems. Attempts to set up trading markets= in water and broadband Internet transmission were floundering. A major pow= er plant venture in India was in grave economic and political trouble.=20 But in the last month, Enron revealed that it had reduced the firm's equity= value by more than $1 billion due to write-offs in a hitherto hidden partn= ership.=20 Revelations then cascaded. The firm had 33 such partnerships, which had bil= lions of dollars in debt for which Enron was liable. Lay and Skilling piled= up debt in hidden partnerships, analysts explain, because the firm needed = huge amounts of debt to support its greatly expanding levels of trading in = electricity, natural gas and other commodities.=20 But the firm could not support such debt and still retain its credit rating= , growth rate and high stock price. After weeks of gamely protesting that t= he business was sound and that he personally took offense at investment ana= lysts' suggestions of impropriety, Lay fell silent.=20 *=20 Times staff writer Nancy Vogel in Sacramento contributed to this report. PHOTO: With the takeover of his once-soaring firm, Enron chief Kenneth Lay'= s career is in tatters.; ; PHOTOGRAPHER: Reuters=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 BUSINESS DYNEGY TIMELINE 11/10/2001 Houston Chronicle 3 STAR 3 (Copyright 2001) Natural Gas Clearinghouse is formed by the investment banking firm Morgan S= tanley and the law firm Akin, Gump, Strauss, Hauer & Feld. Six natural gas = pipelines got together to create the gas marketing firm.=20 The U.S. Federal Energy Regulatory Commission begins the long process of de= regulating the natural gas business, which ultimately created huge markets = for the company and competitors such as Enron. NGC introduces its "energy store" concept, looking to create a one- stop sh= opping outlet for all energy products and services.=20 NGC makes initial public offering.=20 NGC acquires Trident NGLs.=20 NGC merges with the natural gas business unit of Chevron Corp. and Chevron'= s Warren Petroleum Co. subsidiary.=20 In February, NGC announces a deal to expand its "energy store" with the pur= chase of Destec Energy's interest in 20 U.S. power plants for $1.27 billion= . The Destec deal is the company's first purchase of power-generation asset= s.=20 "With deregulation right around the corner, we have been aggressively looki= ng to acquire major power-generation assets to complement the expertise tha= t we already have in our power marketing," Watson said.=20 NGC's stock trades around $22 per share in late February when the company d= iscloses that excessive high-cost inventories of natural gas liquids, or NG= Ls, would cut operating income by $40 million. The price plunged to the mid= teens before partially recovering to about $18. Watson says NGC has put com= munications and information- reporting systems in place to alert management= to developing problems much earlier than they learned of the NGL-related p= roblems.=20 In May, NGC is honored as the Chronicle 100 company of the year for its ste= llar 1996 results.=20 NGC buys Southern California Edison Assets.=20 In March, Chuck Watson and Bob McNair team up to put in the winning bid of = $530,000 for the grand champion steer, named Rowdy. The pair pay the record= price days after joining city officials on a trip to help lobby for an NFL= team.=20 In June, NGC adopts a new name - Dynegy - a word created by merging dynamic= and energy. "The name NGC no longer captures who we are and who we have be= come," says Watson, the company's chief executive. The company will have th= ree logos, all derived from the Chinese tangram, a collection of seven red,= yellow and blue geometic shapes that can be arranged in any number of comb= inations.=20 In December, a Dynegy joint venture announces the purchase of a power plant= and other assets from San Diego Gas & Electric.=20 In June, Dynegy agrees to a $2 billion takeover with Illinova, an Illinois = electric and gas company that would give the energy marketing company elect= ric plants and lines located in major Midwest markets. This deal, the large= st in the company's history to date, brought one company trying to move bey= ond the traditional utility business together with a trading company moving= into that business.=20 In October, Watson, who owns the Houston Aeros hockey team, announces he wo= uld help fund the campaign against the downtown arena. The arena measure is= later defeated, but was approved in a new vote the next year after Watson = agrees to support it.=20 In February, Dynegy sells natural gas pipelines and processing plants for $= 308 million in cash. It is part of a planned $600 million asset sale to red= uce its debts as Dynegy closed its $2 billion merger with Illinois utility = Illinova.=20 In August, Dynegy agrees to buy two power plants in the Hudson River Valley= region of New York from CH Energy and two other utilities for $903 million= . The deal marks Dynegy's expansion into the Northeast power market.=20 Dynegy branches into the broadband, Internet and telecommunications busines= ses by buying privately held Extant for $151.3 million in cash and stock.= =20 In July, Dynegy says it will spend about $590 million to buy natural gas st= orage facilities in the United Kingdom in a deal that will serve as the cor= nerstone of its European energy network. It will buy BG Storage, a wholly o= wned subsidiary of BG Group. The deal is part of Dynegy's strategy to repli= cate in Europe the energy delivery network it has built in the United State= s.=20 In September, after 17 years in business, Dynegy launches its first ad camp= aign. The spots, released in conjunction with the PGA Tour Championship, em= phasize the firm is passionate about what it does.=20 On Nov. 9, Dynegy announces plans to purchase Enron Corp. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 BUSINESS POWER PLAY / ENRON TIMELINE 11/10/2001 Houston Chronicle 3 STAR 4 (Copyright 2001) Houston Natural Gas merges with Omaha, Neb.-based InterNorth to create the = company that would eventually be named Enron Corp. The deal integrated seve= ral pipeline systems to create the first nationwide natural gas pipeline sy= stem.=20 Ken Lay, who had been chief executive officer of Houston Natural Gas, is na= med chairman and chief executive officer. The company chooses the name Enro= n after rejecting Interon. Enron discovers that oil traders in New York have overextended the company'= s accounts by almost $1 billion. The company ultimately works this loss dow= n to $142 million. This leads to Enron developing a myriad of services to h= elp reduce the risk of price swings for everything from gas to advertising = space.=20 Enron opens its first overseas offices in England to take advantage of the = country's privatization of its power industry. The company's major strategy= shift - to pursue unregulated markets in addition to its regulated pipelin= e business - is revealed to executives in a gathering that became known as = the "Come to Jesus" meeting.=20 Jeffrey Skilling joins the company and Enron launches its Gas Bank, a progr= am under which buyers of natural gas can lock in long- term supplies at fix= ed prices. The company also begins to offer financing for oil and gas produ= cers.=20 Enron acquires Transportadora de Gas del Sur, Enron's first pipeline presen= ce in South America and the start of a push to expand on the continent.=20 Enron's Teesside power plant in England begins operation, one of the first = big successes for the company's international strategy.=20 Enron makes its first electricity trade, beginning what will turn out to be= one of the company's biggest profit centers in the next few years.=20 Enron Europe establishes a trading center in London, marking the company's = entry into European wholesale markets. Europe is now considered one of the = company's prime growth markets.=20 Construction begins on the first phase of the Dabhol power plant in India. = The $2 billion project would be plagued with political problems throughout = its construction. Enron puts its stake in the project up for sale in 2001.= =20 In December, Skilling is elected president and chief operating officer and = will continue in his role as chairman and CEO of Enron Capital & Trade Reso= urces.=20 To expand its electricity business, Enron buys Portland General Electric Co= rp., the utility serving the Portland, Ore., area. In 2001, Enron agrees to= sell Portland General Electric to Northwest Natural Gas Co. for about $1.9= billion.=20 Enron Energy Services is formed to provide energy management services to co= mmercial and industrial customers.=20 Enron acquires Wessex Water in the United Kingdom, which forms the basis fo= r its water subsidiary Azurix.=20 Enron forms its broadband services unit. The first phase of the Dabhol proj= ect begins operations. One-third of Azurix is sold to the public in an init= ial public offering. After an early rise, shares fall sharply as the year g= oes on and the problems facing the company become apparent. Enron Online, t= he company's commodity trading Internet site, is formed. It quickly becomes= the largest e-business site in the world. Enron Energy Services turns its = first profit in the fourth quarter.=20 Rebecca Mark resigns from her position as Azurix chairwoman and the company= announces a plan to take the troubled water subsidiary private.=20 Annual revenues reach $100 billion, more than double the year before, refle= cting the growing importance of trading.=20 Enron Field is opened in downtown Houston. In addition to buying the naming= rights, Enron Chairman Ken Lay helped raise financial support for the cons= truction project.=20 The Energy Financial Group ranks Enron the sixth-largest energy company in = the world, based on market capitalization.=20 Enron and strategic investors, IBM and America Online, launch The New Power= Co. to provide electric service in a deregulated market.=20 In February, Jeff Skilling takes over as chief executive officer. Ken Lay r= emains as chairman.=20 In March, Enron and Blockbuster call off deal to bring movies into homes ov= er the Internet.=20 In April, Enron discloses it is owed $570 million by bankrupt California ut= ility Pacific Gas & Electric Co.=20 In August, Skilling unexpectedly resigns for personal reasons. Lay takes ba= ck the CEO job. Wall Street starts cranking up its requests for Enron to pr= ovide more detailed financial information about its performance.=20 In October, Enron releases third-quarter earnings, with $1.01 billion in ch= arges, including $35 million related to investment partnerships formerly he= aded by Andrew Fastow, Enron's chief financial officer. Fastow is replaced = as CFO. The Securities and Exchange Commission launches a formal investigat= ion into the partnerships.=20 In November, Enron restates earnings for 1997 through 2000 and the first th= ree quarters of this year.=20 On Friday, Dynegy announces it wants to merge with Enron. Enron's stock clo= ses at $8.63 per share, an 89 percent drop since the beginning of the year. Mug: Jeffrey Skilling=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 BUSINESS POWER PLAY / Enron had been a political heavyweight / Critics decried influ= ence of Ken Lay in White House DAVID IVANOVICH, Houston Chronicle Washington Bureau Staff 11/10/2001 Houston Chronicle 3 STAR 4 (Copyright 2001) WASHINGTON - Until a few weeks ago, Enron Corp. was the star of the Washing= ton lobbyist corps.=20 Enron Chairman Ken Lay was known to have the ear of his longtime friend and= political ally President Bush. Vice President Dick Cheney had unveiled a national energy strategy very muc= h to Enron's liking, while one of the company's favorite electricity regula= tors, Texas' Pat Wood III, had been installed as the new head of the Federa= l Energy Regulatory Commission.=20 Critics feared the Houston-based energy and trading giant exerted far too m= uch influence, both in Congress and in the Bush White House.=20 Now, after the company's implosion, Enron's legendary political might is ev= aporating as well, political observers say.=20 "Just a matter of weeks or months ago, Enron was still the 800- pound goril= la," said Steven Weiss, a spokesman for the Washington- based Center for Re= sponsive Politics, a political watchdog group. "It was getting into any mee= ting it wanted to.=20 "Relationships are still existent, and Bush is unlikely to completely ignor= e Ken Lay. But one would have to think the amount of influence that Ken Lay= could exert now pales in comparison to the influence he could have exerted= just a month or more ago."=20 Now that Dynegy has agreed to take over Enron, the companies' role in gover= nment will be determined by Chuck Watson, Dynegy's chief executive officer.= =20 While Enron has been such a player in Washington, Dynegy is less known insi= de the Capital Beltway. But that's not to say Dynegy has no political pull = on Capitol Hill.=20 "Ken Lay certainly can get meetings with senators, but so can Chuck Watson,= " a Senate staffer said.=20 While Dynegy may be attracted to Enron's energy trading whiz, the company m= ay be desirous of Enron's political expertise as well. While Watson has had= a presence on the national stage, his role in Houston's stadium votes show= s he is hardly allergic to politics.=20 Enron's recent troubles, however, may leave a stain. With the Securities an= d Exchange Commission conducting an investigation into some of the company'= s business dealings, many politicians are likely to be wary.=20 "Politicians, perhaps better than anyone else, can smell a rotten egg," Wei= ss said. "Who would want it reported in the newspaper that they are associa= ted with a company that is under investigation?"=20 Enron's lobbyist in Washington, Linda Robertson, could not be reached for c= omment.=20 A setback among Washington's elite would be a novel experience for Lay and = other Enron officials. In a city where access is everything, Lay has proved= - time and again - his political savvy.=20 A one-time energy policy-maker for Richard Nixon, Lay successfully champion= ed deregulation of the natural gas pipeline industry and has led the effort= to open up the electricity markets as well.=20 A Republican, Lay served as co-chair of the host committee for the GOP's na= tional convention in Houston in 1992, when his friend George Bush the elder= was nominated for a second term. And yet there was Lay a few years later, = playing golf with the elder Bush's political nemesis, Bill Clinton, and adv= ising the Democratic administration on energy.=20 The company has excelled at snatching up political heavyweights as they lea= ve public office. Enron has attracted the likes of former Secretary of Stat= e James Baker III and one-time Clinton White House chief of staff Thomas "M= ack" McLarty.=20 Enron's stable of political lobbyists became a who's who of Washington insi= ders, from former Christian Coalition head Ralph Reed to one-time Energy Re= gulatory Commission Chairwoman Elizabeth "Betsy" Moler.=20 And by all accounts, Enron - and Lay especially - rank among the most munif= icent contributors to George W. Bush's political career. Lay's name was men= tioned repeatedly as Bush drew up his Cabinet, and while he did not join th= e government, he played a role in helping craft Bush's energy strategy.=20 Lay and other Enron officials spent $2.1 million lobbying Congress and the = White House last year, the Center for Responsive Politics reported.=20 In fact, 71 senators and 188 House members have received contributions from= Lay and other Enron officials, the watchdog group found.=20 Questions about Lay's influence over the Federal Energy Regulatory Commissi= on sparked an investigation last summer by Congress' General Accounting Off= ice.=20 Curt Hebert, then the commission chairman, accused Lay of trying to prod hi= m into changing his position on an issue of key concern to Enron, open acce= ss by independent electricity generators to the power lines owned by utilit= ies, in exchange for Lay's political support.=20 The GAO found no evidence of wrongdoing by either party. Three months after= the dispute became public, Hebert resigned from the commission. He was suc= ceeded by Wood, whom Enron officials had championed as "smart, hard-working= , fair."=20 Just one month ago, Enron's political muscle appeared undiminished. Enron h= eld a conference in Washington on energy policy during the first week of Oc= tober, attracting the likes of Wood, Senate Energy Committee Chairman Jeff = Bingaman, D-N.M., and former Energy Department Secretary James Schlesinger.= =20 Since the start of the company's free-fall, Enron officials have been less = on Capitol Hill, although that may have merely reflected the city's preoccu= pation with the war on terrorism and the anthrax scare. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 BUSINESS POWER PLAY / Sale suddenly switches office outlook downtown RALPH BIVINS Staff 11/10/2001 Houston Chronicle 3 STAR 1 (Copyright 2001) THE sale of Enron Corp. is going to punish Houston's downtown office market= - emptying more office space at a time when several buildings are going up= .=20 Enron and its purchaser, Dynegy, are both hefty users of downtown office sp= ace, and with staff cutbacks likely, they will need a lot less of it. Enron's 40-story office tower, which is under construction on Smith Street,= is expected to be completed next year.=20 "If they do go through with the deal, that building is not going to be the = Enron building. It's going to become the Dynegy building," said office brok= er Sanford Criner of the Trione & Gordon realty firm.=20 Dynegy, which leases 700,000 square feet in the Wells Fargo Plaza at 1000 L= ouisiana, would jump at the chance to operate in the new trading floors at = the new Enron Center South, according to a number of downtown office broker= s.=20 "There's no question Dynegy has been looking to get a major league trading = floor for a long time," Criner said. "They definitely covet the Enron tradi= ng floor."=20 The new 1.2 million-square-foot Enron tower is a palace of energy trading t= echnology with miles of telecommunications cable running throughout.=20 The building's matching pair of sweeping staircases were intended to lead t= o the corporate dens of Enron Chairman Ken Lay and former CEO Jeff Skilling= but probably will be used by Dynegy Chairman Chuck Watson.=20 John Sousa, a spokesman for Dynegy, said Thursday that the firm's current W= ells Fargo space is good and it was too soon to speculate about things like= office space.=20 "We're satisfied with our current location," Sousa said.=20 A number of office brokers, however, suggest Dynegy would move over to the = Enron building and attempt to sublease at least some of the space in Wells = Fargo Plaza.=20 Enron's importance to the Houston office market extends beyond the new buil= ding. The company occupies about 3 million of the 42 million square feet of= office space available downtown, if every small building is counted.=20 Enron occupies its existing 1.25 million-square-foot headquarters building = at 1400 Smith, 500,000 square feet of space in Three Allen Center, 60,000 s= quare feet in the 500 Jefferson building, and 40,000 square feet in the 600= Jefferson building.=20 Enron has already moved a few employees into its new building, which had be= en slated to be fully occupied by next summer.=20 "This has some real implications," said George Carpenter of Carpenter Realt= y. "Who knows, when the dust settles, where this thing is heading?"=20 TrizecHahn, which owns the Cullen Center and Allen Center properties, had b= een expecting Enron to move out of at least a portion of those buildings wh= en the new Enron Center South building was complete.=20 "We're bullish on Houston," said TrizecHahn spokesman Rick Matthews. "It's = likely to remain a core market for us."=20 Enron's shrinkage will come on top of several other moves that will empty d= owntown office space.=20 "It's going to be a blood bath next year," said one Houston office broker w= ho asked that his name not be used.=20 About 500,000 square feet of space will become vacant next year in the Chev= ron Tower, according to Trione & Gordon. A number of Chevron employees will= be moving into the Texaco Heritage Plaza building as a result of the Chevr= on and Texaco merger.=20 Halliburton, another huge downtown office tenant, will be moving out of dow= ntown to new buildings in the Westchase area in the next few years, leaving= behind a large hole of vacant space at 601 Jefferson.=20 While the demand for office space is beginning to fall, the supply is about= to increase.=20 The 5 Houston Center, a 27-story structure that will be complete next year,= will open with a significant number of signed tenants. But as major corpor= ate tenants such as Ernst & Young, Jenkens & Gilchrist and Jackson Walker m= ove into the building, they will leave behind vacant space in others.=20 Century Development's 1000 Main building is scheduled to be finished in 200= 3. The 783,000-square-foot project, which will have Reliant Resources as it= s main tenant, still has more than 200,000 square feet of space to lease, a= ccording to Trione & Gordon.=20 And even more space will be coming onto the market when the 32- story Calpi= ne Center office tower is completed at 717 Texas Ave. in 2003.=20 With these changes, the health of the downtown office market has gone from = being robust to sickly in a short period of time.=20 "The Central Business District is going to be going through some rough time= s," said Bob Parsley, chief executive officer of Colliers International rea= lty firm.=20 Class A space - the most expensive, prime office space - in downtown is now= over 97 percent occupied, a very high rate that encouraged developers to s= tart new office towers.=20 The looming downturn in the office market is not expected to be nearly as b= ad as the crash of the 1980s, but there could be some painful times ahead f= or downtown landlords.=20 "There are going to be some big blocks of space in downtown Houston," said = Candace Baggett, president of the Calibre Group realty firm.=20 . . .=20 Location of Enron's operations and Dynegy's headquarters=20 1. Enron headquarters, 1400 Smith 1.25 million square feet.=20 2. Enron Center South (under construction) 1.2 million square feet.=20 3. Three Allen Center 500,000 square feet leased by Enron=20 4. 600 Jefferson 40,000 square feet leased by Enron=20 5. 500 Jefferson 60,000 square feet leased by Enron=20 6. Dynegy headquarters Wells Fargo Plaza 700,000 square feet.=20 7. Enron Field Opened 2000 Map: 1. Location of Enron's operations and Dynegy's headquarters (color, te= xt); Photos: 2. Enron employees kept their cell phones in use outside the c= ompany's downtown offices Friday afternoon. Dynegy's purchase of Enron deal= s a blow to the city's office space market. Enron's shrinkage will come on = top of several other moves that will empty downtown office space (p. 4)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 BUSINESS POWER PLAY / Enron Field name may fall as quickly as energy empire RALPH BIVINS Staff 11/10/2001 Houston Chronicle 3 STAR 1 (Copyright 2001) BASEBALL history is written fast these days.=20 As Enron Corp., the massive Houston energy-trading company, is to be bought= out by Dynegy, the name Enron Field may go with it. Enron paid big money - $100 million - to put its name on the retractable-ro= of stadium downtown. It cost a lot to get the name, but it gave Enron a lot= of marketing firepower and put the company's name on the lips of millions = of Astros fans.=20 If Dynegy completes the acquisition of Enron Corp. as expected, Dynegy also= may get the naming rights to the Astros' stadium.=20 With the name "Enron" fading in the merger, it appears possible the 42,000-= seat baseball stadium would take the Dynegy name.=20 "If they do something with the company, that name goes with it," said Pam G= ardner, president of business operations for the Houston Astros.=20 Dynegy Chairman Chuck Watson said Friday that no decision has been made abo= ut renaming the baseball stadium.=20 However, Dynegy did register the domain name dynegyfield.com with Verisign,= an Internet domain name registrar, on Thursday.=20 Enron Field would not be the first sports facility to undergo a name change= .=20 The Compaq Center, home of the Houston Rockets, took the Compaq name in 199= 7 after being called The Summit for many years. And the name may be up in t= he air again as Compaq Computer Corp. contemplates a merger with Hewlett-Pa= ckard.=20 The stadium for the St. Louis Rams football team was renamed Dome at Americ= as Center, after American Airlines bought former namesake TWA airlines.=20 "It's not catastrophic if you have to change the name of the arena," said D= ean Bonham of Bonham Group, a sports marketing consulting firm.=20 Sometimes trying to change the name of a stadium can be hard, said Kurt Hun= zeker, editor of Team Marketing Report, a sports business newsletter. The o= riginal name for a stadium can be adopted into fan's vocabulary, and the se= condary names for stadiums don't always stick.=20 Many baseball fans in Cincinnati have had a hard time adjusting to calling = Riverfront Stadium by its new name of Cinergy Field, Hunzeker said.=20 Sometimes the media refuse to cooperate with the name changes because of tr= adition or a simple refusal to give into commercialism. The Denver Post, fo= r example, has refused to adopt the new name of Invesco Field at Mile High = Stadium.=20 The deal for a new football stadium for the Houston Texans is similar to th= e arrangement with Enron Field, said Steve Patterson, senior vice president= of the Texans.=20 The Texans' field will be called Reliant Stadium. If Reliant Energy is boug= ht out by another company, however, the acquiring company will have the rig= ht to change the name of the stadium, Patterson said. Photo: Enron Field, seen on opening night in March 2000, could have a new n= ame next season (color)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Market forces: Worries over Royal Bank's Enron exposure NEIL HUME 11/10/2001 The Guardian Copyright (C) 2001 The Guardian; Source: World Reporter (TM) Executives at Royal Bank of Scotland are among those keeping their fingers = crossed that the urgent talks to save the debt-stricken energy trading grou= p Enron are successful.=20 In recent days it has emerged that Britain's second biggest bank by market = capitalisation is a lender to the US group. At the moment it is not clear how much money the Edinburgh bank has lent to= Enron and whether any of it is secured, but speculation in the market plac= e suggests that the figure could run into millions. It seems RBoS was invol= ved in one of the credit facilities arranged for Enron, which needs billion= s of dollars of new money to keep it afloat.=20 Royal Bank was yesterday keeping very quiet about the size of the exposure,= but worries about the Enron situation were enough to push the shares down = 44p to pounds 16.70 on a bad day for the banking sector. Elsewhere, Barclay= s fell 88p to pounds 21.12, HSBC lost 9.5p to 792.5p, and Lloyds TSB dipped= 17.5p to 713p as investors decided it was time to take some profits.=20 On the other side of Atlantic, Enron was locked in talks with rival Dynegy = over a $7bn (pounds 4.81bn) rescue takeover.=20 With Wall Street giving up strong gains overnight, as investors decided to = book profits after the recent strong run, London's top stocks started the d= ay on the back foot. Leading shares then trimmed a 50-point deficit as buye= rs emerged for heavyweight oil stocks Shell , 6p higher at 514.5p, and BP ,= 9p stronger at 565p after Saudi Arabia suggested the mood was shifting tow= ards a production cut of 1.5m barrels at next week's Opec meeting. News tha= t Russian oil companies are considering a cut also helped.=20 That was as good as it got. With Wall Street failing to provide a lead, the= FTSE 100 drifted back, eventually closing 33.9 points lower at 5,244.2. Ho= wever, dealers were not too downhearted by the performance, pointing to the= index's 115-point advance over the week.=20 Cash rich Cable & Wireless took the FTSE 100's wooden spoon, sliding 18.25p= to 330p with dealers attributing its weakness to the re-emergence of talk = that it is poised to make a big acquisition. Opinion was divided over the p= otential target. Most dealers plumped for Colt Telecom , which has been lin= ked with C&W in recent weeks. Sure enough the shares responded, ending the = day 10.5p better at 158p.=20 Others reckoned C&W had its eye on Energis and had approached 30% sharehold= er National Grid with a view to buying its stake. Whatever the truth of tha= t rumour, analysts think Energis would be a better bolt-on acquisition for = C&W than Colt. Energis shares eased a penny to 89p.=20 Invensys , the industrial controls group, firmed 4.25p to 78.75p on hopes t= hat a positive outlook statement will accompany Thursday's interim results.= The figures will also provide analysts with their first chance to quiz new= chief executive Rick Haythornthwaite on his plans to turn around the heavi= ly indebted company.=20 Among the mid caps, Carphone Warehouse underperformed, falling 2.5p to 109p= , as worries resurfaced about the demand for mobile phones in the Christmas= trading period .=20 Joint broker CSFB caused the trouble. With the outlook uncertain CSFB said = it had taken the precaution of lowering its pretax profits forecast to a "w= orst case scenario" pounds 55m. Its previous estimate was pounds 67.3m. CSF= B tried play down the significance of the downgrade, arguing that Carphone = was likely to outperform its rivals in the next month, but many traders int= erpreted it as an attempt to lower the City's expectations.=20 Furniture group MFI was heading in the other direction, improving 10.5p to = 130p after house broker Deutsche Bank raised hopes that Wednesday's trading= update could impress. The German investment bank believes business has bee= n good at MFI in recent months and the company is on course to meet its pre= tax profit forecast of pounds 63.5m.=20 In an otherwise dull tech sector, Autonomy , the intelligent software group= advanced 14.75p to 313p. Traders heard talk that the company had secured a= couple of big contracts that were put on hold after September's terrorist = attacks.=20 There was also a flurry of interest in Debenhams , the department store gro= up, on speculation that the company will be tipped in a weekend newspaper. = The shares finished 23p higher at 395p.=20 In the smaller companies world, retail investors were chasing Redbus Interh= ouse , the web-hosting company run by John Porter, the multi-millionaire Te= sco heir and son of Dame Shirley Porter.=20 Dealers said the investors were betting that Monday's third quarter figures= would top expectations. Given the over capacity in the web-hosting market = and the fact Redbus admitted with interim results in September that demand = had fallen, most traders took the view that this was a bold and potentially= foolhardy gamble.=20 Elsewhere, those retail investors suckered into Character Group , the toy a= nd games maker, when its shares hit 30p late on Thursday were nursing losse= s.=20 Before the market opened, the company said that while one of its division p= roduced a range of Harry Potter gift products it was not an official Potter= licensee. Character, which had almost doubled in the previous session, she= d 6.75p to 24.25p.=20 There was also some pain for shareholders of Brammer , the industrial servi= ces group, which fell 61.5p to 256p after warning full-year pretax profits = would be 25% lower than last year.=20 Engineering group Senior gained 0.25p to 29.5p after a stock overhang was c= leared. Traders believe the shares could enjoy a good run next week, especi= ally as bid rumours are floating around. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business Dynegy snaps up Enron for $9.5bn Chris Ayres in New York 11/10/2001 The Times of London News International Final 5 60 (Copyright Times Newspapers Ltd, 2001) Enron, the troubled US energy company with close ties to President Bush, wa= s yesterday bought for $9.5 billion (Pounds 6.5 billion) by its smaller riv= al Dynegy.=20 The move brings to a close one of the most spectacular Wall Street downfall= s of recent years. Shareholders in Enron, who have seen more than $60 billi= on wiped off the value of the company this year, will get about 0.27 of a D= ynegy share for every share they own in Enron, valuing the deal at $10.41 p= er Enron share. The deal comes amid a Securities & Exchange Commission investigation into E= nron's controversial business practices. The struggling company also admitt= ed on Thursday that it had overstated its profits by nearly $586 million an= d understated its debt by $2.6 billion over the past four years.=20 As part of the deal, ChevronTexaco, which owns 27 per cent of Dynegy, will = invest $2.5 billion in the merged company. Shares of Dynegy gained $2.26 to= close at $38.76. Enron shares rose 22 cents to $8.63. The announcement on = the merger of the two Houston-based companies came after the US markets clo= sed.=20 Before the deal was announced, Enron saw its credit rating cut by Moody's t= o a notch above "junk" status. Meanwhile, Enron's exit from a $2.9 billion = power plant project in India was blocked by the Bombay High Court.=20 Fears also heightened yesterday that US energy traders were beginning to by= pass Enron's Internet-based energy trading systems because of concern over = the company's ability to settle transactions and pay back collateral. So fa= r, Enron's trading operations have remained immune from the disasters to hi= t the company on Wall Street.=20 The past few weeks have seen the departure of Enron's finance director, And= rew Fastow, and its treasurer, Ben Glisan. The company's chief executive, J= effrey Skilling, resigned in August.=20 However, some analysts expressed scepticism at the merger. Carole Coale, an= analyst with Prudential Securities, said she was puzzled as to "why Dynegy= 's management would want to take on the uncertainties and potential liabili= ties associated with a merger with Enron".=20 Enron is America's biggest buyer and seller of natural gas and one of the c= ountry's ten largest companies with revenues last year of more than $100 bi= llion. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 UK jobs on the line 11/10/2001 Daily Mail Associated Newspapers Ltd. 1ST 81 (Copyright 2001) UP TO 4,000 UK jobs are at risk as US energy group Enron seeks a 5.5bn resc= ue from rival Dynegy. Enron owns Wessex Water, two power plants on Teeside = and runs the world's biggest energy-trading operation. Those are the jobs b= elieved to be most at risk.=20 US regulators are investigating off-balance sheet deals allegedly struck by= former finance director Andrew Fastow, who has since left the company. Enron's managing director and chief counsel were sacked earlier this week f= or their roles in the affair. Enron took a 685m charge, prompting a 90pc fa= ll in its share price. This week, it restated four- year profits down by 22= pc to 405m.=20 Rating agency Moody's downgraded Enron's debt to its lowest investment grad= e, warning another cut could follow. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Dynegy to get prime downtown real estate in Enron deal By PAM EASTON Associated Press Writer 11/10/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. HOUSTON (AP) - Enron Corp. Chairman Kenneth Lay envisioned the four trading= floors within his company's newly constructed silver glass tower - that wa= s to be its new world headquarters - as an energy trading center much like = the Chicago Mercantile Exchange.=20 "They are pretty spectacular," Enron spokeswoman Karen Denne said of the tr= ading floors following the announcement of Dynegy Inc.'s plans to buy Enron= for about $8 billion in stock late Friday. "It is a huge state-of-the-art = trading floor. They are really neat." But the trading platforms likely won't be Enron's for long.=20 If the proposed deal between the two Houston-based energy trading companies= is approved, the $200 million, 40-story building will be among Dynegy's ne= w assets in the purchase of its much larger rival. The ornate building, com= plete with metal sunshades and fins that deflect the sun and lower energy c= osts, is scheduled for completion sometime next summer.=20 "The last three weeks haven't been a whole lot of fun," Lay said during a p= ress conference about the merger Friday at Dynegy's headquarters just a few= blocks away from where an oval shaped skybridge encircles Smith Street.=20 The enclosed, air conditioned bridge connects what was to be Enron's new he= adquarters with its current building on the opposite side of the street.=20 Enron had long-term plans to complete its urban campus with a third tower a= fter building a second tower in 1999, the first major office building proje= ct in downtown Houston in more than a decade.=20 Lay and his former chief executive officer, Jeff Skilling, were to have sev= enth-floor offices overlooking the trading floors. Two curved grand stairwa= ys connect the offices to the floors below.=20 But Enron's future started changing shortly after Skilling's surprise resig= nation in August.=20 Last month Enron reported major losses in third quarter earnings. The compa= ny's stock then tumbled 80 percent in the past three weeks as investors gre= w increasingly concerned that serious financial problems were being hidden = from shareholders through business partnerships now under investigation by = the Securities and Exchange Commission.=20 A day after Lay expressed his confidence in his chief financial officer And= rew Fastow, who managed those partnerships, Fastow was ousted in an attempt= to regain investor confidence.=20 It didn't work, and Skilling has since been called to testify before the SE= C about the partnerships.=20 Then Dynegy stepped in, and one Houston company came to the rescue of anoth= er, Prudential Securities Inc. analyst Carol Coale said.=20 "Enron needed Dynegy. They needed a rescuer," Coale said. "The run on Enron= stock was similar to a run on a bank. Once things start to capitulate it c= an run right down into liquidity."=20 While Dynegy says its too early to discuss layoffs, what happens to the nam= e of the Houston Astros' Enron Field or the future uses for Enron's buildin= gs, University of Houston economist Barton Smith doubted the company will l= et the prime real estate go unused.=20 "At one time Ken Lay and his family had a vision of Houston having an energ= y exchange and I think that vision is going to continue," Smith said. "This= brings Dynegy, which was a relatively small player, in as a pretty strong = force."=20 Smith said reductions in philanthropic giving are likely. Enron has contrib= uted to many Texas schools, including the University of Houston, Rice Unive= rsity, the University of Texas and Southern Methodist University.=20 While the company's philanthropy has gained fans in Texas, many in Californ= ia, plagued by power shortages earlier this year, still resent Enron for it= s outspoken support of deregulation.=20 "The principles of karma seem to be working here," said Harvey Rosenfield, = founder of a California consumer advocacy group. "Here Enron was one of the= chief proponents of deregulation and took advantage of it and benefitted e= normously and now is reaping the consequences."=20 Texas economists say ripple effects of the Dynegy-Enron merger on Houston's= economy will be minimal, even if the combination forces layoffs.=20 "There are some recessionary pressures going on in the United States, but H= ouston is probably in a better position than any city I know of to dampen t= hose pressures," said Mark Baxter, director of the Maguire Energy Institute= at Southern Methodist University. "The Houston market is unique in that as= pect."=20 But Michelle Michot Foss, director of the Energy Institute at the Universit= y of Houston, said the nation's fourth-largest city isn't immune to a weake= ning national economy.=20 "We do have a three-pronged problem in town, which is Continental, Compaq a= nd Enron," she said. "But there is no way this is as bad as (the oil bust y= ears of) 1986 and 1987."=20 Houston-based Continental Airlines has cut 12,000 jobs and reduced its flig= ht schedule in the wake of Sept. 11's attacks in New York, Washington D.C. = and Pennsylvania. Meanwhile, Hewlett-Packard is attempting to buy Compaq, a= lso based in Houston, which could result in additional layoffs from the com= puter maker.=20 "The whole debacle with Enron has been very unfortunate," Smith said. "Enro= n, in some ways, was the icon of Houston with the merger of Compaq. Now it = looks as if it's going to be Dynegy."=20 ---=20 On the Net: Enron Corp.: http://www.enron.com.=20 Dynegy Inc.: http://dynegy.com. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron India Pwr Unit Sale Faces Review After Dynegy Deal 11/10/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) SINGAPORE -(Dow Jones)- The sale of Enron Corp's (ENE) 65% controlling equi= ty stake in the troubled Indian Dabhol Power Company will face a "review" i= f Dynegy Inc's (DYN) $8 billion rescue bid for Enron is approved by regulat= ors, an Indian banking executive said Saturday.=20 The executives were attending talks held in Singapore to assesses potential= buyers for Enron's stake in DPC. "Once this merger is through, we will have to take a review of the entire m= atter," P.P. Vora, chairman and managing director of Industrial Development= Bank of India (P.IDB), told Dow Jones Newswires.=20 Vora didn't say whether Dynegy would retain or sell Enron's controlling sta= ke in the DPC if a merger was approved. He declined to comment on the speci= fics of the review.=20 Domestic Indian lenders have provided $1.4 billion of the project's total p= rojected cost of $2.9 billion. IDBI's exposure is in the excess of 20 billi= on rupees ($1=3DINR48.03), and the bank runs the risk of going deep into th= e red if the project goes bust.=20 The two-day closed door meeting in Singapore - originally scheduled to wrap= up Friday - ended inconclusively Saturday. Talks revolved around two poten= tial buyers of Enron's stake in the DPC; Tata Power Co. Ltd. (P.TPW) and BS= ES Ltd. (P.BSX) - heavyweights in the Indian power sector.=20 Enron wants to sell its controlling equity stake in the $2.9 billion projec= t due to payment defaults by the plant's sole customer - the Maharashtra St= ate Electricity Board - and the Indian federal government's failure to hono= r payment guarantees.=20 A Bombay-based analyst with a leading Indian brokerage agreed that the issu= es surrounding the sale of Enron's stake in the DPC would have to reevaluat= ed "from scratch."=20 "Some post-takeover 'cleaning-up' in the merged entity will be expected. Dy= negy really need to see what their energy interests are and whether India w= ill figure in them," the analyst said.=20 The analyst doubted Dynegy would take over Enron's stake in the DPC itself = in an attempt to revive it. "Prima facie, it appears unlikely. It (Dynegy) = has not really got into independent power projects outside the U.S.," the a= nalyst said.=20 Indian media reports over the past two months have said Enron wants $1 bill= ion for its stake in Dabhol.=20 However, commentators say Enron may have to sell at a discount given the co= mpany's deepening financial woes. A discounted sale would remain the case f= or Dynegy "without a doubt" post-takeover, the analyst said.=20 DPC officials were unavailable for comment at the time of writing.=20 Indian banking executives remained tight-lipped on the outcome of the Singa= pore talks, but described negotiations as "very fruitful" and "successful."= =20 "There was full cooperation from all sides. Certainly, we have moved forwar= d, but there's no decision (on a buyer for Enron's stake) as yet," said IDB= I Executive Director A.K. Doda. "I'm hopeful if we go through these routes = it'll lead somewhere."=20 The IDBI's Vora said all concerned parties had "no immediate" plans to hold= any further talks.=20 Asked whether Tata Power was the frontrunner, as many analysts believe, Dod= a said: "That's their guess."=20 Analysts said Tata Power and BSES wouldn't necessarily be out of the runnin= g after the Dynegy-Enron merger. "I think Dynegy will be relatively more wi= lling to diversify DPC and that wouldn't change the equation vis-a-vis Tata= and BSES," he said. "Overall, it's positive."=20 Dabhol is India's largest single foreign investment. MSEB holds a 15% stake= , while General Electric Co. (GE) and Bechtel (X.BTL) own 10% each.=20 DPC's domestic lenders include ICICI Ltd. (P.ICC), Industrial Development B= ank of India (P.IDB), IFCI Ltd. (P.ICI) and State Bank of India (P.SBI).=20 Loans by foreign lenders, including ABN Amro, Bank of America Corp. and Cit= igroup Inc., however, are backed by government guarantees, while domestic l= enders' loans are not.=20 -By Sri Jegarajah, Dow Jones Newswires; 65-415-4066; sri.jegarajah@dowjones= .com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Talks to salvage multibillion dollar Enron India project goes into third da= y 11/10/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. SINGAPORE (AP) - Talks in Singapore to assess possible buyers for U.S.-base= d Enron Corp.'s controlling stake in the troubled Indian Dabhol Power Compa= ny have been extended into an unscheduled third day, an Indian banking exec= utive involved in the negotiations said Saturday.=20 The two-day closed-door meeting - originally scheduled to wrap up Friday - = is focusing on two potential buyers of Houston-based Enron's 65 percent sta= ke in the power company. Tata Power Co. and BSES Ltd. - two of India's largest private power compani= es - are the only contenders vying to buy Enron's stake in Dabhol.=20 "Talks will carry on today (Saturday)," said A.K. Doda, executive director = of the Industrial Development Bank of India. "It's going to take a little m= ore time."=20 Senior Indian banking sources told Dow Jones Newswire that the talks are "i= ntense," but "positive," with negotiations continuing past midnight local t= ime.=20 Dabhol managing director K. Wade Cline, officials from both prospective buy= ers and a consortium of Indian lenders to the Dabhol project are involved i= n the talks.=20 The Dabhol Power Company owns a 2,184 megawatt power plant in the western I= ndian state of Maharashtra. The company is embroiled in a bitter power supp= ly dispute with the state government over allegedly "unaffordable" power ta= riffs.=20 Enron wants to sell its controlling equity stake in the dlrs 2.9 billion pr= oject due to payment defaults by the plant's sole customer - the Maharashtr= a State Electricity Board - and the Indian federal government's failure to = honor payment guarantees.=20 Dabhol is India's biggest-ever single foreign investment. The Maharashtra S= tate Electricity Board holds a 15 percent stake, while General Electric Co.= and Bechtel Group Inc. own 10 percent each.=20 Domestic lenders have provided dlrs 1.4 billion of the project's total proj= ected cost of dlrs 2.9 billion.=20 Loans by foreign lenders, including ABN Amro, Bank of America Corp. and Cit= igroup Inc. are backed by government guarantees.=20 (dj/hp-ss) Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 All eyes in electric industry on Texas as deregulation nears By DAVID KOENIG AP Business Writer 11/10/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. DALLAS (AP) - Electric deregulation was a fabulous failure in California, r= esulting in skyrocketing rates, accusations of price-gouging and fears of w= idespread power blackouts.=20 The flop has made consumers elsewhere suspicious about giving up their regu= lated monopoly utilities for competition among power companies. Regulators and industry officials are turning their attention to Texas, whe= re deregulation is scheduled to begin Jan. 1 after a rocky test program.=20 "People are looking to Texas as the next iteration of retail competition. A= lot of states have pulled back after the California experience," says Bret= t Perlman, a member of the Public Utility Commission. "If Texas is successf= ul, Texas will become the model for the nation."=20 Ken Malloy, president of a pro-deregulation think tank called the Center fo= r the Advancement of Energy Markets, called Texas the state to watch.=20 "California obviously created a domino effect," leading other states to del= ay deregulation, Malloy said. "A lot of people are placing a lot of hope on= Texas."=20 Texas officials say that unlike California, which must import much of its p= ower, Texas imports little and has built more than 50 new power plants sinc= e 1995, providing an important cushion.=20 Texas also made it easier for power generators and resellers to negotiate l= ong-term contracts, which officials say will help lock in lower prices. And= Texas provides more-digestible price information, making it easier for con= sumers to comparison-shop, they say.=20 California officials warn that Texans may be a little too smug.=20 They spot trouble already in Texas, including California-style price spikes= in some spot markets for electricity - a clear sign, they say, that power = companies are learning how to maximize profits by forcing prices up.=20 "There are things that can be done by people who own the power to create a = shortage, and if they see an opportunity to make money doing that they will= ," said John Rozsa, an aide to state Sen. Steve Peace, who was heavily invo= lved in California's deregulation debate.=20 California officials accuse the power companies - many of them Texas-based = - of withholding supplies or clogging transmission lines to drive prices hi= gher. They say the same techniques could be used in Texas.=20 Supporters and opponents of deregulation do agree that the stakes will be h= igh in Texas for power companies and consumers.=20 "If the wheels fall off, it would be hard to put it back together," says Bo= b Manning, an executive with San Antonio-based H-E-B Grocery Co., which hop= es to cut its $40 million annual electricity bill through deregulation by a= t least 6 percent.=20 The idea behind electric deregulation is simple and powerful. Instead of fo= rcing residents and businesses to buy their power from a monopoly such as T= XU Electric or Reliant, let them choose among several competing companies.= =20 In theory, competition should cause prices to fall, as it did for air trave= l and long-distance phone service. That's what the Texas Legislature though= t when it voted in 1999 to let utility customers pick a new power company b= eginning Jan. 1, 2002.=20 Power traders led by Enron Corp. lobbied heavily for deregulation, figuring= they could profit by gaining a chunk of the utilities' business even thoug= h Enron produces little power itself.=20 To prepare for deregulation, the Legislature approved a seven-month pilot p= rogram in which a few commercial and residential customers would be able to= switch. Soon, glaring problems emerged.=20 The trial program was delayed three times. When it finally began this summe= r, the state's main power grid struggled to switch customers to their new p= ower company. Prices for backup power used on hot summer days temporarily j= umped 100-fold.=20 Through it all, the Public Utility Commission and the power companies and t= heir allies have insisted the pilot program was serving its purpose of high= lighting potential problems.=20 "Anytime you buy a new home there are a whole bunch of things you need to g= et fixed before you move in," Perlman said this week. "We're going down tha= t punch list, and I think we'll be ready on Jan. 1."=20 The unresolved issues, he said, include how utilities such as TXU and Relia= nt will pass on the cost of fuel to their customers, who were guaranteed a = 6 percent rate cut on Jan. 1.=20 In addition to the technical setbacks, deregulation suffered a blow when Sh= ell Energy, a unit of the Anglo-Dutch energy giant, pulled out of Texas aft= er signing up 40,000 customers. Suddenly one of the biggest players and a p= otent competitor to TXU and Reliant had vanished.=20 Shell has said that doing business in Texas became uneconomical after other= states delayed deregulation.=20 "That was a bit bizarre, because they had spent a lot of money to attract c= ustomers," said Brian Lloyd, a top PUC official on pricing issues. "But if = they don't want to be here, we don't want them."=20 Lloyd and other PUC officials are confident that as deregulation catches on= , other power companies will move in to Texas, ensuring strong competition.= =20 Already, however, deregulation will be delayed beyond Jan. 1 because of a l= ack of competition and questions about power-transmission in a section of s= outheast Texas served by Entergy Corp. and in a stretch of northeast Texas = served by Southwestern Electric Power Co.=20 Last month, Consumers Union, AARP and other groups asked the PUC to delay c= ompetition everywhere in Texas because of computer glitches and billing pro= blems during the pilot program.=20 Deregulation advocates worry that residential customers will simply stay wi= th their old electric utility, causing new competitors to fail.=20 The PUC is likely to push ahead after receiving a final round of comments n= ext week from electric companies and officials of the main power grid, call= ed the Electric Reliability Council of Texas, or ERCOT.=20 Along with the power traders, large commercial customers - like the H-E-B G= rocery chain - figure to be winners.=20 "A grocery store is an energy hog," Manning said. "We have a lot of refrige= rators that run 24 hours a day, 365 days a year. We help (the power compani= es') bottom line."=20 Perlman, the PUC member, predicted deregulation will start on time but said= that making it trouble-free was the most important goal to build consumer = confidence.=20 "A year from now, no one will remember whether the market opened on Jan. 1 = or Jan. 15 or March 15," he said.=20 End advance Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron Says It's Too Soon to Quantify U.K. Job Cuts (Update1) 2001-11-10 07:24 (New York) Enron Says It's Too Soon to Quantify U.K. Job Cuts (Update1) (Adds detail on U.K. operations, Dynegy transaction, lenders, from fifth paragraph.) London, Nov. 10 (Bloomberg) -- Dynegy Inc.'s $23 billion acquisition of Enron Corp. is at too early a stage for either company to know how many U.K. jobs will be eliminated, an Enron spokesman said, after a newspaper reported 4,000 are at risk. Dynegy's acquisition of the biggest energy trader, announced yesterday, ``is still a long way off from closing,'' said Enron spokesman Alex Parsons. ``It's too early to know what the impact will be on U.K. jobs,'' he said. The Daily Mail newspaper, which didn't cite sources, said today that 4,000 jobs are at risk, mainly at Enron's Wessex water unit, in southwest England, two power plants on Teeside, in northeast England, and at its energy trading operation. It employs 5,400 people in Europe, mostly in the U.K., said Parsons. Dynegy said yesterday it would save as much as $500 million a year by ``winding down'' Enron's business outside of trading and pipelines and cutting costs. Enron decided to sell after its shares plunged 90 percent this year amid investors' concerns about the accuracy of its financial statements. The company had said in October it planned to eliminate as many as 500 jobs in Europe, or almost as much as 10 percent of the workforce there, to reduce costs. Offset Risk The company, which owns generation in the U.K. to offset risk in its power trading operations, said in August two workers died and two others were seriously injured in an explosion and fire at Teeside power station, which it operates and partly owns. Enron owns Wessex Water as part of its Azurix water unit. It spent $2.8 billion in 1998 for Wessex, from which Azurix emerged. Enron sold Azurix shares to the public in 1999, and then bought back the company this year after the unit failed in its strategy of buying up water companies and winning large projects. In August, Enron agreed to sell Azurix's North American business to American Water Works Inc. for $150 million. The Dynegy transaction is expected to close in 2002's third quarter. The new company will have $90 billion in assets, Dynegy said. Dynegy's stockholders, including ChevronTexaco, will have 64 percent of the new company. Enron's holders will own the rest. The merger will face opposition from consumer groups, especially in California, where energy traders such as Dynegy and Enron were blamed for soaring electricity prices that left the state's biggest utility bankrupt and the second-largest fighting for a government bailout. Other companies may yet be caught in the fallout from Enron's situation. Royal Bank of Scotland Group Plc is a lender to Enron, the Guardian newspaper reported today, without citing sources. It's unclear how much the U.K.'s No. 3 bank by assets lent Enron, though it may be as high as several million pounds, the paper said. It's not clear if the loans are secured, it said. Royal Bank was involved in setting up a credit facility for Enron, the newspaper said, adding this helped push down the company's share price by 2.6 percent yesterday. --Mathieu Robbins in the London newsroom (+44 20) 7673 2097 Dynegy to Buy Enron for $23 Billion in Stock, Debt (Update9) 2001-11-09 23:23 (New York) Dynegy to Buy Enron for $23 Billion in Stock, Debt (Update9) (Adds advisers in last paragraph.) Houston, Nov. 9 (Bloomberg) -- Dynegy Inc. agreed to buy Enron Corp. for at least $23 billion in stock and assumed debt, ending a financial crisis that threatened to bankrupt Enron and disrupt U.S. power and natural-gas markets. Investors will get 0.2685 of a Dynegy share for each Enron share, or $10.41 based on Dynegy's closing price today. The stock portion of the transaction is valued at $8 billion to $9 billion, Dynegy Chief Financial Officer Robert Doty said. Dynegy said it will assume about $15 billion in Enron debt. Enron, the largest energy trader, decided to sell after its shares plunged 90 percent this year and a federal investigation of accounting irregularities limited its ability to finance operations. Enron's collapse would have caused upheaval in energy markets, where the company does one-quarter of all gas and power trades, traders say. ``Without someone stepping in to play the role Enron plays, people (would) have a difficult time executing transactions,'' said Daniel Gordon, president of Allegheny Energy Inc.'s trading unit. ChevronTexaco Corp., the second-biggest U.S. oil company and owner of 26 percent of Dynegy, will provide Enron with $1.5 billion immediately. ChevronTexaco will give Dynegy $1 billion after the merger closes. Dynegy Chief Executive Officer Charles Watson, who led a company that has put as much emphasis on building power plants as on energy trading, will take over a larger rival that Chairman and CEO Kenneth Lay had focused on trading. Earnings Reduced Lay's strategy boosted Enron's reported revenue to $100.7 billion in 2000, almost four times Dynegy's and more than 20 times what Enron generated in 1995. At its peak in December 2000, Enron stock was valued at more than $69 billion. In recent months, Enron shares plummeted as investors began to question the accuracy of Enron's financial statements, saying it was unclear whether the company was using affiliated partnerships to move debt off its books and hide losses. Yesterday the company restated its earnings for the past four years, lowering them by more than $500 million to include losses from partnerships it once kept off its books. After the merger announcement, Standard & Poor's Investors Service said it may lower Dynegy's debt rating. It cut Enron's to ``BBB-,'' one notch above junk. Watson, Dynegy President Stephen Bergstrom and CFO Doty will keep their positions at the combined company. Greg Whalley, the president and chief operating officer of Enron, will be an executive vice president. Lay said he won't be an active manager in the new company. Lay has not discussed a severance package with him, Watson said. $200 Billion in Revenue Dynegy said it will have annual revenue of more than $200 billion, more than 22,000 megawatts of electric generating capacity and 25,000 miles of pipeline after the merger. The company will save as much as $500 million a year by ``winding down'' Enron's business outside of trading and pipelines and cutting costs, Dynegy said. The announcement of the merger came after the close of stock market trading, though the two companies had acknowledged they were in talks. Shares of Dynegy rose $2.26, or 6 percent, to $38.76. Enron rose 22 cents to $8.63. ChevronTexaco rose $1.90 to $89.49. Enron's 6.4 percent bonds, which mature in 2006, jumped to about 76 cents on the dollar, up from 69 cents, traders said. The combination is expected to be ``strongly accretive'' to earnings, Dynegy said. It projected earnings of $3.40 to $3.50 a share next year. It had been expected to earn $2.57, the average estimate of analysts surveyed by Thomson Financial/First Call. Third Quarter Closing The transaction is expected to close in 2002's third quarter. The new company will have $90 billion in assets, Dynegy said. Dynegy's stockholders, including ChevronTexaco, will have 64 percent of the new company. Enron's holders will own the rest. ``Dynegy is taking out a competitor, acquiring some attractive assets and they're doing it at an incredible price,'' said Joseph Correnti, an analyst at Wayne Hummer Investments who doesn't own shares of either company. Enron will pay a $350 million breakup fee if the transaction collapses. The two Houston-based companies began negotiations a week ago as it became apparent that Enron needed cash to stay in business. Watson said he approached Lay. ``I simply called Ken to see if there was anything we could do to straighten'' out rumors of a cash crunch at Enron, Watson said. ``That next Saturday, Ken was gracious enough to invite me over to his home.'' Dynegy agreed to the terms after Moody's Investors Service maintained an investment grade rating on Enron today, eliminating a stumbling block in negotiations. Cash Crunch Moody's announcement removed the threat that a junk rating would force Enron to repay early $3.3 billion in bonds. Enron has been battling a cash crunch and a loss of investor confidence because of questions about partnerships started by its senior executives. Enron fired Chief Financial Officer Andrew Fastow in October as a Securities and Exchange Commission investigation focused in on partnerships he headed and helped create. Enron estimated Fastow made $30 million through partnerships affiliated with the company. The SEC began the investigation after Enron reduced third- quarter earnings by more than $1 billion and said dealings with two partnerships had lowered shareholder equity by $1.2 billion. ``Clearly, (the partnerships) created quite a perception problem for the company, and maybe more serious problems than that,'' Lay said on a conference call after the buyout announcement. ``We'll see over time.'' California Opposition The merger will face opposition from consumer groups, especially in California, where energy traders such as Dynegy and Enron were blamed for soaring electricity prices that left the state's biggest utility bankrupt and the second-largest fighting for a government bailout. ``We will petition the state attorney general and federal authorities to block this merger,'' said Doug Heller of the California-based Foundation for Taxpayer and Consumer Rights. ``This would further tighten the grip that the unregulated power industry has over California, and it's the grip of the energy cartel that has choked California for the last year and a half.'' Energy trading markets ``are relatively fragmented'' so there should be no antitrust problems, even though Enron and Dynegy are big companies, said Robert Burka, a Washington-based antitrust attorney with Foley & Lardner. ``Enron may well not be a healthy company going forward'' if the merger isn't approved, Burka said. EnronOnline The combination of the two companies will leave Watson with control of EnronOnline, an Internet energy and commodities trading site that has done more than $880 billion in trades since it was created in November 1999. ``It's not perfectly capturing the value of Enron, but if you're on the board at Enron at this point, you take it and move on,'' said Correnti of Wayne Hummer Investments. The total value of the stock portion of the transaction could rise, depending how many Enron shares need to be converted in the stock swap. An Enron spokesman said the company had 913 million shares on a fully diluted basis, though a person familiar with the talks said Enron's stock price is so low that many common share equivalents won't be converted, leaving the number at 743 million shares. Lehman Brothers Inc. is Dynegy's financial adviser on the transaction. Salomon Smith Barney Inc. and J.P. Morgan & Co. are advising Enron. --Margot Habiby in Houston (713) 353-4872 Dynegy announces $8 billion deal to buy larger rival Enron By JUAN A. LOZANO Associated Press Writer 11/09/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. HOUSTON (AP) - Energy marketer Dynegy Inc. announced Friday that it will bu= y its much larger rival, the once mighty but now troubled Enron Corp., for = $8 billion in stock. Dynegy also will assume a hefty $15 billion in Enron d= ebt.=20 The announcement came after Enron's stock price plummeted about 80 percent = over the past three weeks because of concerns that the company wasn't revea= ling serious financial problems to shareholders. Under the deal, ChevronTexaco Corp., which owns more than a quarter of Dyne= gy, would quickly provide about $1.5 billion. ChevronTexaco also would cont= ribute an additional $1 billion upon completion of the deal, the companies = said.=20 "With its market-making capabilities, earnings power and proven strategic a= pproach to wholesale markets, Enron is the ideal strategic partner for Dyne= gy," Dynegy chairman and chief executive officer Chuck Watson said in annou= ncing the purchase.=20 Watson made it clear that he would not tolerate the sort of financial pract= ices that prompted explosive disclosures by Enron this week - including an = admission that more than half a billion dollars in debt had been kept off t= he company's books.=20 "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 financ= ial structure as key priorities," Watson said.=20 Enron is the country's top buyer and seller of natural gas, and the No. 1 w= holesale power marketer. The company operates a 25,000-mile gas pipeline sy= stem, and also markets and trades metals, paper, coal, chemicals, and fiber= -optic bandwidth.=20 Dynegy controls nearly 15,000 megawatts of power generating capacity throug= h investments in power projects, and sells the energy in wholesale markets = and through utilities.=20 At a news conference, Watson said company officials who negotiated the deal= came away convinced that Enron was worth buying despite its recent trouble= s.=20 "We looked under the hood and, guess what, it's just as strong as we though= t it was," Watson said.=20 Under the terms of the deal, Enron shareholders will receive .2685 Dynegy s= hare for each share of Enron common stock, valuing each Enron share at $10.= 41. Enron has about 775 million common shares, said spokeswoman Karen Denne= .=20 That represents a 21 percent premium above Enron's closing price of $8.63 F= riday on the New York Stock Exchange - but still just a fraction of their 5= 2-week high of $84.87. Dynegy's shares climbed $2.26, or 6 percent, to clos= e at $38.76 on the NYSE.=20 In after hours trading on the NYSE, Enron shares shot up 15.6 percent, or $= 1.35, to $9.98. Dynegy shares were unchanged.=20 Dynegy's stockholders will own approximately 64 percent of the new company,= with Enron's stockholders holding the remainder.=20 The boards of both companies have unanimously approved the transaction, whi= ch is expected to close next summer. The deal is expected to save the combi= ned company between $400 and $500 million annually because of continued eli= mination of "non-core" Enron holdings and lower operating costs. Watson sai= d it was too soon to say if the deal would result in job cuts. Enron has ab= out 20,000 employees, while Dynegy's work force is about 6,000.=20 Watson will remain as chairman and chief executive of the combined company,= which will retain the Dynegy Inc. name. Dynegy's Steve Bergstrom will cont= inue as president.=20 Enron chairman and chief executive Kenneth L. Lay will no longer have a rol= e in day-to-day management of the company, but has been offered a seat on t= he combined company's board and will help shepherd the merger through.=20 Dynegy said that Greg Whalley, the current president and chief operating of= ficer of Enron, will become an executive vice president of the new Dynegy. = He said the merger sets the best course for Enron.=20 "Few of the options we considered for our core business going forward provi= ded us with the earning potential and immediate synergies that a merger wit= h Dynegy could deliver," Whalley said. "Together with Enron's recently anno= unced bank commitments, this cash infusion gives Enron immediate liquidity,= which we believe will enable the company to maintain its investment grade = credit rating."=20 The merger was announced a day after Enron acknowledged it overstated earni= ngs by about 20 percent over the past four years and kept large amounts of = debt off its balance sheets through business partnerships now under investi= gation by the Securities and Exchange Commission.=20 Analysts said the merger rescues Enron, but leaves Dynegy in uncharted terr= itory - with the outcome of the SEC investigation completely unknown. "Ther= e is still a shroud hanging over Enron that now moves over to Dynegy," said= Carol Coale, an analyst with Prudential Securities.=20 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 rati= ngs remain under review for further downgrade.=20 In an SEC filing, Enron said financial statements from 1997 through the fir= st 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 com= pany's earnings reports.=20 The revised statements reduced Enron's profits for those years by $586 mill= ion, from $2.89 billion to $2.31 billion. The revisions also increased the = company's debt each of the four years, reaching $10.86 billion - $628 milli= on more than previously reported - by the end of 2000.=20 Keeping the debt off its balance sheets likely ensured Enron could maintain= a strong credit rating to support expansion of its core businesses - whole= sale trading of natural gas and electricity.=20 But the company's stock price started dropping 10 months ago when its high-= speed Internet unit foundered and Enron had trouble collecting money from p= ower customers in India.=20 The stock price began to free fall after Enron announced a $618 million thi= rd quarter loss, and news of the SEC investigation surfaced.=20 Enron responded by firing its chief financial officer and scrambled to get = cash and increase credit lines in an attempt to regain investor confidence,= but investors dumped Enron shares and sent its stock plummeting.=20 The ousted chief financial officer, Andrew Fastow, ran some of the partners= hips under investigation by the SEC.=20 Jeff Skilling, Enron's former chief executive who left in August, has been = called to testify before the SEC, although it's unclear when.=20 ---=20 On the Net:=20 http://www.enron.com=20 http://www.dynegy.com AP Graphic DYNEGY ENRON=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 USA: UPDATE 3-Dynegy to acquire Enron for $9 bln. 11/09/2001 Reuters English News Service (C) Reuters Limited 2001. (Adds new material from news conference, new analyst comments)=20 By Andrew Kelly HOUSTON, Nov. 9 (Reuters) - Dynegy Inc. agreed on Friday to acquire rival E= nron Corp. for some $9 billion in stock, underlining the dramatic reversal = of fortunes for the Houston-based energy trading giant that was valued last= year at nearly $80 billion.=20 Enron's stock fell sharply in the past month due to investors' concerns abo= ut murky transactions that sparked an investigation by U.S. regulators and = damaging downgrades by credit rating agencies.=20 "It's an unbelievable ending to an unbelievable story," said Fulcrum Global= Partners analyst Michael Barbis. "The company that created the industry is= gone - it's all Dynegy now."=20 The merged company will retain the Dynegy name. It will have annual revenue= s of more than $200 billion and assets worth $90 billion, including more th= an 22,000 megawatts of electricity generating capacity and 25,000 miles of = natural gas pipelines.=20 It will be North America's biggest marketer and trader of natural gas and e= lectricity, positions previously held by Enron.=20 Dynegy will control the new 14-member board, holding 11 of its seats, and t= he top executive positions.=20 ChevronTexaco Corp. , a 26.5 percent stakeholder in Dynegy, will provide an= immediate infusion of $1.5 billion to keep Enron's core trading operations= afloat and a further $1 billion when the deal closes. It will get three bo= ard seats.=20 DYNEGY'S WATSON FIRMLY IN CONTROL=20 The deal puts Chuck Watson, Dynegy's pioneering chairman and chief executiv= e who has long labored under Enron's shadow, firmly in charge of the new co= mpany.=20 "It is a great deal for Dynegy and, under the circumstances, as a good of a= deal as Enron could get," said UBS Warburg analyst Ron Barone.=20 Watson will remain chairman and chief executive of the merged company, whil= e Dynegy's president, Steve Bergstrom, and chief financial officer, Rob Dot= y, will retain those positions.=20 Greg Whalley, president and chief operating officer of Enron, will become a= n executive vice president and will join Watson, Bergstrom and Doty in the = Office of the Chairman.=20 Barbis said that after Enron saw its stock fall 75 percent over the last mo= nth, cutting its market capitalization by $19 billion, the company was left= in a weak negotiating position. "At the end of the day they had no choice,= " he said.=20 Dynegy will swap 0.2685 shares of its own stock for each Enron share, valui= ng Houston-based Enron at $10.41 per share, a premium of 21 percent over Fr= iday's closing price of $8.63.=20 The price is far below a lofty high of $90.56 set on Aug. 23, 2000, when En= ron was riding a wave of investor enthusiasm.=20 Dynegy stockholders will own about 64 percent and Enron stockholders will o= wn about 36 percent of the merged company.=20 REGULATORS PROBE ENRON DEALS=20 Enron had been struggling to overcome a plummeting stock price and credit r= atings in the past month following disclosures of off-balance sheet deals n= ow under investigation by the U.S. Securities and Exchange Commission.=20 Enron chairman and chief executive Ken Lay told a news conference in Housto= n that he would have preferred Enron to retain its independence but that th= is had become impossible in the face of a "consistent barrage of really neg= ative articles".=20 "The last three weeks haven't been a whole lot of fun," said Lay, adding th= at he had not yet decided whether to take up Watson's offer of a seat on th= e merged company's board.=20 Watson said the agreement with Enron includes "escape clauses" that would a= llow Dynegy to back out of the deal if any further undisclosed problems wer= e to emerge, but he said he was confident that this would not happen.=20 "You know, we looked under the hood and guess what? It's just as strong as = we though it was," he said.=20 Watson said he did not expect the merger to run into serious regulatory obs= tacles.=20 "Regulatory agencies realize that a speedy resolution is important to keep = stability in the U.S. energy market. This has got to be resolved," said UBS= Warburg analyst Barone.=20 Dynegy said it expects the new company to earn $3.40 to $3.50 per share in = 2002, an increase of 35 percent, or 90 cents to 95 cents per share, for cur= rent Dynegy shareholders, before taking into account expected synergies and= cost savings.=20 Dynegy estimates annual pretax savings of $400 million to $500 million as a= result of the sale or winding down of non-core businesses in the Enron por= tfolio and other measures.=20 Watson said he did not yet know how many jobs might be cut as a result of c= ombining the two companies.=20 The merger still requires approval by regulators and both sets of sharehold= ers but is expected to close by the end of the third quarter of 2002.=20 Lehman Brothers was financial advisor to Dynegy. J.P. Morgan Chase and Salo= mon Smith Barney, a unit of Citigroup, were financial advisors to Enron. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron not California's largest power supplier, but merger could affect pric= es By KAREN GAUDETTE Associated Press Writer 11/09/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. SAN FRANCISCO (AP) - When Houston-based Dynegy Inc. announced Friday that i= t had bought Enron, its larger rival for $7.8 billion shares of stock, some= energy traders predicted fluctuating power prices in the coming months thr= oughout the West as the market settles into a new hierarchy with one fewer = provider.=20 "The fragility of the system is such that a small perturbation can turn eve= rything upside down very easily," said Gary Ackerman, executive director of= the Western Power Trading Forum, of which Enron is a member. "A week ago I= don't think many people would have even contemplated this." The loss of Houston-based Enron will "make prices more jumpy and more uncer= tain and it's going to take the market some time to calm down," Ackerman sa= id. Should the Northwest have a chilly winter, prices could spike with fewe= r sellers in the market, he said.=20 And that in turn could affect California's pocketbook, though the state buy= s a negligible amount of electricity from Enron, said Oscar Hidalgo, spokes= man for the state Department of Water Resources, which buys electricity for= the customers of two financially ailing utilities. Hidalgo said the state = had a long-term contract with Enron earlier this year though the marketer o= pted out of it after a month.=20 "They have indicated to us that we were somewhat of a credit risk for them,= like many generators at the time," Hidalgo said.=20 Earlier this year, Enron attempted to cancel its contract as electricity an= d natural gas provider to California's two public university systems, which= spent more than $170 million combined last year on the fuels. It was uncle= ar Friday what would happen to those contracts.=20 Enron's reach in California goes beyond keeping the lights on.=20 The state's retirement pension fund owns 3 million shares of Enron stock - = about 1 percent of its total investments - said CalPERS spokeswoman Pat Mac= ht. The CalPERS board will meet next week to discuss the situation, she sai= d.=20 "I can only say at this point that we were as surprised and shocked as the = rest of the world was about what has been going on there and we're assessin= g our options," Macht said.=20 Enron Corp.'s outspoken support for deregulation of the country's electrici= ty markets sparked resentment in California as rolling blackouts swept thro= ugh earlier this year, although the energy marketer is not one of Californi= a's largest power providers.=20 Some felt the financial downfall of the nation's top buyer and seller of na= tural gas and major electricity seller was justified.=20 "The principles of karma seem to be working here," said Harvey Rosenfield, = founder of the Santa Monica, Calif.-based consumer advocacy group the Found= ation for Taxpayer and Consumer Rights. "Here Enron was one of the chief pr= oponents of deregulation and took advantage of it and benefitted enormously= and now is reaping the consequences."=20 Earlier this year, California Attorney General Bill Lockyer subpoenaed Enro= n's electricity trading records as he sought to prove the state was the vic= tim of price gouging which led officials to spend more than $9 billion buyi= ng electricity for the customers of two financially troubled utilities. Enr= on repeatedly denied all accusations of market manipulation.=20 Enron, the nation's top buyer and seller of natural gas and the top wholesa= le marketer in the United States, had become one of the nation's 10 largest= companies, recording revenue of $100.8 billion in 2000. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Dynegy-Enron merger could mean name change for Enron Field By KRISTEN HAYS Associated Press Writer 11/09/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. HOUSTON (AP) - The Houston Astros' stadium won't be nicknamed "Home Run Fie= ld" much longer.=20 Houston-based energy marketer Dynegy Inc. announced Friday that it will buy= Enron Corp., the $100 million namesake of the Astros' ballpark. The compan= ies will operate independently until the deal closes, possibly next summer. The new company will keep Dynegy's name and lose Enron's - and Houston's $2= 51 million ballpark could see the same change, Astros owner Drayton McLane = Jr. said.=20 McLane said the team's 30-year naming rights agreement with Enron allows an= other company to give the ballpark a new name in case of a merger. The Astr= os have the right to approve or reject a change.=20 "We want to work with (Dynegy chairman and chief executive) Chuck Watson an= d we look forward to working with Dynegy," McLane said.=20 Watson said the ballpark name wasn't an issue as the companies hammered out= the merger agreement this week.=20 "Quite honestly, it has not come up," Watson said Friday. "This is about tw= o strong companies going forward. It is something we will have to deal with= in the months coming up."=20 Since opening before the 2000 season, Enron Field has become known as one o= f the best parks for hitters in the majors. There have been 496 homers hit = in Enron the past two years, 19 percent more than in Astros road games.=20 Coincidentally, Houston's other company-named sports facility also is in qu= estion. The corporate namesake of the Compaq Center basketball/hockey arena= , Compaq Computer Corp., is being bought by Hewlett-Packard Co.=20 Enron Field wouldn't be the first venue to change names because of a merger= or other corporate decision by the naming-rights owner.=20 CoreStates Arena, home to the Philadelphia 76ers and the Philadelphia Flyer= s, became First Union Arena when First Union Corp. acquired CoreStates Fina= ncial Corp. in 1998.=20 Marine Midland Arena in Buffalo, N.Y., became HSBC Arena last year because = Marine Midland in 1999 changed its name to HSBC Bank USA as part of a globa= l branding strategy.=20 Such changes are inevitable when 61 major league sports facilities bear cor= porate names in an age of many mergers and acquisitions, said Dean Bonham o= f the Bonham Group in Denver, a sports and entertainment marketing firm.=20 "Mergers and acquisitions had no effect on the sports industry just 10 year= s ago," he said. "Today they can have a significant affect on the community= beyond the direct impact on the company itself."=20 Enron chairman and chief executive Ken Lay, who said Friday he had been inv= ited to serve on the new company's board of directors, helped create Enron = Field before buying its name.=20 By 1996 McLane had determined it was time to move from the once-futuristic = though aging Astrodome, and threatened to sell part of the team and move to= Virginia unless a new ballpark was built in Houston.=20 That year Lay put together a consortium that provided a $34.7 million no-in= terest loan to buy the land in downtown Houston and subsidize the 42,000-se= at ballpark's construction costs.=20 Enron also manages the ballpark's mechanical and electrical equipment and e= nergy services which officials said would earn up to $200 million over 30 y= ears. McLane said Dynegy likely would continue that deal. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Dynegy Buy Of Enron Valued At $23B-$24B With Debt By Michael Rieke and Erwin Seba Of DOW JONES NEWSWIRES 11/09/2001 Dow Jones News Service (Copyright (c) 2001, Dow Jones & Company, Inc.) HOUSTON -(Dow Jones)- Asked what kind of bargain Dynegy Inc. (DYN) got in b= uying Enron Corp. (ENE), Enron Chairman and Chief Executive Ken Lay said to= ld a Friday evening press conference, "A big one."=20 Dynegy will convert 850 million shares of Enron stock to its own shares in = a deal valued at $23 billion-$24 billion with assumption of debt. Dynegy Chairman Chuck Watson told the media that the deal wasn't something = that was "stitched together" in the last two weeks.=20 Watson had called Lay on Oct. 24 to tell him that Dynegy didn't have any qu= alms about being a counterparty in energy deals with Enron and to ask if th= ere was anything Dynegy could do to help.=20 At the time, Enron's share price was under pressure due transactions it had= done with its former chief financial officer Andrew Fastow. The company ha= d just taken a $1.2 billion reduction in shareholder equity when it closed = out transactions and the Securities and Exchange Commission had just launch= ed an investigation of the deals.=20 The next Saturday Lay invited Watson to his home and they started discussin= g a merger, Watson said.=20 Three or four weeks ago he didn't expect such a transaction to occur, Lay s= aid. But he began to realize that Enron needed to strengthen its balance sh= eet quickly, improve liquidity and focus on its core businesses.=20 Enron was in control of its destiny until the merger was done, Lay said. En= ron could have stayed independent and revitalized the balance sheet with pr= ivate investments, but Dynegy was showing interest in a merger.=20 "As we looked at the alternatives, it fairly quickly became apparent to us = to do this deal with Dynegy was the best option," he said.=20 Enron looked at the shareholder lawsuits filed against the company and at t= he exposure from the SEC investigation, he said. It then determined a worst= -case scenario, which was then built into the economics of the deal.=20 Neither Watson nor Lay wanted to get into specifics involving the transacti= ons Enron done with the partnerships run by Fastow. Enron will discuss thos= e deals more thoroughly in a conference call in the middle of next week.=20 In explaining his company's demise, Lay blamed a series of negative news st= ories, combined with management's ignorance of the facts concerning the par= tnership transactions.=20 "You can always second-guess everything, but it has been a fairly consisten= t barrage of really negative articles that's been very tough to beat...back= ," he said.=20 Due diligence for the deal was relatively easy to do because the two compan= ies already knew each other so well, said Watson. The two Houston-based com= panies have been competing in the energy business for about 15 years.=20 After examining Enron's books and businesses, "it became clear the value de= gradation in Enron had nothing to do with the core businesses," said Watson= .=20 Watson said it is too soon to think about the possibility of layoffs result= ing from the merger. Enron has more than 7,000 employees in Houston compare= d with 1,600 Dynegy employees. Worldwide Enron has 20,000 employees and Dyn= egy has 6,000 employees.=20 Watson has asked Lay to join Dynegy's board of directors. Lay said he would= decide whether to accept that spot as the deal gets close to closing.=20 Watson doesn't expect any regulatory problems associated with the merger. T= he deal must be approved by regulators in the U.S. and in Europe, where bot= h companies have operations. Regulatory approval should take six to nine mo= nths.=20 There is an escape clause in the merger deal. Dynegy will get $350 million = if the deal falls apart.=20 Although the combined companies will be a huge player in the energy busines= s, Watson doesn't expect regulators to require any sale of assets.=20 Enron will go ahead with its plans to sell $4 billion in assets. It has a d= eal to sell its electric utility, Portland General Electric, for $3 billion= including assumption of debt. The deal with Northwest Natural Gas Co. (NWN= ) will include $1.55 billion in cash, $200 million in Northwest Natural pre= ferred stock and $50 million in common stock.=20 Enron is also planning to sell another $850 million-$900 million in foreign= assets.=20 Each company will continue to operate its own electronic energy trading pla= tform. Enron operates EnronOnline and Dynegy operates DynegyDirect.=20 EnronOnline is the most successful online business, doing $3 billion-$4 bil= lion a day in energy transactions in the last 30 days.=20 Dynegy started its online trading platform last year. It did $10 billion of= business in the third quarter of this year.=20 "This is a financial bonanza for both companies," Watson said. "This is goo= d for Dynegy. This is good for Enron. It's also good for our employees and = it's good for our stockholders."=20 -By Michael Rieke, Dow Jones Newswires, 713-547-9207; michael.rieke@wsj.com= ; and Erwin Seba, 713-547-9214, erwin.seba@dowjones.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Chronology of Enron Corp.'s history 11/09/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. HOUSTON (AP) - A look at the history of Enron Corp.:=20 July 1985 - Houston Natural Gas merges with InterNorth, a natural gas compa= ny based in Omaha, Neb., to form the modern-day Enron, an interstate and in= trastate natural gas pipeline company with approximately 37,000 miles of pi= pe. 1989 - Enron begins trading natural gas commodities. Over the years, the co= mpany becomes the largest natural gas merchant in North America and the Uni= ted Kingdom.=20 June 1994 - Enron North America trades its first electron. Enron goes on to= become the largest marketer of electricity in the U.S.=20 January 1997 - Enron unveils a new logo and its first global advertising ca= mpaign. The company also acquires Zond Corp., a leading developer of wind e= nergy power. The acquisition results in the formation of Enron Renewable En= ergy Corp.=20 August 1997 - Enron announces its first commodity transaction using weather= derivative products. Enron goes on to market coal, pulp, paper, plastics, = metals and bandwidth.=20 April 1999 - Enron agrees to pay $100 million over 30 years for the naming = rights to Houston's new ballpark, Enron Field. The Astros also sign a 30-ye= ar facilities management contract Enron Energy Services.=20 June 1999 - Enron Energy Services transacts its first billion-dollar deal w= ith Suiza Foods.=20 November 1999 - Enron launches EnronOnline, the first global Web-based comm= odity trading site.=20 January 2000 - In a Fortune survey, Enron was named "The Most Innovative Co= mpany in America" for the fifth consecutive year and is ranked No. 24 among= the "100 Best Companies to Work for in America."=20 March 2000 - The Energy Financial Group ranks Enron the 6th largest energy = company in the world.=20 May 2000 - Enron and strategic investors, IBM and America Online, launch Th= e New Power Company, the first national energy service provider for residen= tial and small businesses in deregulated U.S. energy markets.=20 August 2001 - Enron chief executive officer Jeff Skilling resigns after run= ning the company for just six months. Chairman and former CEO Ken Lay resum= es his position atop Enron.=20 October 16, 2001 - Enron reports a $638 million third-quarter loss and disc= loses a $1.2 billion reduction in shareholder equity, partly related to par= tnerships run by chief financial officer Andrew Fastow.=20 Oct. 22, 2001 - Enron acknowledges Securities and Exchange Commission inqui= ry into a possible conflict of interest related to the company's dealings w= ith those partnerships.=20 Oct. 24, 2001 - Enron ousts Fastow.=20 Oct. 27, 2001 - Enron taps into more than $3 billion in credit in an effort= to boost confidence of investors and customers.=20 Oct. 31, 2001 - Enron announces the SEC inquiry has been upgraded to a form= al investigation. Enron creates special committee headed by University of T= exas law school dean William Powers to respond to the investigation.=20 Nov. 1, 2001 - Enron secures $1 billion in new financing, using its natural= gas and pipeline assets as collateral.=20 Nov. 6, 2001 - Enron's stock price drops below $10 a share - down from a 52= -week high of $84.87 on Dec. 28, 2000 - after reports the financially troub= led energy trader was seeking additional financing to shore up confidence.= =20 Nov. 8, 2001 - Enron files documents with SEC revising its financial statem= ents for past five years to account for $586 million in losses.=20 Nov. 9, 2001 - Dynegy Inc. announces an agreement to buy its much larger ri= val Enron for $7.8 billion in stock. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Fitch Takes Rating Action on Enron & Dynegy on Merger News 11/09/2001 Business Wire (Copyright (c) 2001, Business Wire) NEW YORK--(BUSINESS WIRE)--Nov. 9, 2001--Fitch revises the Rating Watch on = Enron Corp.'s outstanding securities to Evolving from Negative where they w= ere placed on Oct. 25, 2001.=20 A Rating Watch Evolving means the ratings may be raised, lowered, or mainta= ined. In addition, the long-term credit ratings of Dynegy Inc. (DYN) and Dy= negy Holdings Inc. (DYNH) are placed on Rating Watch Negative. A Rating Wat= ch Negative means that the ratings may be lowered or affirmed. The outstand= ing `F2' rated commercial paper programs for DYN and DYNH are not affected. The rating actions follow Dynegy's announcement that it has reached a defin= itive agreement to acquire Enron Corp. in a stock-for-stock transaction und= er which Enron shareholders will receive a fixed amount of DYN shares. Fitc= h does not anticipate the rating of the combined company dropping below the= mid-`BBB' range based on its preliminary assessment.=20 The transaction carries significant financial support from ChevronTexaco Co= rp. (CVX), a 27% stakeholder in DYN, which has committed to provide up to $= 2.5 billion of new equity to DYN. The CVX equity commitment includes a $1.5= billion cash injection to occur over the next several days, which in turn = will immediately be contributed by DYN to Enron to provide interim liquidit= y support. This upfront capital contribution will be structured as a prefer= red stock investment with an option to buy 100% of the common stock in Nort= hern Natural Gas Co. (NNG). The remaining $1.0 billion of equity will be fu= nded at closing. In addition, CVX has options to contribute up to $1 billio= n of additional equity at specified amounts and retains its rights to maint= ain its current economic interest in the merged entity. The transaction is = expected to close within six to nine months and will require several regula= tory approvals, including the Securities and Exchange Commission (SEC), Fed= eral Energy Regulatory Commission (FERC), and Hart-Scott Rodino.=20 Fitch is revising its Rating Watch on Enron's outstanding debt securities t= o Evolving based on conditions of the transaction which address several maj= or concerns, the most time sensitive being liquidity. The $1.5 billion equi= ty infusion improves Enron's liquidity position, which now appears adequate= to fund Enron's cash needs through the first quarter of 2002 under expecte= d business conditions. However, Enron faces significant refinancing risk. E= nron's fully drawn $1.75 billion 364-day committed bank credit facility is = up for renewal in April 2002 and the $2.4 billion of outstanding Osprey Tru= st notes are expected to be repaid by mid-2002. Relating to Osprey, Fitch e= stimates that trust asset sale proceeds will not be adequate to fully fund = maturing Osprey debt. Therefore, Enron will potentially need to provide mor= e than $500 million to pay off the notes. Fitch will closely monitor Enron'= s cash position through the merger period.=20 Fitch anticipates that the surviving company's rating would move to the mid= -`BBB' range assuming the successful execution of its interim plans to dele= verage its capital structure and the completion of the merger. If the merge= r were to terminate, Fitch believes Enron's ability to manage its business = would be severely impaired and would expect to downgrade its securities to = highly speculative grade. Termination provisions to the merger agreement ad= d an element of uncertainty to completing the merger. If the transaction we= re terminated, DYN would have the option to own NNG, removing both a valuab= le property and stable cash flow source from Enron's credit profile.=20 The Rating Watch Negative status for DYN and DYNH reflects some uncertainty= over the ultimate outcome of its post-merger credit profile. While the pro= posed transaction structure will not require incremental debt financing, DY= N will likely assume many of the difficulties which continue to plague Enro= n including the need to sell underperforming emerging market assets, the on= going SEC investigations of certain Enron sponsored partnerships, and poten= tial litigation arising from several shareholder suits filed against Enron.= While Enron management is actively working to reduce debt and exit problem= businesses, it is possible that not all outstanding issues will be resolve= d within the transaction approval timeframe.=20 A positive consideration for DYN is the structure of the merger agreement w= hich contains a series of out provisions enabling it to terminate the merge= r upon occurrence of specific material adverse changes including Enron liti= gation exposure in excess of specified levels or a drop in Enron's senior u= nsecured credit rating below investment grade. In addition, Dynegy's upfron= t capital contribution is protected by the underlying value of NNG. Based o= n these provisions, Fitch would not expect to change Dynegy's current long-= term ratings in the event the transaction became unwound.=20 Other positives resulting from the merger include: improved management cred= ibility through Dynegy's assumption of senior executive positions and board= of directors control; the reduction of leverage at the new company from Ch= evronTexaco's equity commitment; the aggressive downsizing and exiting of n= on-core operations; potential cost savings through the merger, conservative= ly estimated at $500 million annually; and the market strength of the merge= d company, particularly as it relates to Enron's and Dynegy Holdings' North= American wholesale marketing and trading franchises.=20 The following ratings are impacted by today's rating action: Enron -- `BBB-' senior unsecured debt; -- `BB' subordinated debt; -- `B+' preferred stock; -- `F3' commercial paper. Northern Natural Gas Co. Transwestern Pipeline Co. -- `BBB-' senior unsecured debt. Dynegy Inc. -- `BBB' implied senior unsecured debt rating. Dynegy Holdings Inc. -- outstanding `BBB+' senior notes. Dynegy Capital Trust I -- outstanding `BBB' trust preferred securities. CONTACT: Fitch, New York Ralph Pellecchia, 212/908-0586 Robert Grossman, 21= 2/908-0535 Hugh Welton, 212/908-0746=20 18:40 EST NOVEMBER 9, 2001=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 ChevronTexaco to Invest $2.5 Billion in Dynegy 11/09/2001 PR Newswire (Copyright (c) 2001, PR Newswire) Supports Dynegy's Merger with Enron;=20 ChevronTexaco Holds Warrants to Increase Investment=20 SAN FRANCISCO, Nov. 9 /PRNewswire/ -- ChevronTexaco Corp. (NYSE: CVX) today= announced that it has committed $2.5 billion of new equity in Dynegy Inc. = (NYSE: DYN) in support of Dynegy's planned merger with Enron (NYSE: ENE). ChevronTexaco, which currently owns approximately 26 percent of Dynegy's ou= tstanding common stock, immediately will invest $1.5 billion in convertible= preferred shares in Dynegy in order to fund Dynegy's equity infusion into = Enron. The $1 billion balance of ChevronTexaco's equity purchase of Dynegy = common stock would be made upon the closing of the Dynegy-Enron merger. The= se investments will be made at a significant discount to Dynegy's closing p= rice today.=20 Following the closing of the merger, which is subject to regulatory reviews= and Enron and Dynegy shareholder approval, ChevronTexaco would hold approx= imately 26 percent of Dynegy's outstanding common stock, and would maintain= its three seats on the Dynegy Board of Directors.=20 Under terms of its agreement with Dynegy, ChevronTexaco will be granted war= rants to purchase an additional $1.5 billion of Dynegy common stock over a = period of up to three years from the completion of the merger. "Our equity = interest in Dynegy is highly complementary to our larger portfolio of asset= s and activities, and reflects our strategy to participate in the growing e= nergy convergence marketplace, including wholesale and retail marketing, an= d trading of energy products and services," said David J. O'Reilly, chairma= n and chief executive officer of ChevronTexaco. "Our relationship with Dyne= gy has proven to be highly beneficial for both companies, and we are optimi= stic we will continue to see comparable or better performance in the future= .=20 "This additional investment in Dynegy, which is expected to be immediately = accretive to ChevronTexaco, underscores our belief in the long-term value p= otential of this sector. We have additional upside through our warrants. We= have confidence in the Dynegy leadership team, headed by Chuck Watson, to = bring a disciplined management approach to this complex business and to bui= ld a larger and more profitable company through this merger. We are also ho= peful that the combination of Dynegy and Enron will restore market and cred= it confidence in this important energy sector," O'Reilly continued.=20 In the event that the merger between Dynegy and Enron is not completed, Che= vronTexaco can redeem its convertible preferred shares for $1.5 billion in = cash or convert to common shares. In the latter event, ChevronTexaco would = own an approximate 36 percent equity interest in Dynegy.=20 "We believe this expanded investment offers us an opportunity to create gre= ater value and provide significant upside potential for ChevronTexaco share= holders as Dynegy strengthens its leadership position in this sector," O'Re= illy said. "Through our membership on the Dynegy board, we will continue ou= r active role in the strategic direction of the company."=20 Private Securities Litigation Reform Act Safe Harbor Statement=20 Except for the historical and present factual information contained herein,= the matters set forth in this press release, including statements as to th= e creation of greater value for stockholders, expected benefits of the merg= er of Dynegy and Enron, and other statements identified by words such as "a= nticipates," "expects," "projects," "plans," and similar expressions are fo= rward-looking statements within the meaning of the "safe harbor" provisions= of the Private Securities Litigation Reform Act of 1995. These forward-loo= king statements are not guarantees and are subject to risks and uncertainti= es that may cause actual results to differ materially, including the possib= ility that the anticipated benefits from the merger and ChevronTexaco's inv= estment in Dynegy cannot be fully realized, the possibility that costs or d= ifficulties related to the merger will be greater than expected, and the im= pact of competition and other risk factors relating to our industry as deta= iled from time to time in ChevronTexaco's periodic reports filed with the S= EC.=20 MAKE YOUR OPINION COUNT - Click Here=20 http://tbutton.prnewswire.com/prn/11690X54868082 /CONTACT: media, Fred Gorell, +1-415-894-4443, or investors, Pierre Breber,= +1-415-894-9376, both of ChevronTexaco Corp./ 18:39 EST=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09