Word: enronize
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There?s a new "white knight" for the damsel in distress that is Enron. Oak Brook, Ill.-based power-plant developer Standard Power and Light wants to buy Enron for less than $1 a share (about what it?s trading at right now). But the company might want to proceed cautiously - look what happened to Dynergy, Enron?s last would-be savior. As Enron filed for the biggest corporate bankruptcy in U.S. history, it sued Dynegy for "not less than" $10 billion, charging them with using disingenuous merger talks to "put an end to Enron as a competitive force...
...Dynegy got into the Enron deal for three reasons. The first - that Enron stock was dirt cheap - went sour when Enron's stock continued to slide even faster than Dynegy's, but the renegotiations looked likely to rectify that. The other two were about structure - Dynegy wanted to take over as the energy-trading honcho by folding its own trading operation into Enron's powerhouse, and it wanted to beef up its real energy-production assets by acquiring Enron subsidiary Northern Natural Gas, a pipeline network that runs from the upper Midwest down to Texas...
...three weeks later, Enron's trading operation is a shell of its former self, having been steadily deserted by leery clients as each day brought further doubt how long Enron itself was going to be a viable company. And the pipeline? As part of the original merger deal, Dynegy handed Enron $1.5 billion in badly needed capital - in exchange for preferred stock in Northern Natural Gas. And now that the merger is terminated, guess what? Dynegy has the right to buy the rest of the pipeline?s stock...
...Sometimes a company's best deals are the ones they didn't do," Watson said Wednesday - especially if you?ve already gotten what you wanted. Once Enron's credit rating went "junk" Wednesday - essentially condemning Enron to a takeover or bankruptcy - Dynegy didn't see anything left to buy that it couldn't get cheaper at the gone-out-of-business sale, including the thousands of Enron traders and other employees for whom the commute to the Houston office is already a daily routine...
...life will go on. The NNG pipeline will simply change hands, and probably get more attention from Dynegy than Enron ever gave it. Other energy retailers, starting with Dynegy, will happily fill in the trading space - that's what markets do. And Enron, once No. 7 on the FORTUNE 500, will file for bankruptcy, sell off its assets, and very likely disappear, having found (like derivatives-slinger Long-Term Capital Investment of yesteryear) that in the high-wire life of trading for profits, too much leverage, too-clever accounting and a few bad breaks can be a lethal combination...