diminishing returns to deception

["Ian Murray" <seamus2001@xxxxxxxx>]

[it'd be interesting to see how long they cooked the books]

The Associated Press
Wednesday, November 28, 2001; 1:51 PM


HOUSTON -- Enron Corp. hovered on the brink of one of the biggest
corporate collapses in U.S. history on Wednesday, when smaller rival
Dynegy Inc. called off its planned $8.4 billion takeover. The deal
fell apart after two agencies downgraded Enron's credit rating to junk
status.

The downgrade triggered immediate payment of billions of dollars in
debt that Enron likely can't pay, leaving the once-mighty energy
trader facing almost certain bankruptcy, analysts said.

"It's the end of Enron, no question about it," said Gordon Howald, an
analyst at Credit Lyonnais Securities in New York. "I don't know who
else could step in."

In a statement, Dynegy accused Enron of breaching the representations
it made when the takeover agreement was negotiated on Nov. 9, invoking
an escape clause that let it pull out of the deal.

"While it is regrettable to see a leading industry player in
difficulties, this does not reflect a failure of the energy merchant
business, said Dynegy chairman and chief executive Chuck Watson.

Shares of Enron, recently ranked No. 7 on the Fortune 500 list of the
biggest U.S. companies, had already lost most of their value and all
three major credit rating agencies had slashed their ratings on
Enron's bonds to junk status by the time Dynegy made its announcement.

In separate statements, the rating agencies cited a loss of confidence
that the deal will be consummated, and said that Dynegy's willingness
to go through with the buyout has been compromised by continued
erosion in investor confidence and Enron's core energy trading
business.

The downgrades make $3.9 billion of Enron debt due immediately, and up
to $16 billion in other debt originally due next year could come due
earlier.

Enron's stock plunged $2.91, or 71 percent to $1.20 in early afternoon
trading Wednesday on the New York Stock Exchange, where they traded
for $84.87 less than a year ago. Dynegy shares were halted, off $4.08,
or 10 percent to $36.81.

More than 167 million of Enron shares had already switched hands on
the New York Stock Exchange shortly before 1 p.m., putting it on track
to be the heaviest traded stock ever on the exchange.

Spokesmen for both Enron and Dynegy didn't immediately return repeated
calls seeking comment Wednesday, though Dynegy scheduled a conference
call for later in the afternoon.

Energy giant Enron and Dynegy, both based in Houston, had spent the
last several days trying to hammer out a revision to their Nov. 9
merger agreement, which valued Enron stock at more than $10 per share.

"This comes in response to the fact that they weren't able to craft a
deal last night. They were working on getting more cash (from banks
shepherding the merger) last night, but they didn't get it," said A.G.
Edwards & Sons analyst Mike Heim said. "I think bankruptcy's not too
far away."

Raymond James analyst Jon Kyle Cartwright predicted Dynegy will
survive with a few battle scars.

"I believe we all misunderstood how dramatic a credibility crises can
be in a recession in a bear market," he said. "The speed at which
Enron collapsed caught us all off guard."

Enron last month revealed that partnerships run by its executives had
allowed the company to keep about half a billion in debt off its books
and allowed the executives to profit from the arrangements. Enron's
dealings with those partnerships are now the subject of a Securities
and Exchange Commission investigation.

The company ousted its top financial officer in October, and several
weeks ago restated its earnings back to 1997 - eliminating more than
$580 million in reported income.


© 2001 The Associated Press