NEW YORK – Power companies Enron Corp. and Dynegy Inc. and their advisers are scheduled to spend this weekend pouring over Enron's books, which could lead to a renegotiation of Dynegy's acquisition of embattled Enron.
The specter of renegotiation pushed Enron shares down more than 5 percent, or 27 cents, to $4.74 at the close of Friday trading on the New York Stock Exchange. Dynegy shares closed up 64 cents, or 1.61 percent, to $40.40.
Dynegy originally agreed to pay about $9 billion in stock for Enron. But, after falling 45 percent by Friday's close amid fears that it could run out of cash before Dynegy completes its buy, Enron now sports a market capitalization of only about $4.03 billion.
At Dynegy's current stock price, its offer for Enron is worth about $10.85 a share -- more than twice Enron's current share price.
Investment bankers on the deal are currently in the final stages of due diligence, sources say. Should the examination of Enron's business turn up any more unpleasant surprises, renegotiation of the deal's terms is a strong possibility.
An Enron spokeswoman said that, to her knowledge, Dynegy was not renegotiating the terms of the acquisition. Dynegy could not be reached for comment.
In a report on Wednesday, Ronald Barone, an analyst at UBS Warburg, suggested that the deal's current exchange ratio of 0.2685 share of Dynegy for each share of Enron could well be readjusted.
"We believe the odds of Enron incurring a material adverse change on its operations is soaring which suggests that -- assuming Dynegy wants to continue to move forward with the deal -- the 0.2685 ratio will not hold," he wrote.
Barone said that a much lower exchange ratio of 0.15 was more realistic.
"You've got to believe there is that possibility. There is a 90 percent spread on the deal," said one analyst, referring to a potential renegotiation.
"There's unquestionably continued malaise in Enron's core business and Dynegy has left itself open to renegotiate with Enron," he continued.
Recently, some of Enron's natural gas and electricity trading partners have further scaled back their activity, causing that "malaise." Many of those partners are shunning new long-term deals and greatly reducing the number of transactions.
Lower volumes at its trading business, which is the largest and most coveted portion of its operation, could cause fourth-quarter earnings to come in below expectations, Enron has said.
Even as the two companies' advisers review the company's books, Enron is facing an increasing number of lawsuits and a tidal wave of potential liabilities, if the past year is any guide.
Some big pension funds that invested in Enron have said they are considering legal options in the wake of Enron's stock collapse and a regulatory probe of its dealings.
A precedent was set earlier this month when Waste Management Inc. agreed to pay $451 million, the third-largest securities class action settlement, to settle a class-action lawsuit filed against the garbage hauler after an accounting scandal and other problems led its stock price to collapse more than two years ago.
The Connecticut Treasury was lead plaintiff in the class action suit. "Institutional investors are in a stronger position to get larger settlements and I expect them to step up to the plate in respect to Enron," said Catherine LaMarr, general counsel for Connecticut's Office of State Treasury.
The company has also been sued by employees who say they lost large amounts of money in retirement savings that were heavily invested in Enron's stock. One of the suits, filed in U.S. District Court in Houston on Tuesday, alleged that Enron ''recklessly endangered'' the retirement savings of its employees by encouraging them to invest heavily in Enron stock without warning them of any risks.