Enron Lower as Merger Doubts Intensify

Shares of troubled energy giant Enron Corp. continued to lose ground on Monday amid fears that the proposed acquisition of the company by smaller rival Dynegy Inc. will fall through.

Enron stock closed down 70 cents, or 14.86 percent, at $4.01 in active trade on the New York Stock Exchange. Dynegy has agreed to pay $10.55 per share for Enron. 

"The market is acting like the deal is not going through or not going through at the original terms," said Michael Heim, an industry analyst at A.G. Edwards & Sons. 

Heim said that among three possible scenarios -- the deal goes through as planned, it is canceled, or it is restructured -- the first is the least likely. 

"Escape clauses" built into the Dynegy-Enron deal give the buyer the option to back out if there is serious deterioration in Enron's business or assets. 

"Dynegy has a good claim that the 'material adverse condition' clause has already been triggered, either by the $690 million loan being accelerated, earnings (being) down or the ongoing trading business weakness," he said. 

Last week Enron said it could be forced to pay a $690 million debt this week because of a credit downgrade, but the payment deadline has been delayed until mid-December. 

Enron's recent admission that lower volumes at its trading business -- the crown jewel that Dynegy most covets -- could cause low fourth-quarter earnings raises the possibility that the trading business is losing its profitability. Continued lower volumes there would remove a key attraction for Dynegy. 

"Every day that goes by where Enron trading volumes become less, it decreases the value of the assets Dynegy was trying to buy in the first place," Heim said. "Besides trading and marketing, what value does Enron have?" 

The majority of Enron's physical assets are spoken for, with partnerships and creditors getting first dibs and Dynegy getting the first right to exercise its option to acquire Enron's Northern Natural Gas pipeline. 

Dynegy, which is 26.5 percent-owned by energy giant ChevronTexaco, is to swap 0.2685 share of its own stock for each share of Enron. Shares of Dynegy closed down $1.15, or 2.85 percent, at $39.25 in NYSE trade. 

Enron agreed to a Dynegy buyout after it was overwhelmed by a series of problems, including a U.S. regulatory probe of off-balance-sheet dealings by its officers, a $1.2 billion cut in shareholder equity, and cuts in its credit ratings. 

Enron subsequently restated its earnings, but investor unease snowballed and its share began tumbling. The shares were above $90 in August 2000. 

Heim said he was not sure that EnronOnline, Enron's online trading platform, is the premier property it once was. 

"Two years ago it had some value, but now others have been able to duplicate it. It's not the computer systems -- it's the traders and network that Enron had. If those go away, the value lessens."