Enron, Dynegy in Renegotiation Talks

HOUSTON – The high-profile deal to merge energy marketers Enron Corp. and Dynegy Inc. has gone back to the drawing board.

In a move that sent Enron shares higher after days of double-digit declines, Dynegy confirmed Tuesday that it is in talks to renegotiate its $9 billion deal to buy its larger but financially troubled rival.

The disclosure that the two companies are revisiting the terms sent Enron shares up 2.5 percent, apparently easing some investors' concerns that the deal would fall through.

"There are discussions occurring related to the structure of the transaction," said Dynegy spokesman Steve Stengel, who declined to elaborate.

While news that the two Houston-based companies were renegotiating temporarily appeased investors, observers said they won't be confident about the deal's future until they hear details about new cash infusions to help keep Enron afloat.

"Putting more money into the deal to shore up Enron's credit situation, that would be a sign that Dynegy would be committed to the deal going through," said Mike Heim, an analyst with A.G. Edwards & Sons.

The Wall Street Journal reported Tuesday both companies were discussing cutting the deal's price by 40 percent to about $5 billion, and The Houston Chronicle reported the companies were working to finalize terms for another equity infusion into Enron of around $500 million.

Raymond James analyst Jon Kyle Cartwright said the buyout hinges on Dynegy's ability to reinvigorate Enron's trading operation, which has been hurt as some energy companies have stopped selling it power and natural gas for fear they won't be paid.

Many energy traders who have shied away from doing business with Enron worry that the company will go bankrupt, said Charlie Sanchez, energy markets manager for Gelber & Associates, a Houston-based energy trading firm.

Restoring customer and investor faith "is not impossible. But it's more of an issue of gradually rebuilding (Enron's) confidence and legacy and developing confidence in the new legacy under Dynegy. It's just going to take time," he said.

But Fadel Gheit, an analyst with Fahnestock & Co. Inc. said Enron is a bad investment and that Dynegy underestimated its potential liabilities after it announced Nov. 9 that it would buy the company at a price valuing Enron at about $10 per share. Under the terms of the deal, Dynegy also would assume $13 billion in Enron debt.

"Chasing Enron is like trying to catch a falling knife," Gheit wrote Tuesday in a research note to investors.

Stengel, the Dynegy spokesman, declined comment when asked if an announcement of renegotiated terms is expected soon. An Enron spokesman did not return repeated phone messages Tuesday seeking comment.

In trading on the New York Stock Exchange, Enron shares rose 10 cents to close at $4.11 - a stark contrast to trading a day earlier that saw Enron shares dip to an all-time low of $3.76 before closing down 15 percent at $4.01. Dynegy shares rose $1.64 to $40.89 on the NYSE.

The company's stock has plummeted more than 95 percent from its February 52-week high of $84.87, after a series of disclosures relating to the company's complicated finances raised concerns about its financial viability.

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.