Investors Gamble Enron Will Rise Again

Enron Corp. may seem close to needing its last rites but detractors shouldn't order the casket yet, says one securities analyst.

The embattled energy trader could emerge from one of the biggest Chapter 11 reorganizations ever with a second life as a smaller trader with different management and a supporting bank as a partner, said John Olsen, director of research at Houston securities firm Sanders Morris Harris.

"The trading company did not bring Enron down. The energy outsourcing and pipelines did not cause Chapter 11. It was an egregious and overly aggressive financing strategy that blew up in their faces and everyone else's," Olsen said.

Enron shares surged Tuesday as investors took heart in news that Enron had secured $1.5 billion in short-term financing after seeking bankruptcy protection.

While shares jumped 47 cents, or 118 percent, they were still trading at just 87 cents on the New York Stock Exchange Tuesday. A year ago, they were worth more than $80.

Shares of Dynegy Inc., Enron's downtown Houston neighbor that last week bailed out of plans to buy Enron, were up $3.83, or 14 percent, at $31, also on the NYSE.

Analysts said the surge likely shows that shareholders are gambling that Enron will emerge from Chapter 11 as a viable business and that their stock might be worth something.

"The only reason it makes sense if you think this is going to come out of Chapter 11 and it comes out a viable entity," said A.G. Edwards & Sons analyst Mike Heim. "I think a lot of people are taking comfort in the fact that J.P. Morgan and Citigroup provided the funding."

Heim added that A.G. Edwards is not recommending that people buy Enron, "so I'm speculating as to why people are doing it."

The jump in Enron shares showed that investors trying to assess what the infusion from J.P. Morgan and Citigroup means, said Mike Greenberger, a bankruptcy and securities professor at the University of Maryland School of Law.

"This is an issue of psychology more than it is economics," he said.

In a related matter, House Energy and Commerce Committee staff met for several hours Tuesday with SEC officials over the Enron implosion, said Ken Johnson, spokesman for Rep. Billy Tauzin, R-La., the committee's chairman.

Tauzin plans to ask the SEC for documents related to Enron's books and records, Johnson said. In addition, a team of committee investigators plans to go to Enron's headquarters in Houston later this week.

"Sorting through this mess is going to take some time," Johnson said. He said the off-balance-sheet partnerships Enron used "created a sort of accounting black hole. ... But one way or another, we intend to get to the bottom of this."

SEC spokesmen had no immediate comment on the meeting.

Several analysts pronounced Enron dead after the merger collapsed, forcing the once-mighty trader to cap a swift downfall since mid-October by filing for bankruptcy protection in New York on Sunday.

Just months ago, Enron was the country's seventh biggest in revenue. But investors and traders alike evaporated amid revelations of questionable partnerships that helped keep billions of dollars in debt off its books and the company's acknowledgment that it overstated profits for four years.

Enron originated as a gas pipeline business. While the company diversified to handle such ventures as telecommunications, insurance, lumber and paper production and investments, Enron made its mark — and earned most of its money — as the world's largest buyer and seller of natural gas.

That core trading business relies on cash, credit and credibility to survive, much less flourish. Analysts said Enron's trading business couldn't be revived because traders and investors, burned by the unveiled debt and spiraling stock, won't come back.

"The majority of the asset value at Enron was the trading operation. And the assets of that are really personnel and customer relationships — none of which tend to survive a bankruptcy," Raymond James analyst Jon Kyle Cartwright said.

But Olsen said the company may be able to restore credibility to the trading operation if it changes management and adopts a new name or creates a joint venture using balance sheets of its supporting banks, like J.P. Morgan Chase or Citigroup. It remains to be seen whether the banks want to get in the energy trading business.

However, whatever survives won't be the Enron investors and analysts knew, he said.

Any new company will be "permanently downsized," given layoffs Friday and Monday of more than 5,000 workers in London and its Houston headquarters and its efforts to sell money-losing power operations and its broadband unit. Olsen couldn't speculate on how much smaller that work force would be.

The company's remaining 3,500 employees in Houston returned to work Tuesday.

In other developments:

— British utility Centrica PLC said Tuesday it had agreed to acquire the energy customer business and certain assets of Enron Direct Ltd. for $137 million in cash.

— French utility Electricite de France said Tuesday that it is in talks to buy assets owned Enron. Enron's European power plants up for sale include a 561-megawatt plant in Italy, a combined-cycle gas plant in Spain, its 42-percent stake of Teesside Power Ltd. and the Wilton power company in Britain, and the gas-fired Nowa Sarzna plant in Poland.