Winners and Losers in Enron's Demise

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While Enron Corp.'s rivals are poised to gain from its unraveling, stockholders are left holding virtually worthless shares and business partners risk losing hundreds of millions of dollars.

An understanding of the fallout from Enron's spectacular demise is only beginning to take shape, and executives and analysts cautioned there is still plenty of uncertainty over who will emerge as winners and who will be losers.

"We are one of the companies that will pick up the slack if Enron ceases to exist," said Eric van der Waald, executive vice president of trading and marketing at American Electric Power Inc. of Columbus, Ohio. "But there are a lot of people who are going to be hurt very badly by this."

Homeowners aren't expected to notice any difference in the cost or delivery of natural gas or electricity, the two main commodities in which Enron led the trading on wholesale markets.

But with Enron's collapse -- analysts believe it is a matter of time before the company files for bankruptcy -- huge industrial and commercial contracts will likely be up for grabs.

In the third quarter, for example, Enron traded 26.7 billion cubic feet of natural gas and 289.8 million megawatt hours of electricity each day, or roughly a quarter of all trading volume, analysts said. The company reported quarterly revenue of nearly $47 billion.

"There's a bigger piece of the pie to go around," said Gordon Howald, an analyst at Credit Lyonnais Securities in New York.

Top competitors now licking their chops include AEP, Reliant Resources Inc. and Dynegy Inc., which abandoned its offer to buy and possibly save Enron after two rating agencies dropped Enron's credit rating to junk status Wednesday.

Much of Enron's trading activity took place on EnronOnline, an Internet-based bazaar that just weeks ago was the world's most popular platform for unregulated energy trading. After Enron admitted in October that it overstated profits for four years, energy buyers and sellers lost faith in its creditworthiness and began moving to other marketplaces.

Traders said volumes have already increased on the New York Mercantile Exchange, DynegyDirect and the Atlanta-based Intercontinental Exchange, which was launched in March 2000 by BP Amoco and Goldman Sachs Group Inc., among others.

As investors grew jittery that Enron might disappear from the scene altogether, they quickly dumped shares, causing tens of billions of dollars in shareholder value to evaporate.

For example, California's Public Employees' Retirement System, the largest public pension fund in the country, holds roughly 2.8 million Enron shares worth $197 million a year ago. Their value now: about $1.2 million.

The three financial firms with the most Enron shares at the end of the third quarter were Alliance Capital Management Inc., with 43 million, Janus Capital Corp., with 41 million, and Putnam Investment Management Inc. with 23 million.

Two people who profited from sales of Enron stock many months before the company imploded were its chairman, Kenneth Lay, and its former chief executive, Jeffrey Skilling. Combined, Lay and Skilling cashed out roughly $33.5 million worth of Enron shares in 2001, according to Thomson Financial/First Call.

Enron has not announced any reduction its work force of 20,000, although the company said in a statement it would "work to retain the employees necessary to the continuing operations of our trading and other core energy businesses."

A group of Enron employees sued the company last week, alleging that mismanagement by executives running the company's 401(k) plan resulted in huge losses in their retirement funds. The lawsuit says employees were encouraged to invest more heavily in Enron stock just before it tanked.

In the category of likely big losers are bankers such as J.P. Morgan Chase and Co. and Citigroup Inc., which lent hundreds of millions of dollars to the Houston-based company, hoping to keep it going so previous loans would be repaid. J.P. Morgan and Citigroup are each said to be owed about $800 million, enough to send their stock prices down several percentage points.

Which creditors ultimately get paid will be one of the most contentious issues if Enron files for bankruptcy. Dozens of Enron's business partners have already divulged their credit risk: Dynegy, $70 million; Mirant, $50 million; El Paso, $50; the list goes on and on.

"Absent any bankruptcy filings, it's pretty much a free for all," Fred Cohen, a consultant for PricewaterhouseCoopers' energy risk management division.

Others potentially left out in the cold include dozens of hotels, manufacturers, retailers and technology firms that signed long-term supply contracts with Enron to receive various commodities at fixed prices as a way of hedging their exposure to volatility.

Simon Property Group, the nation's largest retail real estate investment trust, signed in October 1999 a 10-year agreement with Enron worth $1.5 billion.

Under the deal, Enron is responsible for helping Simon manage its $150 million annual energy budget. At least for now, any attempt to map out the future of that relationship is futile.

"There's no saying how the process will proceed," said Billie Scott, a Simon spokeswoman.