Dynegy, Enron confirm talks
They discuss a combination as Enron fires treasurer, GE Capital drops out.
NEW YORK (CNNmoney) - Enron Corp. and Dynegy Inc. confirmed Thursday that they were talking about a possible business combination, but the energy companies said no deal has been reached.|
The parties have reportedly discussed an $8 billion stock takeover by Dynegy, but a source discounted the price tag. Enron, which traded at a year-high of $84.87, has a current market cap of only $8 billion. Shares of Enron (ENE: down $0.41 to $8.64, Research, Estimates) shed nearly 4 percent Thursday in afternoon trading, while Dynegy's (DYN: up $4.30 to $37.30, Research, Estimates) stock surged 12 percent in early afternoon trading.
News of a possible merger comes a day after a source familiar with the Dynegy/Enron situation told CNNmoney that Dynegy was in talks to invest about $2 billion in troubled Enron as a precursor to a possible full-blown merger.
Chevron, which owns a 27 percent stake in Dynegy, is involved in the talks, a source said. Dynegy is the vehicle through which Chevron markets gas in the United States.
"If Chevron and Dynegy agree to Dynegy's takeover, at a really good price, Chevron would essentially be a funding source for Dynegy to execute that deal," the source said.
Enron has also pitched a deal to private investors GE Capital and Blackstone Partners. However, GE Capital has opted not to invest in Enron because of Dynegy's pending deal, a source familiar with situation said. It is unknown whether Blackstone is still involved in talks with Enron.
A Dynegy (short for "dynamic energy") takeover would make more sense since the company markets and trades gas and electricity in the United States.
"If anyone could evaluate the core business of Enron it is someone like Dynegy which does the same thing," the source said.
In separate two-paragraph statements, the Houston-based companies also said they didn't expect to make further announcements until a deal is reached or the talks end.
Enron is the subject of an investigation by the Securities and Exchange Commission (SEC) regarding its transactions with a partnership created by its former chief financial officer, Andrew Fastow, which resulted in a $1.2 billion reduction in shareholder equity.
Enron on Thursday fired its treasurer, Ben Glisan, General Counsel Kristina Mordaunt, Vice President Kathy Lynn, and employee Anne Yeager, the company revealed in a filing with the SEC.
Enron believes that its ex-CFO Fastow made more than $30 million from his management of LJM and investment activities. From June 1999 through September 2001, Enron and Enron-related entities entered into 24 business relationships in which LJM1 or LJM2 were involved, the SEC filing said.
Separately, Enron restated its earnings for 1997 through the third quarter of 2001, slashing millions of dollars from most reporting periods to reflect retroactive accounting measures taken to address government and shareholder concerns.
To address SEC and shareholder concerns, Enron said it provided information in a filing with the SEC about the reduction in shareholder equity, its accounting, and other limited partnerships in which its former CFO was involved.
Enron also retroactively consolidated its past financial performance with a handful of subsidiaries previously left off its balance sheet. The move would reduce its 1997 earnings by about $96 million, 1998 earnings by about $113 million, 1999 earnings by about $250 million, and 2000 earnings by about $132 million. It also plans to raise first-quarter 2001 earnings by $17 million and second-quarter earnings by $5 million. It will cut third-quarter earnings by $17 million.
"We believe that the information we have made available addresses a number of the concerns that have been raised by our shareholders and the SEC about these matters," said Enron CEO Ken Lay.
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They still have to satisfy potential investors, however - Warren Buffett, for one. Buffett's Berkshire Hathaway is seen as a potential investor in Enron, but Buffett would likely not be comfortable with Enron's exposure and SEC investigation, a banking source said.
Chevron/Texaco Corp. (CVX: down $0.05 to $87.23, Research, Estimates), which owns about a 27 percent stake in Dynegy, is also mulling adding $1.5 billion to the deal to help Enron, according to reports that were published on Wednesday.
Enron has pitched a cash-infusion transaction to several parties for a cash infusion. CNNmoney.com reported earlier this week that Enron had held talks with GE Capital, the financial arm of General Electric Co. (GE: up $0.99 to $40.34, Research, Estimates), and has also approached the Blackstone Group.
Enron is lead developer of GE's power plant Dabhol, in India.
A $2 billion investment by Dynegy would have had little effect on GE Capital's plans, a source familiar with the situation said. GE Capital is not in the energy business and a Dynegy investment would be a "happy outcome" to Enron's current troubles, the source said.
GE Capital declined to comment.