Enron sells trading unit
UBS Warburg pays nothing upfront for flagship unit; Enron gets third of profits.
NEW YORK (CNN/Money) - Enron Corp. sold its energy trading business to UBS Warburg for only the promise of a share of its future profits, according to documents released Tuesday, while questions circulated about stock transactions of chief executive Kenneth Lay.
Investment bank UBS Warburg will pay nothing to Enron for the energy trading business that was Enron's flagship division during its heyday. Nor will it take on any of Enron's substantial debt. Instead, it will give a third of the division's future profits to Enron and the bankrupt company's creditors.
The transaction, which must be approved by the U.S. Bankruptcy Court, federal regulators and the Justice Department, was just the latest phase of a rapidly developing implosion whose shock waves are being felt from Wall Street to the White House.
In another development, the New York Stock Exchange announced it was indefinitely suspending trading in Enron (ENE: Research, Estimates) stock and will move to "delist" it, citing uncertainties about Enron's future and the fact that its shares have traded below a dollar each for more than 30 days. Enron can appeal the move.
Separately, the New York Times reported Tuesday that Kenneth Lay, Enron's influential CEO and a generous supporter of President Bush, used his company's stock to repay a loan sometime last year, indicating he may have unloaded more stock than previously disclosed.
In addition to the company's hundreds of thousands of dollars in donations to politicians, Enron aggressively tried to manipulate federal energy policies to its own advantage, Curtis Herbert Jr., the former chairman of the Federal Energy Regulatory Commission, told CNN on Tuesday.
"Everything they espoused to Congress and to state leaders was always what's in the best interests of Enron, never what's in the best interests of American energy companies," Herbert, who left the FERC in August, said.
And congressional investigators revealed that an Enron employee sent an anonymous letter to Lay in August 2001 -- well before the company's Dec. 2 bankruptcy filing, the largest in corporate history -- warning of misleading accounting practices. "I am incredibly nervous that we will implode in a wave of accounting scandals," the unidentified employee wrote.
Such scandals erupted last fall, and Enron -- once the seventh-largest company in the United States in revenue -- quickly collapsed, losing credibility and share value as many of its employees watched their retirement savings, made up entirely of Enron stock, evaporate.
Andersen, Enron's auditor, has developed plenty of headaches of its own, drawing the scrutiny of the Securities and Exchange Commission and Congress looking for information about its knowledge of or role in Enron's corporate structure, which allowed the energy trader to hide massive loans from its investors and other creditors.
On Tuesday, Andersen said it had fired the partner handling the Enron audit following revelations that the firm ordered employees to destroy documents related to Enron. The firm has claimed it didn't destroy any of the vital "work papers" associated with the audit.
Among Enron's creditors are some of Wall Street's biggest banks, including J.P. Morgan Chase (JPM: Research, Estimates) and Citigroup (C: Research, Estimates).
According to a separate report in Tuesday's Wall Street Journal, the SEC plans to examine whether the banks helped create the company's misleading structure, which eventually led to its collapse.
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Citigroup was one of the bidders for Enron's trading division, which accounted for 90 percent of the company's $101 billion in revenue in 2001. Warburg, a division of Swiss bank UBS AG (UBS: down $0.51 to $48.70, Research, Estimates), won the bidding during a heated, 24-hour auction that began Thursday morning.
Though the agreement lasts 10 years, Warburg will get options in the third, fourth and fifth years of the deal to cut Enron's share from 33 percent to 22 percent, then to 11 percent and finally to nothing.
Warburg is expected to hire most of Enron's 800 trading and marketing employees in Houston, according to a source familiar with the negotiations between the companies. The bank will also pay rent for its office space.
The terms of the deal to rescue Enron's trading operations were to have been released late Monday, but were delayed because officials had to iron out the final details of a complex deal negotiated in less than a week.
A bankruptcy court hearing about the deal with Warburg is scheduled for Friday. Dissatisfied creditors will have 10 days to appeal Gonzalez's ruling, and about 24 already have done so, according to the Associated Press, which said those creditors want to know more about the negotiations and how the profits will be divided.