fw : highlights from this morning ' s ene / dyn analyst conference call fyi -
- - - - - original message - - - - -
from : alon , heather
sent : monday , november 12 , 2001 11 : 19 am
to : bess , erica ; jafry , rahil ; heuertz , kelly ; bosek , laura
subject : fw : highlights from this morning ' s ene / dyn analyst conference call
heather alon
enrononline
( 713 ) 853 - 1825
- - - - - original message - - - - -
from : milliner , christine
sent : monday , november 12 , 2001 11 : 13 am
to : bajwa , bilal ; alon , heather ; fortunov , gallin ; rohmer , gisselle ; ' milliner @ gdar . org '
subject : fw : highlights from this morning ' s ene / dyn analyst conference call
this was forwarded to me this morning . someone ' s notes from the call .
listened in on the analyst call this morning . here are my notes . did not yet have a chance to organize them , so they ' re simply in chronological order .
the call began with watson , bergstrom , and whalley reading from prepared statements . watson spoke for c . 10 minutes , bergstrom for 5 , and whalley spoke for perhaps 30 seconds . dynegy management was noticeably in control of the call . enron executives spoke when questions were directed to them .
specific points :
ees will be a part of the new company .
enron assets will be revalued at closing .
the investment in northern natural takes the form of convertible preferred . if the merger does not go through , dynegy has the right to acquire northern for ' very little ' additional consideration . if dyn terminates the merger and ene ' has sufficient liquidity ' , ene has right to repurchase the convertible preferred .
debt / equity of combined company expected to be < 45 % .
both companies will remain on ratingswatch negative .
chevrontexaco will hold 169 mm shares out of a total 650 mm shares of the post - merger entity .
watson reiterates that going forward , the new entity will be run with a focus on transparent and clear financial structure and disclosure , with a significant reduction in on - and off - balance - sheet leverage .
in what was termed a " new approach " , the new entity will be run with a focus on cash flow rather than earnings .
rumors that dynegy did the deal because of an unhedged exposure to enron are not true . dynegy owed enron < $ 50 mm .
lay says that enron had other options , ' particularly financial ' .
all of the discussion and activity has taken place over the last two weeks .
lay acknowledges that the number for exposure to securities lawsuits may be ' pretty big ' , but that the companies feel they ' re able to appropriately value this exposure .
lay says we have nothing else to hide , but internal investigation still under way .
lay : had the spes been capitalized with perhaps $ 30 mm more of risk capital , there would have been no question that they would have qualified for off - balance - sheet treatment and there would have been no need to restate earnings last week to reflect consolidation of the spes .
dynegy says that ' several ' internal investigations continue at enron , and thus dyn / ene cannot say with certainty that there ' s absolutely nothing else out there .
doty ( dynegy cfo ) says that late last week , ene had ' close to a billion ' in cash .
osprey will be unwound late next summer . marlin will be unwound after closing .
many of the off - balance - sheet structures , including the credit - linked notes , are expected to be unwound / redeemed or at least significantly reduced prior to closing .
with regard to ene asset dispositions , these will be accelerated to the extent possible . however , doty says that ' our backs are not against the wall ' , and the company will continue to focus on getting value for its assets as well as cash .
ene will renew its 364 - day facility ( believe this is the $ 3 bn facility that we drew down a couple of weeks ago ) within the next 6 - 8 weeks .
bbb - flat most likely rating for combined entity , according to initial comments from ratings agencies .
mcmahon says ' no comment ' to wsj article indicating that ene ' s banks are preparing to make an equity infusion into ene in the next few weeks .
consolidation of trading activity : mid - and back - office consolidation will see substantial progress prior to closing , such that only the front office / trading books will need to be combined at closing . ees , nng and tw have no real overlap with existing dyn activity , so there won ' t be much integration work required there . the big integration effort will be ena .
watson says that the ' creative financing ' surrounded non - core assets . doty adds that , ' frankly ' , dyn assigned zero economic value to non - core businesses in their valuation model ( uh - oh ) . they bracketed the maximum expected exposure from the non - core assets / businesses and left it at that .
watson mentions that dyn would not have gotten involved with enron had they not been approached by ' enron ' s top three executives ' , who said that they thought a combination with dynegy made the most strategic sense for both companies . says that their approach evidenced a willingness to work with dyn to integrate the two companies that made a big difference in dynegy ' s deliberations on proceeding with the merger .
watson / doty said that they ' re not 100 % sure that no surprises remain in enron ' s books - - but that the risk / reward offered by the combination was compelling .
the deal does have material - adverse - change outs for dynegy , covering any mac regarding enron ' s assets or businesses . dynegy ' s lawyers indicated that the mac language was a ' blunt instrument ' under which it would be difficult to bring a case , so dynegy inserted a specific paragraph that gives dynegy the right to terminate the merger if the enron ' s total legal liability ( from any source or cause of action ) tops $ 3 . 5 bn prior to closing .
mcmahon adds that there ' could ' be more restatements , but he ' does not expect ' there to be more restatements .
ene international hard assets definitely on the asset disposition list .
the merger structure calls for a new entity to take over enron .
enron is planning to hold an enron - specific conference call in the next few days , tentatively scheduled for wednesday .
initial reaction of ratings agencies ' very positive ' to combined entities .
mcmahon acknowledges that enron would have had to have an additional equity infusion prior to year - end , had the merger not materialized .
dynegy ' s earnings guidance places enron - related earnings accretion at $ 0 . 90 - 0 . 95 , which represents a ' 25 % haircut ' to enron internal estimates . doty says that this is all operating earnings - - figure does not include any amounts from expected synergies .
doty says that both enron and dynegy ' s books , as far as he understands , are relatively short - term in weight , and this will continue to be the weighting of the new entity . says a ' very very substantial ' portion of future trading earnings will be expected to be cash .
chevrontexaco ' s investment in dynegy was calculated at a 5 % discount to public prices on the date of negotiation ( not disclosed ) . given the runup in dynegy stock last week , chevrontexaco ' s investment is now at a ' more substantial ' discount to market prices . chevrontexaco has provision to get ' different prices at closing if those prices are substantially better ' . ( no further clarification given ) .
whalley believes that ' we ' ll retain ' the enron traders and marketers . they ' re used to being part of a winning team , and the combined entity will definitely be a winner . they have talked with most of the enron business leaders , and they are ' very excited ' by the combination . they will be working with the enron business leaders to ensure talent is retained . whalley was asked if there will be any key employee retention provisions . he says that ' to the extent necessary , yes . '
watson says that the trading strategy of the combined entity will be a combination of dyn and ene - - there will be more of an asset - backed trading focus , but by the same token the new dynegy will be involved in much more financial market - making trading than the dynegy of today .
watson says that if there were to be any change in culture , he ' s a strong team player . he does not want to see an individual do well if the company or division does not do well .
give me a call if you ' d like me to try to clarify any of these comments .
patrick tucker
x 3 - 3055
fw : highlights from this morning ' s ene / dyn analyst conference call
fyi -
- - - - - original message - - - - -
from : alon , heather
sent : monday , november 12 , 2001 11 : 19 am
to : bess , erica ; jafry , rahil ; heuertz , kelly ; bosek , laura
subject : fw : highlights from this morning ' s ene / dyn analyst conference call
heather alon
enrononline
( 713 ) 853 - 1825
- - - - - original message - - - - -
from : milliner , christine
sent : monday , november 12 , 2001 11 : 13 am
to : bajwa , bilal ; alon , heather ; fortunov , gallin ; rohmer , gisselle ; ' milliner @ gdar . org '
subject : fw : highlights from this morning ' s ene / dyn analyst conference call
this was forwarded to me this morning . someone ' s notes from the call .
listened in on the analyst call this morning . here are my notes . did not yet have a chance to organize them , so they ' re simply in chronological order .
the call began with watson , bergstrom , and whalley reading from prepared statements . watson spoke for c . 10 minutes , bergstrom for 5 , and whalley spoke for perhaps 30 seconds . dynegy management was noticeably in control of the call . enron executives spoke when questions were directed to them .
specific points :
ees will be a part of the new company .
enron assets will be revalued at closing .
the investment in northern natural takes the form of convertible preferred . if the merger does not go through , dynegy has the right to acquire northern for ' very little ' additional consideration . if dyn terminates the merger and ene ' has sufficient liquidity ' , ene has right to repurchase the convertible preferred .
debt / equity of combined company expected to be < 45 % .
both companies will remain on ratingswatch negative .
chevrontexaco will hold 169 mm shares out of a total 650 mm shares of the post - merger entity .
watson reiterates that going forward , the new entity will be run with a focus on transparent and clear financial structure and disclosure , with a significant reduction in on - and off - balance - sheet leverage .
in what was termed a " new approach " , the new entity will be run with a focus on cash flow rather than earnings .
rumors that dynegy did the deal because of an unhedged exposure to enron are not true . dynegy owed enron < $ 50 mm .
lay says that enron had other options , ' particularly financial ' .
all of the discussion and activity has taken place over the last two weeks .
lay acknowledges that the number for exposure to securities lawsuits may be ' pretty big ' , but that the companies feel they ' re able to appropriately value this exposure .
lay says we have nothing else to hide , but internal investigation still under way .
lay : had the spes been capitalized with perhaps $ 30 mm more of risk capital , there would have been no question that they would have qualified for off - balance - sheet treatment and there would have been no need to restate earnings last week to reflect consolidation of the spes .
dynegy says that ' several ' internal investigations continue at enron , and thus dyn / ene cannot say with certainty that there ' s absolutely nothing else out there .
doty ( dynegy cfo ) says that late last week , ene had ' close to a billion ' in cash .
osprey will be unwound late next summer . marlin will be unwound after closing .
many of the off - balance - sheet structures , including the credit - linked notes , are expected to be unwound / redeemed or at least significantly reduced prior to closing .
with regard to ene asset dispositions , these will be accelerated to the extent possible . however , doty says that ' our backs are not against the wall ' , and the company will continue to focus on getting value for its assets as well as cash .
ene will renew its 364 - day facility ( believe this is the $ 3 bn facility that we drew down a couple of weeks ago ) within the next 6 - 8 weeks .
bbb - flat most likely rating for combined entity , according to initial comments from ratings agencies .
mcmahon says ' no comment ' to wsj article indicating that ene ' s banks are preparing to make an equity infusion into ene in the next few weeks .
consolidation of trading activity : mid - and back - office consolidation will see substantial progress prior to closing , such that only the front office / trading books will need to be combined at closing . ees , nng and tw have no real overlap with existing dyn activity , so there won ' t be much integration work required there . the big integration effort will be ena .
watson says that the ' creative financing ' surrounded non - core assets . doty adds that , ' frankly ' , dyn assigned zero economic value to non - core businesses in their valuation model ( uh - oh ) . they bracketed the maximum expected exposure from the non - core assets / businesses and left it at that .
watson mentions that dyn would not have gotten involved with enron had they not been approached by ' enron ' s top three executives ' , who said that they thought a combination with dynegy made the most strategic sense for both companies . says that their approach evidenced a willingness to work with dyn to integrate the two companies that made a big difference in dynegy ' s deliberations on proceeding with the merger .
watson / doty said that they ' re not 100 % sure that no surprises remain in enron ' s books - - but that the risk / reward offered by the combination was compelling .
the deal does have material - adverse - change outs for dynegy , covering any mac regarding enron ' s assets or businesses . dynegy ' s lawyers indicated that the mac language was a ' blunt instrument ' under which it would be difficult to bring a case , so dynegy inserted a specific paragraph that gives dynegy the right to terminate the merger if the enron ' s total legal liability ( from any source or cause of action ) tops $ 3 . 5 bn prior to closing .
mcmahon adds that there ' could ' be more restatements , but he ' does not expect ' there to be more restatements .
ene international hard assets definitely on the asset disposition list .
the merger structure calls for a new entity to take over enron .
enron is planning to hold an enron - specific conference call in the next few days , tentatively scheduled for wednesday .
initial reaction of ratings agencies ' very positive ' to combined entities .
mcmahon acknowledges that enron would have had to have an additional equity infusion prior to year - end , had the merger not materialized .
dynegy ' s earnings guidance places enron - related earnings accretion at $ 0 . 90 - 0 . 95 , which represents a ' 25 % haircut ' to enron internal estimates . doty says that this is all operating earnings - - figure does not include any amounts from expected synergies .
doty says that both enron and dynegy ' s books , as far as he understands , are relatively short - term in weight , and this will continue to be the weighting of the new entity . says a ' very very substantial ' portion of future trading earnings will be expected to be cash .
chevrontexaco ' s investment in dynegy was calculated at a 5 % discount to public prices on the date of negotiation ( not disclosed ) . given the runup in dynegy stock last week , chevrontexaco ' s investment is now at a ' more substantial ' discount to market prices . chevrontexaco has provision to get ' different prices at closing if those prices are substantially better ' . ( no further clarification given ) .
whalley believes that ' we ' ll retain ' the enron traders and marketers . they ' re used to being part of a winning team , and the combined entity will definitely be a winner . they have talked with most of the enron business leaders , and they are ' very excited ' by the combination . they will be working with the enron business leaders to ensure talent is retained . whalley was asked if there will be any key employee retention provisions . he says that ' to the extent necessary , yes . '
watson says that the trading strategy of the combined entity will be a combination of dyn and ene - - there will be more of an asset - backed trading focus , but by the same token the new dynegy will be involved in much more financial market - making trading than the dynegy of today .
watson says that if there were to be any change in culture , he ' s a strong team player . he does not want to see an individual do well if the company or division does not do well .
give me a call if you ' d like me to try to clarify any of these comments .
patrick tucker
x 3 - 3055