Enron Slashes Profits Since 1997 by 20% --- Partnership Dealings Cited As Dynegy Talks Go On; Debt Ratings an Issue
The Wall Street Journal, 11/09/01
Does Enron Trust Its New Numbers? It Doesn't Act Like It
The New York Times, 11/09/01
Surest Steps, Not the Swiftest, Are Propelling Dynegy Past Enron
The New York Times, 11/09/01
Enron Admits to Overstating Profits by About $600 Million
The New York Times, 11/09/01
Dynegy Halts Talks With Enron, Awaits Credit Rating (Update1)
Bloomberg, 11/09/01

Enron adds up 4 years of errors
Houston Chronicle, 11/09/01
Enron, Dynegy still talking merger
Houston Chronicle, 11/09/01
A new energy crisis: If master market maker Enron goes down, this winter could be a truly chilling experience for North Americans.(Enron Corp. in danger of defaulting)(Brief Article)
Maclean's, 11/12/01
ENRON IN CRISIS - Restated figures show how earnings were cut.
Financial Times, 11/09/01
The Five Dumbest Things on Wall Street This Week
TheStreet.com, 11/09/01
GLOBAL INVESTING - Shareholder-friendly companies outperform STUDY FINDS GIVING MORE POWER TO INVESTORS ...
Financial Times, 11/09/01
GLOBAL INVESTING - Putting a value on a group under siege.
Financial Times, 11/09/01
ENRON IN CRISIS - Lure of number-one spot sparks interest.
Financial Times, 11/09/01
ENRON IN CRISIS - Rivals steady the Enron ship.
Financial Times, 11/09/2001

FRONT PAGE - COMPANIES & MARKETS - Enron rescue deal talks drag on.
Financial Times, 11/09/01
LEX COLUMN - Enron.
Financial Times, 11/09/01
Enron Says Profit Was Overstated; Troubled Energy Firm Fires 2 More Officials
The Washington Post, 11/09/01
Enron Restatements Don't Go Far Enough
TheStreet.com, 11/09/01
WORLD STOCK MARKETS - Wall St surges as Europe takes lead from Fed AMERICAS.
Financial Times, 11/09/01
Enron Reissues Financial Reports Energy: The company restates four years to clear questions related to a series of controversial partnerships.
Los Angeles Times, 11/09/01
Small-Stock Focus: Visible Genetics, Net2Phone Slide As Finance Stocks Aid Russell 2000
The Wall Street Journal, 11/09/01
Enron may have to sell UK assets
The Guardian, 11/09/01
Enron restates earnings as company confirms merger talks
Associated Press Newswires, 11/09/01
Beware the company that does not tell all
The Globe and Mail, 11/09/01
City - Enron crisis deepens as two top staff are fired.
The Daily Telegraph, 11/09/01

Dabhol Pwr Mtg Focus On Tata, BSES To Acquire Enron Stake
Dow Jones Energy Service, 11/09/01
Enron Meets Indian Lenders on Power Plant Stake Sale (Update3)
Bloomberg, 11/09/01

Dhabol Power Confirms Enron In Talks With BSES,Tata Power
Dow Jones Energy Service, 11/09/01
Officials try to salvage multibillion dollar Enron India project
Associated Press Newswires, 11/09/01
India: Enron reverses stand, attends Singapore meet
Business Line (The Hindu), 11/09/01
Canadian Pwr, Gas Mkts Benefiting From Enron's Woes
Dow Jones Energy Service, 11/08/01
Uncertainties Cloud View Of An Enron-Dynegy Combination
Dow Jones Energy Service, 11/08/01
Enron Earnings Drop
CNNfn: Business Unusual, 11/08/01
Enron Shareholder Derivative Suit Filed
PR Newswire, 11/08/01
Enron Curtails Activity In US Power,Gas Mkt Thu -Traders
Dow Jones Energy Service, 11/08/01
IN THE MONEY:Enron Debacle Could Push Accounting Changes
Dow Jones News Service, 11/08/01

Enron Slashes Profits Since 1997 by 20% --- Partnership Dealings Cited As Dynegy Talks Go On; Debt Ratings an Issue
By Wall Street Journal staff reporters John R. Emshwiller and Rebecca Smith in Los Angeles and Robin Sidel and Jonathan Weil in New York

11/09/2001
The Wall Street Journal
A3
(Copyright (c) 2001, Dow Jones & Company, Inc.)

Enron Corp. reduced its previously reported net income dating back to 1997 by $586 million, or 20%, mostly due to improperly accounting for its dealings with partnerships run by some company officers.
The disclosure, contained in a Securities and Exchange Commission filing, came even as the Houston energy-trading company continued its merger talks with rival Dynegy Inc. Dynegy, an independent power producer and utility owner, is looking at acquiring Enron for roughly $7 billion to $8 billion, people familiar with the talks say. However, those talks could also be influenced by whether Enron is further downgraded by major credit-ratings agencies.
The total price being discussed would equate to about $10 an Enron share, barely above where the stock is currently trading and far below the level of even two weeks ago. As of 4 p.m. in New York Stock Exchange composite trading yesterday, Enron shares were down 7.1%, or 64 cents, to $8.41, a tenth of their 52-week high of $84.875.
On the Big Board, Dynegy traded at $36.50, up $3.50. Shares of several energy-trading companies were up yesterday following a directive from federal regulators that the California state government pay an estimated $1.6 billion for past power purchases.
In yesterday's SEC filing, Enron also made major adjustments in its reported assets, debt and shareholder equity back to 1997. For instance, for the three-month period ended Sept. 30, Enron lopped about $2.2 billion, or 19%, off shareholder equity, reducing it to a total of $9.5 billion. Previously, the company had disclosed a reduction of only $1.2 billion.
The filing also said that Enron discharged Ben Glisan, the company treasurer, and Kristina Mordaunt, the general counsel of Enron's North America unit, in connection with investments they made in one of the officer-run limited partnerships. Until yesterday, Enron had insisted that Mr. Glisan wasn't associated with the officer-run partnerships. The company wouldn't explain why the the two had been discharged, and Mr. Glisan and Ms. Mordaunt couldn't be reached to comment.
The SEC filing is the latest chapter in a crisis that has engulfed the nation's biggest energy-trading company during the past month. During that time, Enron has reported a big third-quarter loss, the replacement of its chief financial officer who ran two of the controversial partnerships, and an SEC investigation.
The SEC filing raises further questions about Enron's accounting procedures and disclosure policies. Concerns over these matters are vexing investors and analysts, including those at major credit-rating agencies. The agencies downgraded Enron debt during recent weeks and have the company on review for further downgrades.
Ralph Pellecchia, credit analyst for Fitch, said he couldn't predict what effect the SEC filing would have on Enron's credit rating, but he added that the document contained damaging disclosures. "It's bad," he said.
The Enron SEC filing also raises questions about the conduct of its outside auditor, Arthur Andersen LLP, which reviewed the company's annual financial statements and certified them as consistent with accepted accounting principals. Because of all the accounting adjustments "the audit reports covering the year-end financial statements for 1997-2000 should not be relied upon," yesterday's SEC filing said.
An Andersen spokesman called Enron's restatement announcement "an unfortunate situation" but said the accounting firm is "cooperating with the company . . . to bring resolution to these matters." He said he couldn't comment further because of client-confidentiality concerns.
Among the accounting turnabouts, Enron said it had improperly accounted for two partnerships connected to Michael
Kopper, a former managing director of the company's North America unit. The two partnerships were known as Joint Energy Development Investments LP, or JEDI, and Chewco Investments LP.
As reported, Mr. Kopper managed the general partner of Chewco, which was formed in 1997. JEDI had been formed in 1993 by Enron in partnership with the huge California Public Employees' Retirement System, or Calpers.
In 1997 Enron, which operated JEDI, bought out Calpers' interest for $383 million and immediately sold it to Chewco, according to the SEC filing. Almost all the money for Chewco's purchase came in loans from JEDI and an unnamed financial institution, whose loan was guaranteed by Enron.
By having a supposed outside party in the form of Chewco as a partner, Enron treated JEDI as an unconsolidated affiliate and kept hundreds of millions of dollars of partnership debt off its balance sheet. Enron now acknowledges that treatment was wrong and that both JEDI and Chewco should have been consolidated starting in 1997. Taking that step retroactively resulted in a $396 million reduction in net income for the years 1997 to 2000, the SEC filing said.
Mr. Kopper, who left Enron in July to run the partnerships, didn't return a phone call seeking comment. In the past, he has declined to be interviewed.
Enron also retroactively consolidated some of the results of its dealings with a partnership called LJM Cayman LP. That consolidation reduced 1999 and 2000 net income by $103 million.
LJM and a similar but much larger partnership, called LJM2 Co-Investment LP, were formed in 1999 by Enron's then-chief financial officer Andrew Fastow, who was replaced last month. The two partnerships were run by Mr. Fastow and Mr. Kopper, according to the Enron SEC filing and private partnership documents. Enron's SEC filing said the company believes that Mr. Fastow sold his interests in the LJM partnerships in July to Mr. Kopper. Mr. Fastow has declined to be interviewed.
Several analysts said they were troubled that none of the earnings restatements were directly attributed to the much larger LJM2 partnership. Some also pointed to a sentence in the SEC filing that said "it is possible" that continuing Enron reviews will "identify additional or different information concerning these matters."
As such, "there remains doubt about whether there is something else in the closet," said Brian Youngberg, energy analyst at Edward Jones in St. Louis.
The Enron SEC filing gave new information about the effect on company earnings of transactions related to the LJM partnerships. Since 1999, those transactions produced $577.8 million in pretax earnings, despite a $711 million pretax charge in this year's third quarter due to the termination of deals with several LJM2-related entities. The filing also estimated that Mr. Fastow received more than $30 million from the LJM partnerships.
--- Mea Culpa

In the midst of talks to be acquired by Dynegy, Enron details
accounting and other actions.

-- Will restate its financial results from 1997 through the third
quarter of 2001, reducing previously reported income by $586 million
and boosting previously reported debt to $628 million at the end of
2000

-- Concedes three entities run by company officials should have been
included in its consolidated financial statements, based on generally
accepted accounting principles

-- Fires Ben Glisan, managing director and treasurer, and Kristina
Mordaunt, managing director and general counsel of an Enron division

-- Establishes a special committee to review all transactions

Source: the company

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Business/Financial Desk; Section C
Does Enron Trust Its New Numbers? It Doesn't Act Like It
By FLOYD NORRIS

11/09/2001
The New York Times
Page 1, Column 2
c. 2001 New York Times Company

YOU'D be better informed if, instead of listening to what we say, you watch what we do.''
That excellent advice was not issued by Enron management, although it should have been. Instead it came more than 30 years ago from John N. Mitchell, President Richard M. Nixon's attorney general.
Enron's restatement of earnings yesterday did not go far enough to allow investors to understand all of what went on during the company's many strange transactions with related parties. It is now consolidating the results of some of its off-balance-sheet creations, though what happened in the most important ones remains a mystery.
But the restatement should, at the least, cause investors and Wall Street analysts to realize they have been fooled by so-called pro forma earnings, which leave out unpleasant realities and ignore accounting rules.
In January, Enron told investors its ''recurring net income,'' as it calls its pro forma number, would be $1.70 to $1.75 a share this year. The company's share price rose to $82 when that forecast was made.
Remarkably, Enron is still on course to hit that target. Yesterday's restatement raised its nine-month earnings figure by a penny, to $1.36. And yet Enron appears to be willing to sell out for about $10 a share, or less than six times its reported profits, which still appear to be growing. Why so little?
The answer may be that Enron's board knows those numbers are not reliable measures of performance. Enron's failure to disclose more about the still unconsolidated subsidiaries is an indication that the unreleased facts would not be reassuring. And Enron cannot stay in business unless customers and investors believe it is financially solid. So it is willing to sell out for a fraction of what it appeared to be worth only weeks ago. Don't call it a takeover. Takeunder would be a better term.
What set off Enron's collapse? It now appears to have been a mistake. Enron says it added $1 billion to shareholder equity in 2000 and early this year in error. The mistake did nothing to improve Enron's profits at the time, so it seems unlikely it was deliberate. Had the mistake not been made, the reduction in shareholder equity it disclosed last month would have been $200 million, not $1.2 billion. That reduction scared investors into believing that Enron's transactions with partnerships led by Andrew Fastow, its former chief financial officer, had been disastrous for the company. Now it appears they may not have been so bad.
But that fact is not very important now. Enron's new disclosures indicate that perhaps 40 percent of its reported profits in 2000 came from dealings with the Fastow partnerships. Such profits may be legal under accounting rules, but there are good reasons to doubt how real they are.
In fact, the accounting rule makers are even now pondering a question that may be important to Enron. The body charged with dealing with new accounting issues got a rush question on Oct. 23 -- the day before Enron ousted Mr. Fastow -- about the accounting on transactions at a hypothetical ''Big Energy Corporation'' where one subsidiary, a natural gas pipeline company, trades with another subsidiary, an energy trading entity. The question posed was whether a company can report profits made by one subsidiary while ignoring the losses of the other one. That company may or may not be Enron.
Such games will not work anymore, at least for Enron. It needs to be acquired because its customers are not willing to believe even its revised numbers.

Graph shows Enron share prices since Oct. 15.
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Business/Financial Desk; Section C
Surest Steps, Not the Swiftest, Are Propelling Dynegy Past Enron
By NEELA BANERJEE

11/09/2001
The New York Times
Page 5, Column 1
c. 2001 New York Times Company

The tortoise appears ready to overtake the hare.
Until they confirmed yesterday that they were in merger talks, the Enron Corporation and Dynegy Inc. were rivals within the new, rapidly evolving deregulated power industry. Each embodied a sharply different approach to making money, attracting investors and winning over regulators.
Enron thrived on risk, hurling itself into projects and businesses largely untested by others, earning along the way a reputation for innovation and the acclaim of the investors and analysts who now so angrily shun it because of its murky accounting.
Dynegy is the slower, more cautious company, the younger sibling that carefully gleaned lessons from the example set by a brasher Enron. Dynegy's steady progress has now made it strong and solvent enough to contemplate a multibillion-dollar takeover of its erstwhile competitor.
As one senior energy industry executive said, ''Enron's trying to hit more triples and home runs, while Dynegy tries for singles and doubles.''
Kenneth Lay, the Enron chairman and chief executive who built an empire from two troubled gas pipeline companies -- and whose influential friends include President Bush -- is the one who points to the bleachers. Dynegy's chairman and chief executive, Charles L. Watson, is less well known but is well respected among stock analysts. He also started small, nurturing his energy trading and generating company -- which had $33 billion in revenue for the nine months ended Sept. 30 -- from a natural gas trading concern he began in the mid-80's.
When electricity markets around the United States were deregulated, the companies followed clearly divergent paths. Utilities no longer necessarily generated power, and they and their larger industrial clients looked for good deals on the power being sold on the new wholesale markets for electricity. Enron and Dynegy traded and marketed energy. Yet Enron sold most of the power plants it owned and focused mainly on financial transactions rather than the actual physical delivery of power, a strategy that made the company a lot of money very fast.
Dynegy bought power plants instead and focused on being a reliable supplier of energy. It cashed in, too, on deregulation, but not as Enron had. It stuck to its core energy business as its archrival branched into overseas operations, retail power marketing, a water business and a broadband venture, most of which have gone badly awry.
Mr. Watson said in an interview earlier this year that a string of power plant acquisitions had kept his company diversified and balanced. ''We need a little bit everywhere,'' he said. ''Enron is a financial player, but Dynegy is more of a physical player.''
If Enron's finances grew more confusing, Dynegy seemed to offer clarity. If Enron promised a lot, analysts said, Dynegy played up its accomplishments. Enron lobbied regulators and politicians very publicly, while Dynegy kept things quiet and discreet.
''Chuck Watson is a pretty straight-talking guy,'' said Christopher R. Ellinghaus, a Williams Capital Group analyst.
Because Enron had such extravagant earnings promises to fulfill, some analysts said, it may have been tempted to hide its problems and losses with creative accounting. While Dynegy avoided such a path, no one really expects Mr. Watson to gloat about his company's new, larger stature. Enron may have been less a hare than a canary in the deregulation coal mine, and it is unclear who will take on that role now.
''Dynegy had what could be called a second-mover advantage,'' said Andre Meade, head of Commerzbank Securities' United States utility research. ''It seemed to be content to watch its larger rival up the street in Houston, Enron, go into a market. And if it was successful, Dynegy then could go in with less money and make it work.''

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Business/Financial Desk; Section C
Enron Admits to Overstating Profits by About $600 Million
By RICHARD A. OPPEL Jr. and ANDREW ROSS SORKIN

11/09/2001
The New York Times
Page 1, Column 2
c. 2001 New York Times Company

The Enron Corporation yesterday sliced more than half a billion dollars from its reported profits over the last five years, but its crosstown rival, Dynegy Inc., still appeared to be willing to acquire Enron, executives close to the merger talks said.
Worries about how bond rating agencies would react to the merger delayed announcement of the deal, the executives said. But the failure to announce a deal -- as well as the profit restatement -- caused Enron's share price to fall. And volume in its core North American natural gas and electricity trading operation plunged 20 percent as other energy-trading companies, unnerved by Enron's financial distress, steered business elsewhere.
The boards of the two companies tentatively agreed late Wednesday night to a deal in which Dynegy would acquire Enron for about $8 billion in stock, or roughly $10 a share.
The deal would include an initial $1.5 billion cash infusion from ChevronTexaco, which owns 27 percent of Dynegy, and later an additional infusion of $1 billion.
The sticking point to proceeding with the deal, according to the executives, is whether Enron's credit rating will be reduced to ''junk'' status by the major credit rating agencies in reaction to Enron's disclosures and its plan to be acquired by Dynegy.
Dynegy and Enron have provided pro forma statements of what a combined Dynegy-Enron would look like and asked Standard & Poor's and Moody's Investors Service for an ''expedited review'' of the transaction.
Dynegy and ChevronTexaco are also privately considering whether to offer a bigger cash infusion to buoy Enron's credit rating -- now just two notches from falling below investment grade -- if the agencies look askance at the current deal. The companies are hoping for a response within the next day or two, the executives said.
The executives also said Dynegy was seeking further protections that would allow it to back out of the deal if new, adverse disclosures surfaced.
Shares of Dynegy rose sharply yesterday, although it was not clear whether buyers believed that the company -- one-quarter the size of Enron, in terms of revenues -- was getting a bargain or that Enron's latest disclosures would lead to the deal's being abandoned. Dynegy rose $3.50, or 10.6 percent, to $36.50, gaining back all of the ground lost on Wednesday after news of the deal leaked. Enron shares fell 64 cents, or 7.1 percent, to $8.41. Less than a year ago, Enron traded for more than $84 a share, and the company was valued at nearly $70 billion.
In a sweeping restatement of its profits, Enron said that its actual net income for the years 1997 to 2000 was $591 million less than it had reported on its financial statements. In a filing with the S.E.C., Enron also indicated that part of last year's reported profits came from transactions with partnerships controlled by Andrew S. Fastow, who was the company's chief financial officer until he was ousted Oct. 24.
Enron said the transactions involving Mr. Fastow, which are part of the S.E.C. investigation, earned the former executive more than $30 million. The company also said it had fired its treasurer and the general counsel of one of its divisions, who both had invested in one of the partnerships.
Any deal would also face long and complex reviews by federal and state energy regulators, who would have to sort out a range of competitive issues in the still-young business of wholesale natural gas and electricity trading. Among the agencies involved would be the Federal Energy Regulatory Commission, the Federal Trade Commission and the Justice Department.
Some analysts expressed hope that Enron's financial straits would encourage regulators to clear any deal, to relieve government officials of the prospect of dealing with the potential collapse of the nation's dominant energy-trading company. Enron handles about a quarter of all power trading, and higher proportions in some important regional markets.
''If not for the dire condition of Enron today, we are not certain an Enron-Dynegy merger would be possible due to antitrust concerns,'' said Christopher R. Ellinghaus, an analyst at Williams Capital. ''However, the effective industry bailout that the merger would represent would probably lead to some leniency from the F.T.C., and would probably be looked at with some relief by the F.E.R.C.''
It was clear yesterday there would be opposition to the deal. ''If Dynegy and Enron were to get together, obviously the thing that would appeal to Dynegy would be to combine the trading function of the two entities, and that in itself would provide greater market power, not less market power,'' said Raymond Plank, chairman of the Apache Corporation, one of the largest independent natural gas producers, based in Houston.
Mr. Plank said he hoped regulators would take a critical look at any deal. ''The thing they should take a look at is the concentration of market power that has led to excessive volatility, and as a result, once again is threatening North American gas producers.''
Enron's restated profits almost wiped out its net income in 1997, and reduced it for every year since. But the changes actually raised its reported profits so far this year by $5 million.
The changes came largely from including results of two special purpose partnerships that it had treated as being independent -- companies called Jedi and Chewco, after characters in the ''Star Wars'' movies -- and of including a subsidiary of a partnership called LJM1. That partnership, and another called LJM2, were run by Mr. Fastow.
The remainder of the earnings reductions, totaling $92 million from 1997 through 2000, came from what Enron called ''prior year proposed audit adjustments and reclassifications,'' which appear to have been changes previously recommended by Arthur Andersen, Enron's auditors, but not made because the auditors were persuaded the amounts were immaterial. Details of those charges were not disclosed, and Enron said it might further alter its reporting as a special board committee continues its investigation of the partnership transactions.
''This is an unfortunate situation,'' said David Tabolt, a spokesman for Arthur Andersen, which audited Enron's books in all the years in question. ''Issues have surfaced that have caused the company to restate its financial statements and advise investors that they should not rely on Enron's financial statements or our audit reports. We are cooperating with the company and its special committee to bring resolution to these matters.''
While the restated financial statements consolidated the results of two partnerships and the LJM1 subsidiary, they did not fold the entire LJM1 partnership or the LJM2 partnership into Enron's financials. It is not clear how those partnerships performed. Nor did they include some other related entities whose Enron-guaranteed debts have aroused concern among investors.
Mr. Fastow, Enron's former chief financial officer, could not be reached for comment, his lawyer said.
Enron's downward cascade began after it reported third-quarter earnings on Oct. 16. Its share price rose 67 cents, to $33.84, that day, as the company said its ''recurring net income'' had met analyst expectations, even though write-offs led to a net loss.
In a conference call that day, Kenneth L. Lay, Enron's chairman, mentioned that the company had written down shareholder equity by $1.2 billion as it closed out its relationships with the LJM partnerships. In the following days, that figure became widely discussed as some investors concluded that the company had suffered a large loss that it was able to avoid reporting on the earnings statement.
But Enron said yesterday that reduction should have been only $200 million, with the remaining $1 billion reduction simply reversing prior errors made in 2000 and early this year.
Enron said it had set up procedures to monitor transactions with the LJM partnerships and assure they were proper. ''Whether these controls were properly implemented'' is being investigated by the special board committee, the company said. That committee has retained William McLucas, a former director of enforcement for the S.E.C., as well as accountants from Deloitte & Touche.
The company had disclosed that Mr. Fastow was involved with the LJM partnerships, but it had not reported that any other Enron officials were involved. Yesterday it said that three officers of the company, as well as another employee, had invested in an LJM1 subsidiary in March 2000. The officers were Ben Glisen, the company's treasurer; Kristina Mordaunt, the general counsel of an Enron division; and Kathy Lynn, vice president of an Enron division. The company said Ms. Lynn no longer worked for Enron and that the company was ''terminating the employment'' of the other two.
Some industry officials said yesterday that a deal with Dynegy was increasingly looking like a do-or-die prospect for Enron, as other energy-trading companies began to back away from the company and take their business to other trading companies. While Enron has a large network of natural gas pipelines and other profitable assets, by far its most valuable franchise is its energy-trading business in North America, which acts as an intermediary in more gas and electricity trades than any other company.
Yesterday, volume in that business dropped 20 percent. An Enron spokesman said company traders attributed the drop to concerns about the S.E.C. investigation and the outcome of the merger talks with Dynegy.
Enron also canceled a planned meeting with its creditors today in Houston, executives said. The agenda for the meeting had been an extension of its $3 billion credit lines, but the merger talks superseded that discussion.

Photo: Dynegy's chief executive, Charles L. Watson, is respected among stock analysts. (Associated Press)
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Dynegy Halts Talks With Enron, Awaits Credit Rating (Update1)
2001-11-09 06:48 (New York)

Dynegy Halts Talks With Enron, Awaits Credit Rating (Update1)

     (Adds European share trading in fourth paragraph.)

     Houston, Nov. 9 (Bloomberg) -- Dynegy Inc.'s plan to buy
rival energy trader Enron Corp. has stalled pending a credit
review by Moody's Investors Service, people familiar with the
talks said. Dynegy will probably walk away if Enron receives a
``junk'' credit rating, the people said.

     The proposed takeover, for about $8 billion in stock, hit a
snag because of the threat of a downgrade that would trigger a
cash crisis by forcing Enron to repay $3.3 billion of bonds early.
Moody's and Standard & Poor's are considering lowering their
ratings, which are two levels above junk.

     A rating below investment-grade would make it ``difficult if
not impossible to raise new debt and would severely hamper their
ability to trade,'' Jefferies & Co. energy analyst Paul Fremont
said. Fremont doesn't have a rating on Enron's stock or bonds.

     Enron shares slid 39 cents to $8.02 in Germany. Enron
spokesman Mark Palmer declined to comment. Dynegy spokesman John
Souza declined to comment on the possibility of a downgrade by
Moody's. Souza said talks with Enron on an acquisition were
continuing.

     Bankers are lobbying Moody's to make a quick decision so an
acquisition could proceed, according to the people. Moody's
analyst Stephen Moore cut the company's rating to ``Baa2'' on Oct.
29, the second reduction in less than two weeks.

     At that time, Moore said he would be ``tracking very closely
their wholesale volumes'' of energy trading. ``That will be the
leading indicator of where the company is going.''

                           Lower Rating

     A reduction of Enron's credit rating after the company
restated earnings to reduce net income by more than $500 million
during the past 4 1/2 years will make it tougher to maintain
trading relationships, said competitors and investors.

     Without an investment-quality rating, Enron would have to
post collateral for trades, making it more difficult to do
business, said Michael Morrell, president of the trading arm of
Allegheny Energy Inc., a Maryland utility owner. ``It would be
true for us, and I would think for many others,'' he said.

     Atlanta-based Mirant Corp., a top U.S. energy trader, has
moved most of its trades away from Enron to other exchanges, such
as the Intercontinental Exchange, a venture formed in March 2000
with other partners including BP Plc and Goldman Sachs Group Inc.,
Mirant spokesman James Peters said.

     The earnings restatement may also justify a credit downgrade,
said Donald Coxe, who manages 78,000 Enron shares as part of the
Harris Insight Equity Fund. ``This shows the company was run
scandalously,'' he said.

     Investor concern is reflected in the decline in Enron's 7.88
percent notes that mature in 2003 in the past month. The notes,
which were unchanged yesterday at 77 cents on the dollar, now
yield about 27 percent. The debt was trading near 100 last month.

                             Lawsuits

     An acquisition of Enron would make Dynegy the biggest energy
trader and a leader in managing energy needs for commercial and
small-industrial customers. The combined 2000 revenue of the two
companies is $130 billion.

     Dynegy also would inherit shareholder lawsuits over the
partnerships, and some troubled assets, including Enron's 65
percent stake in the $3 billion Dabhol Power Co. in India, owed
$64 million by India's Maharashtra state, said Commerzbank
Securities analyst Andre Meade.

     ``You buy a lot of fleas when you buy Enron,'' said Meade,
who rates Enron ``accumulate'' and owns no shares. Dynegy may be
content to hire away traders and build its own business, he said.

     ChevronTexaco Corp., which owns about 27 percent of Dynegy,
is considering adding $1.5 billion to the transaction to help
Enron.

     Dynegy shares rose $3.50 to $36.50 yesterday.

--George Stein in New York, (212) 893-3934 or at

Nov. 9, 2001, 12:30AM
Houston Chronicle
Enron adds up 4 years of errors
Energy giant restates finances to account for lost $600 million
By TOM FOWLER
Copyright 2001 Houston Chronicle
Ever have to fix an error in your checkbook when you get your monthly bank statement in the mail?
Imagine the headache Enron Corp. is facing. On Thursday, the company admitted it's found a few errors, too -- close to $600 million in mistakes spread over the past 4 1/2 years.
The energy giant said it is restating its finances as far back as 1997 to account for losses related to a number of complex partnerships, including several under investigation by the Securities and Exchange Commission. This includes a $586 million reduction in net income, an additional $2.5 billion in debt and a 77-cent reduction in earnings per share.
Enron also said it has fired a number of employees who invested directly in the partnerships and is investigating if others had improper dealings.
The announcements came on the same day the company confirmed it was in negotiations to merge with cross-street rival Dynegy Corp. Directors with both companies have been in round-the-clock meetings in recent days, hammering out a deal.
The revelations, outlined in a document Enron filed with the SEC Thursday morning, shine a bit of light onto issues that for weeks have been cloaked in shadows and out of sight of Wall Street analysts and investors.
That includes investment partnerships that led to a $1.2 billion loss for the company last quarter, as well as other deals formed by the company's former chief financial officer that may have been a conflict of interest.
The company's reluctance to share detailed information on the partnerships since they first arose last month left many to assume the worst. Enron's stock price plummeted, credit agencies slashed its ratings and trading partners began to shop their business around to competitors.
Enron chief executive Ken Lay said the release of information was aimed to calm the concerns of shareholders and federal investigators. For all practical purposes it came too late.
"At the end of the day these details give support to the fear that Enron was a financial house of cards," said John Olson, an analyst with Sanders Morris Harris. "It would make a good case study on what happens when you fly too close to the sun."
The turmoil started shortly after Oct. 16, when steep losses in Enron's third-quarter earnings drew renewed attention to a pair of investment partnerships created by former CFO Andy Fastow with the approval of the company's board of directors.
The partnerships, called LJM1 and LJM2, were formed using Enron equity and outside capital as a way to hedge against the risks involved in some of the company's new lines of business, such as Internet broadband trading and water. They were also designed to help the company grow quickly without adding too much debt to its books or diluting the value of the company's stock.
Fastow's dual roles as Enron CFO and managing director of the entities were a cause for concern for Wall Street because it would put him on both sides of some of the deals, representing both the buyers and sellers simultaneously. The company said it was careful to assure there were no conflicts of interest, but under pressure from investors Fastow resigned from those partnerships last summer.
Fastow earned as much as $30 million through his role with the partnerships, while a number of other Enron employees also invested in them personally.
Two of those employees -- Ben Glisan, a managing director and treasurer of Enron Corp., and Kristina Mordaunt, a managing director and general counsel of an Enron division -- were terminated by Enron this week. The other employees, including Fastow and executives Michael Kopper, Kathy Lynn and Anne Yeager, no longer work for Enron.
While the transactions themselves do not appear to have been illegal, the way some of them were recorded in Enron's financial statements led to the corrections.
Specifically, Enron said that special entities it created named Chewco Investments L.P. and Joint Energy Development Investments L.P. should have been consolidated back onto its books in November 1997. The LJM1 partnership should have been consolidated into the company's financial statements in 1999.
While Fastow is credited with creating the strategy behind the complex financing deals, observers say the plans were reviewed and approved by Enron's board of directors and other officers.
The results of all the deals and how they were recorded on the company's financial statements had to go through the office of Chief Accounting Officer Richard Causey and through Enron's accounting firm, Andersen.
"You couldn't slip these things by anyone," Olson said. "They're simply too big, and too many people were involved for it to go unnoticed."
Thursday's filing details some of the complex financing deals between Enron and LJM1 and LJM2.
Enron formed LJM1 and LJM2 in 1999 with infusions of its own cash and stock. Other investors, such as pension funds and banks, also invested millions of dollars more into the partnerships. These investors included Credit Suisse First Boston, Wachovia, General Electric and the Arkansas Teachers Fund, among others. Fastow was managing partner of both entities.
The idea behind LJM1 and LJM2 was for them to become sources of capital to buy assets from Enron, co-invest with Enron in certain projects and to take equity stakes in other companies to spread the risk of those businesses. Between June 1999 and September 2001 Enron and Enron-affiliated entities did 24 deals with LJM1 or LJM2 or both, ranging from buying and selling hard assets, purchasing debt or equity interests, and selling the rights to buy or sell shares of stock at certain preset prices.
While Enron provided descriptions of the many deals on Thursday, their complexity can be mind-numbing for anyone who isn't an accountant.
For example, in June 2000, LJM2 purchased fiber-optic cable from Enron that was installed yet unused for $30 million in cash and $70 million in an interest-bearing note, or IOU. LJM2 sold some of that fiber to other companies for $40 million, but since Enron helped market the fiber to those buyers it received an "agency fee" of $20.3 million.
In December 2000, LJM2 sold the remaining fiber for $113 million to a special entity that Enron created strictly for the purpose of that purchase. LJM2 then used some of the proceeds from the sale to pay off the $70 million Enron IOU.
As if the transaction weren't complicated enough, Enron then signed a contract with one of the investors of the entity that paid $113 million for the fiber to help cushion that investor from any potential losses.
The transactions were completely legal and earned LJM2 $2.4 million and reduced Enron's credit risk on the transaction by $9 million. The fact that the earnings rely so heavily on business between such closely related entities is disturbing, however.
"These intra-company transaction were totally exotic," Olson said.
Christopher Ellinghaus, an analyst with Willams Capital in New York, said the revelations have made many "very alert to the shenanigans at Enron."
"Enron just likes to be fancy," he said. "They may have been too fancy for their own good."
Bottom of Form 1

Nov. 9, 2001
Houston Chronicle
Enron, Dynegy still talking merger
Smaller energy trader's shares up; analysts see it poised to profit
By LAURA GOLDBERG
Copyright 2001 Houston Chronicle
Merger discussions between Dynegy and Enron Corp. continued Thursday as Wall Street had a mixed reaction to a possible combination of the two Houston energy traders.
Investors traded up Dynegy's shares, while several stock analysts raised questions.
Sources told the Chronicle Wednesday that the two companies were in advanced talks for the smaller Dynegy to buy out its troubled rival. A stock deal likely to be worth $7 billion to $8 billion was being discussed.
In addition, ChevronTexaco Corp., which owns about 27 percent of Dynegy, could give Enron an immediate infusion of $1.5 billion to help stabilize its finances and keep its core trading business running smoothly.
Dynegy, the people said, was offering a modest premium over Enron's stock price, but Enron had been pressing for a higher offer.
Shares in Enron closed at $9.67 Tuesday, $9.05 Wednesday and $8.41 Thursday.
Each company issued a statement Thursday saying the two were in discussions about "a possible business combination." Neither plans additional comments until a deal is struck or the talks fail.
The statements came as Enron said it is restating its finances as far back as 1997 to include losses related to a number of complex partnerships it created, including several being investigated by federal securities regulators.
Enron has been under heavy fire since Oct. 16, when it released third-quarter earnings that included losses related to two investment partnerships formerly run by its since-replaced chief financial officer.
Carol Coale, an analyst with Prudential Securities in Houston, is to meet with top Dynegy executives today.
She has a number of questions about a possible merger, including why Dynegy wants to buy Enron when its best resource, its people, could cross the street and turn in r?sum?s.
She also wonders why Ken Lay, Enron's chairman and chief executive, is apparently willing to sell Enron at such a low price.
"What does he know that we don't know?" Coale asked.
But Coale also got the sense Dynegy executives are doing their homework and moving with caution, which she said is positive.
A Dynegy buyout of Enron has the potential to be "highly accretive" to Dynegy's bottom line depending on the price paid, said Ronald Barone, an analyst at UBS Warburg in New York.
"The new company would be a global powerhouse," he said. "There are significant synergies that can be realized to enhance value."
Shares in Dynegy closed up $3.50 Thursday to $36.50.
Investors liked two opposite prospects, said Jeff Dietert, an analyst with Simmons & Co. International in Houston.
On the one hand, investors see potential for Dynegy to add profits by buying Enron, he said. But if no deal happens, they also see a chance for Dynegy to take business away from a weakened Enron.
He expects any deal Dynegy signs to give it an escape if the Securities and Exchange Commission should conclude Enron acted illegally.
Government regulators would have to review a merger, looking to see if too much market concentration would result.
With a merger, Dynegy would increase its trading and marketing share in the North American natural gas market from about 6 percent to about 21 percent, said John Olson, an analyst with Sanders Harris Morris in Houston.
For electricity, Dynegy's numbers would go from about 6 percent to about 23 percent, he said.
Andre Meade, an analyst with Commerzbank Securities in New York, doesn't believe regulators would find a market concentration problem.
"It's a pretty fractionalized industry with plenty of competition," he said.
Meade called an Enron-Dynegy merger "a mixed bag," as it would let Dynegy cut costs and lead the energy trading market.
"However, I don't think it's as easy as it sounds," he said, adding that a successful merger would take the correct incentives to convince Enron's traders to work for the new company.
"Whenever you merge with or buy a human-capital-based business, it's risky."
Bottom of Form 1

A new energy crisis: If master market maker Enron goes down, this winter could be a truly chilling experience for North Americans.(Enron Corp. in danger of defaulting)(Brief Article)
DONALD COXE

11/12/2001
Maclean's
33
Copyright 2001 Gale Group Inc. All rights reserved. COPYRIGHT 2001 Maclean Hunter Canadian Publishing Ltd.

Do the sustained bear raids on Enron Corp. portend chaotic conditions in the energy markets? That is the $64-billion question. Bearish stock markets are the indispensable scavengers of capitalism. They clean up the financial and economic landscape and kill off disease-carrying pests. True believers in free markets should rejoice when bears rush in after a prolonged period of misbehaviour has fouled the financial environment.
Those of us who thought the energy industry would escape the great technology bear market may have been too complacent. In recent weeks, the biggest loser on the New York Stock Exchange has not been a tech stock, but Enron, a component of the Dow Jones utilities index. Enron's high was $89.06 a share, and as recently as August it was trading at $45. In recent weeks, Enron's shares have plunged, closing last week below $12.33 That collapse has sent shock waves through the capital markets. What may be even more significant for energy producers and users is the valuation of Enron's bonds: they are trading at distressed prices, offering yields comparable to junk bonds. The ratings services have turned highly negative on Enron, although they still rate it an investment-grade credit.
(I regret -- oh how I regret! -- that I must disclose before proceeding further that investment funds I manage have, at this writing, exposure to Enron stock, acquired at prices substantially above current markets.)
For Canadians unfamiliar with Enron and its place in U.S. energy markets, here is an introduction: Voltaire summed up the entire 18th- century deistic proof of the existence of God by saying, "If God did not exist, it would be necessary to invent him." It's the same with Enron. U.S. energy markets needed a prime mover. Prior to Enron, these markets (other than crude oil) were relatively primitive and inefficient. Neither producers nor consumers had means to hedge their risks effectively, and long-term contracts were made -- if at all -- under circumstances of grossly inadequate information.
The futures market for natural gas was spotty and unreliable, and no futures market for electricity existed. Enter Enron. In the past half- dozen years, Enron became the greatest trading house for energy in the world. Its willingness to make markets in energy futures in almost any amount transformed the markets for electric power and gave natural gas producers and consumers reliable hedging and financing opportunities, day in, day out.
By putting its own capital on the line to make trades, Enron created depth, liquidity and transparency in energy markets. So active were those markets that they gave price signals to all who would follow them. Conspicuous among those who didn't were the policy-makers in California. Had Gov. Gray Davis and his top officials followed the developments in electricity futures, they would have realized the real nature of the risks facing consumers in the Golden State. Instead, they let a crisis develop, and then locked in long-term purchase contracts at all-time record-high prices just before they collapsed to normal levels.
By some estimates, Enron is on one side or the other of 25 per cent of all outstanding futures contracts in natural gas and electricity. Since these contracts extend years ahead, and since the other parties to those trades are relying on Enron's ability to cover its obligations, the risks to energy prices and supplies could be enormous if Enron were to default.
That still seems extremely improbable. Contracts executed through the public futures markets have the financial protection of those exchanges for Enron's "counterparties" (the term for the other side of a futures contract). But Enron has enormous exposure through direct deals that have no such protection.
What has hammered Enron's securities lately is the unfolding story of gigantic off-balance-sheet deals the company made with partnerships that included, astonishingly enough, the chief financial officer, who was finally forced to go on leave. These partnership deals were never really disclosed, except in obscure balance sheet notes that gave no indication of the scale of the deals or that a senior company officer was involved.
Why should investors who aren't owners of Enron stock or bonds care? Because the past year has seen the biggest swings in natural gas and electricity prices in history, and some observers wonder whether Enron's internal problems exacerbated those swings. Worse, if Enron has to withdraw from the markets, what about the billions in forward hedging contracts that producers and consumers have in place? Many U.S. energy producers locked in high prices by making huge forward sales. If those contracts are voided, defaults could spread through the system, throwing energy markets into chaos.
There were enough problems in the energy-short U.S. even when Enron was keeping the markets functioning. If the master market maker goes down, or is forced to curtail its operations, this winter could be a truly chilling experience for North Americans. When Bush and Cheney aren't worrying about bin Laden or anthrax, they may be worrying about Enron.
Donald Coxe is chairman of Harris Investment Management in Chicago and Toronto-based Jones Heward Investments.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

ENRON IN CRISIS - Restated figures show how earnings were cut.
By ROBERT CLOW.

11/09/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

ENRON IN CRISIS - Restated figures show how earnings were cut - SEC FILING - Energy trading group admits that several of its special-purpose entities should have been consolidated on the balance sheet.
Enron yesterday marked four years of earnings down sharply after taking account of off-balance-sheet dealings.
The company admitted that several of its off-balance-sheet, special-purpose entities should have been consolidated on its balance sheet.
The effect of the change was to reduce earnings substantially in each year from 1997 to 2000; from $105m to $9m in 1997, from $703m to $590m in 1998, from $893m to $643m in 1999 and from $979m to $847m in 2000.
This year's earnings were marginally increased but the company's third-quarter loss widened marginally from $618m to $635m.
In the Securities and Exchange Commission filing, Enron also announced the dismissal of two more officials: Ben Glisan, the company's treasurer, and Kristina Mordaunt, general counsel for one division.
Enron ran into trouble on October 16, when it announced a $1.2bn reduction of shareholders' equity and a $1.01bn charge.
Yesterday's filing goes some way to explaining how the charge came about. Enron attributed the charge to dealings with LJM, a private equity fund run by Andrew Fastow, formerly Enron chief financial officer.
Private equity investments have injected enormous volatility into the earnings of companies, such as JP Morgan Chase. Keeping LJM off the balance sheet allowed Enron to avoid major swings. But to prevent LJM being consolidated, Enron had to own less than half of the special-purpose vehicle, and for outside investors to participate they had to be compensated.
What that meant was that when the value of Enron's private equity investments fell below a certain level, people familiar with Enron's balance sheet said, co-investors would receive Enron stock.
The Enron filing reveals that the LJM losses arose from another group of special-purpose entities, known as the Raptor vehicles, which were designed in part to hedge an Enron investment in a bankrupt broadband company, Rhythm NetConnections.
The $1.2bn reduction in shareholders' equity arose from the termination of the Raptor hedging arrangements, which if they had continued would have resulted in Enron issuing 58m shares to offset the company's private equity losses.
Enron also revealed that Mr Fastow was paid in excess of $30m as a result of his role in running LJM.
At issue is whether Mr Fastow was acting in the best interests of other Enron shareholders.
The filing also raises questions about Enron's cash flow, which will be studied carefully by the rating agencies and creditors.
A group of banks, including Barclays Bank, Credit Suisse First Boston, Deutsche Bank, JP Morgan Chase and Citigroup, have lent more than $4bn to Enron over the last weeks, much of it not collateralised.
By reducing its earnings by more than $100m for several years, Enron has created concern about its ability to service debt. On the balance sheet, Enron owes $12.8bn. Off-balance-sheet entities related to Enron owe $8bn-$9bn. Enron generates about $3bn cashflow annually, but despite claiming to be cashflow-positive, its borrowings rose significantly last year.
(c) Copyright Financial Times Ltd. All rights reserved.
http://www.ft.com.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

The Five Dumbest Things on Wall Street This Week
By K.C. Swanson <mailto:kcswanson@thestreet.com>
Staff Reporter
TheStreet.com
11/09/2001 07:09 AM EST
URL: <http://www.thestreet.com/markets/dumbest/10003700.html>

1. Mangia, Mangia! Er -- Scratch That
The Securities and Exchange Commission has suspended trading in 2DoTrade (TDOT.OB:OTC BB - news - commentary) , doubting the company's claim that it is prepared to distribute a disinfectant for anthrax. No wonder the agency is skeptical: Biotechnology seems a bit far afield from 2DoTrade's goal of developing a business-to-business platform for the African continent.
It's even farther removed from the company's original mission: According to a report filed with the SEC, it wanted to start a chain of full-service, white-tablecloth Italian restaurants "based on authentic Italian regional recipes." That plan was abandoned last spring.
In the meantime, it still has no revenue. 2DoTrade says it has cumulative losses of $29,000 because it's still in the development stage. A report on its Web site suggests the stock is "an exceptional ground-floor opportunity [for the] investor with vision." But the SEC has publicly questioned the company's prospects, the existence of its alleged contracts, and the identity of its managers.
2. Treasury Department At It Again
Chalk up one more blunder for the Treasury Department. In the current fiasco, the SEC has said it's investigating the early release of news that the Treasury Department would stop selling 30-year bonds.
The Treasury apparently screwed up on two counts: Not only did it allow the news to leak out early through a third party (a consultant who attended a department briefing without press credentials), but it also posted the information on its own Web site before it was publicly announced. So it can't simply blame the premature disclosure on someone else's bad judgment.
Disclosure of the mistake is sure to further annoy bond traders, who were already piqued that the government had given no hint at the policy shift. According to press reports, many bond trading desks suffered big losses because they were caught unawares.
3. It Doth Protest Too Much
Hewlett-Packard's (HWP:NYSE - news - commentary) affirmation of "enthusiastic support" this week for the merger with Compaq (CPQ:NYSE - news - commentary) rings a bit hollow, given that H-P's stock has seen double-digit losses since the merger was announced.
The board's recent frozen-smile commentary came on news that some of the company's most influential investors, members of the Hewlett and Packard families, oppose the deal and will vote against the merger if given the chance. The move by H-P heirs was all the more damaging because they control a large chunk of stock: According to press reports, the Hewletts own over 5%, while an institute affiliated with the Packard family holds more than 1%.
Even before the family members weighed in, investor disapproval of the merger was manifest. As TSC has reported, stocks of both companies have dropped sharply after the deal was announced, slicing $6 billion off the deal's initial value of $25 billion.
But after news that the Hewlett family would oppose the deal, cheered investors bid up H-P 17% in just one day.
It's not often that the board of a company and its investors are at loggerheads -- and regarding the board's mood, we're reckoning panic might be more accurate than enthusiasm.
4. NYSE Lagging In Surveillance
Two years after the NYSE was embroiled in an illegal trading scandal, oversight of floor brokers is still too lax, according to government regulators.
Their report, released to members of a congressional committee in September, was made public this week. It says the Big Board has made "significant progress" in regulating brokers, but deficiencies remain: Among other things, the NYSE needs to improve surveillance of floor members, ensuring that regulators are on the trading floor to watch for potential violations.
In 1999, nine brokers pleaded guilty to criminal charges related to schemes in which they took a share of trading profits. At least 64 brokers took part in profit-sharing arrangements until 1998, according to the SEC.
No doubt the NYSE's regulatory improvements are commendable -- just hope it doesn't take another two years for the exchange to get its practices completely up to par.
5. Enron, Once Again
Enron (ENE:NYSE - news - commentary) to shareholders: "Heyyyyyy, guys? You know all those financial statements we've been giving you for the last five years? Uhh ... they were totally wrong. Sorry."
Yes, just when it seems Enron has exhausted its considerable reserves of dumb things, the company surprises and produces yet another. This time Enron announced it would restate earnings from 1997 through the second quarter of 2001. "Financial statements for these periods ... should not be relied upon," the company said, in a statement likely to obliterate any lingering vestiges of credibility.
The adjustments to its financial statements reduced profits over the period by a total of over a half-billion dollars, while the accounting changes magically produced an additional $2.59 billion in debt.
The announcement comes amid reports that Dynegy (DYN:NYSE - news - commentary) is in talks to buy Enron. With Enron's stock down about 90% from a year ago, at least it's likely to be cheap -- though it would be a stretch to call it a bargain under these circumstances.

GLOBAL INVESTING - Shareholder-friendly companies outperform STUDY FINDS GIVING MORE POWER TO INVESTORS ...
By ALISON BEARD.

11/09/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

GLOBAL INVESTING - Shareholder-friendly companies outperform STUDY FINDS GIVING MORE POWER TO INVESTORS HAS PRODUCED BETTER RETURNS THAN PROTECTING MANAGEMENT.
Companies that protected management rights with poison pills, classified boards and other anti-takeover tools significantly underperformed businesses that gave more power to shareholders through the 1990s, according to a new study.
A survey of 1,500 companies found that those with the most pro-management provisions generated annual returns that were 8.5 per cent less than companies that favoured outside investors.
"There are broad variations across companies as to whether they are democracies or dictatorships," said Andrew Metrick, a finance professor at the Wharton School of Business, who wrote the study with Paul Gompers and Joy Ishii of Harvard University. "What we found was that the democracies did better."
After the takeover craze of the 1980s, companies scrambled to enact provisions that would help executives defend against corporate raiders.
Typical provisions included poison pills, which allow all pro-management shareholders to buy stock at discounts during takeover attempts diluting the power of the hostile bidder; super-majority votes, which require from 66 to 85 per cent approval for a management change rather than a majority; golden parachutes, which give large compensation packages to executives who are fired or demoted; and classified boards, whereby board members' terms are staggered, preventing them from all being ousted at the same time.
The stock market downturn and well publicised cases of corporate mismanagement, including this month's Enron controversy, have made investors increasingly wary of such pro-management stances.
Last week, California Public Employees Retirement System, the largest US pension fund, won its fight to declassify the board of Metromedia International Group, the emerging markets communications company.
This week the fund is discussing Enron. Other investors in the energy merchant have already filed law suits against company officials, alleging fraud and seeking to recover their lost share value, estimated at $20bn over the last month.
Hewlett-Packard shareholders were also asserting their rights this week. The Hewlett family, which still holds a 5 per cent stake in the computer company, announced it would oppose management's plan to merge with Compaq.
Mr Metrick's study lists HP as one of the most shareholder-friendly companies in 1990 among the 1,500 he evaluated. Companies were given one point for every by-law that reduced shareholder rights. Aside from HP, those with the lowest scores - or highest level of shareholder power - were IBM, Wal-Mart, DuPont, PepsiCo, American International Group, Southern Company, Berkshire Hathaway, Commonwealth Edison, and Texas Utilities.
The companies with the highest - or most pro-management - scores in 1990 included GTE, Waste Management, General Re, The Limited, NCR, Kmart, United Telecommunications, Time Warner, Rorer and Woolworth.
From 1990 to 1999, the first group outperformed the Standard & Poor's 500 by 3.5 percentage points each year from 1990 to 1999, the second group trailed the index by about 5 points. An investor who bought the pro-shareholder stocks and sold short the pro-management stocks could have captured that 8.5 per cent difference.
The study also found that the pro-management companies had lower sales growth and less profits than other firms in their industry.
However, Mr Metrick stresses that the findings do not prove causation. Strong management provisions do not necessarily undermine stock performance, nor do shareholder rights always lead to better returns.
"What we do know is that companies that gave shareholders rights did better than those that didn't in the 1990s ... so maybe if the companies that don't give shareholder rights gave them, their stock would do a lot better going forward," he said. "Maybe investors should be looking for that change. But that is the question the paper doesn't answer."
(c) Copyright Financial Times Ltd. All rights reserved.
http://www.ft.com.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

GLOBAL INVESTING - Putting a value on a group under siege.
By JOHN DIZARD.

11/09/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

Risk arbitrageurs, the people who bet on the price and likelihood of mergers and acquisitions taking place, need nerves of bomb disposal experts. They need to know more than the public about deals and potential deals that usually attract a lot of interest from the media and other analysts, which means getting an edge is harder than with non-deal stocks.
The planned acquisition of Enron by Dynegy is a case in point. The deal is "subject to" the usual conditions - the SEC, antitrust authorities and, of course, the due diligence work on the valuation of the underlying assets and businesses. But buying Enron stock in the hope that the valuation will turn out to be above the present price may be a slightly ambitious strategy for even the most well informed investors.
The book value of the company is supposed to be about $11bn, which would be a couple of bucks higher than the current stock price. And the ultimate purchase price should - repeat, should, not must - be above that book value. However, in any company where the financial managers of a week ago are not only on the street but under invest-igation, you have to wonder if a "take-under" at a low stock price is a possibility.
Nevertheless, all the panic had spread from the febrile world of equities to the normally less excitable one of bonds, which has created a much lower risk opp-ortunity. For example, the Enron 7 7/8 per cent bonds of 2003 were trading yesterday with bids in the high 60s and offers in the low 70s. That represents a yield to maturity of 22 per cent - not bad for 18-month paper.
The question of the underlying value in Enron comes down to two risks: the contingent liabilities from the widely discussed off-balance-sheet vehicles that it used to swap assets for financings, and the safety of the trading accounts. The off-balance-sheet companies have already been combed over and their effects on the parent balance sheet restated, with the results reported yesterday. The contingent commitments do not affect the value of the assets backing Enron's debt.
Analysing the trading books is more problematic. Rating agencies have not looked at the specific transactions that make them up; rather they have depended on ensuring that Enron's risk managers are capable and organisationally independent of the traders they supervise. The agencies also looked over the risk management and valuation methodology and have found that it is the standard package for trading firms.
The problem is that Enron's business is not the standard trading business. All conventional methodology, such as the various value-at-risk systems, or JP Morgan's Riskmetrics, assumes liquid, continuous markets, where it is possible to measure historic price volatility and implied price volatility. But the over-the-counter gas and electricity markets that are Enron's core business involve long-term contracts, lumpy regional sub-markets, and unstable volatility measures. As one top Wall Street derivatives manager says "These require scenario analyses rather than VAR."
The valuation problem is complicated by Enron's gigantic market share, far larger than the largest institutions have in the government bond, currency, or exchange traded commodities markets.
Even so, it is likely that Enron's long and short positions do balance, as the company says, even though the revenue recognition and profitability may need tuning. The company's earnings and balance sheet restatement was reassuring, in that there was no restatement of the balance sheet or income statement in the trading business. Dynegy's due diligence team and the Arthur Anderson auditors working on Enron's books know they had better get it right.
If Dynegy had announced a package of asset purchases rather than a stock deal, you could have wondered whether they saw value in Enron as a going concern. That means keeping the trading business going, although probably running it more carefully and transparently. Also, this is probably a "once in a corporate lifetime" opportunity to put together a merger of such large companies with the likely quick approval of antitrust regulators. There was no chance that the Federal Reserve or any other government entity would or could step in to assume responsibility for liquidity in the traded energy markets. The Fed's giving a pass on antitrust considerations is a low-cost way to head off any problem.
And Enron's pipelines, gas storage business, power plants, liquefied natural gas facilities, and other physical assets would be difficult to duplicate. They would sell for a significant premium to the book value on which the bondholders have first call.
So Enron's $13bn of debt is most likely a good buy, and you are getting it at close to bankruptcy prices. It is probably a good idea to leave the bet on the takeover price of the equity to the professional risk arbs.
(c) Copyright Financial Times Ltd. All rights reserved.
http://www.ft.com.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

ENRON IN CRISIS - Lure of number-one spot sparks interest.
By JULIE EARLE and ANDREW EDGECLIFFE-JOHNSON.

11/09/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

Dynegy's interest in Enron was no doubt sparked by the chance to steal its Houston-based neighbour's position as the number-one natural gas and power marketer in the US.
"The potential is staggering. If the companies combined, they would create a $21bn behemoth in the energy sector with unparallelled energy-marketing skills and financial resources," says Christopher Ellinghaus, an analyst at Williams Capital Group.
Dynegy's gas business is currently less than half the size of Enron's, and also trails Duke and Mirant. It is only one-eighth as big as Enron in power trading, where AEP, Mirant, Duke, El Paso and Reliant also hold big positions.
Like Enron, Dynegy has been a market favourite, exploiting growth opportunities in the unregulated and rapidly developing wholesale natural gas and electricity markets in the US.
It has also been looking to expand its wholesale operations well beyond a UK presence.
Dynegy's online trading platform, DynegyDirect - which helped raise the company's recent third-quarter earnings 22 per cent to $286m - is seen as a good fit with Enron OnLine. The two platforms allow customers to buy wholesale gas liquids at the click of a mouse.
There are other links. Chuck Watson, Dynegy chief executive, is a friend of Jeff Skilling, who quit as Enron chief executive officer in August. Dynegy is also an important trading partner for Enron, demonstrated by the fact that Enron has helped bail out its new suitor in the past from potential trading losses.
That counterparty relationship may give Dynegy a powerful incentive to preserve Enron in order to maintain stability in the energy markets. Analysts say there would be a big shake-up in the energy markets were Enron to fail, although some say the volatility may be only short term. A takeover would not be the only way for rivals such as Dynegy to capitalise on Enron's weakness, however. Dynegy, El Paso and Duke Energy are already assessing potential opportunities to pick up Enron's share of the market should it disappear. Many are trading partners with Enron, and some, like Aquila, have been reducing their exposure as counterparties as the Enron crisis deepens.
However, any Dynegy takeover of Enron would invite close regulatory scrutiny. Most analysts believe a deal could be done, but approval could take more than a year due to market issues and the complexity of the two companies.
Some analysts said a deal might be perceived as a necessary bail-out for the trading industry, and therefore welcomed by the Federal Trade Commission and the Federal Energy Regulatory Commission.
Others, however, raised serious concerns about the prospect of a bid by Dynegy. Although Dynegy had told investors it was ready to make large acquisitions or mergers in the US and overseas, they had not expected such a transforming deal. Mr Watson told analysts in October that he was considering deals which could add generation assets, gas pipeline and storage infrastructure, entire utilities and communication assets.
Carol Coale, an analyst at Prudential Securities, says there would be other concerns surrounding any deal with Enron.
"Strategically and culturally, the companies do not fit well together," she says, adding that Enron has been moving to offload units while Dynegy has preferred to hang on to assets.
Carol Levenson at Gimme Credit.com, an independent provider of credit research, says Dynegy would be taking "a big risk" to its credit ratings by even being associated with Enron's liabilities: "Dynegy is utterly dependent on its credit ratings and the confidence of the market and its trading partners to do business profitably."
Analysts took some comfort, however, in the possible involvement of the newly merged ChevronTexaco, which owns a 27 per cent stake in Dynegy. Additional reporting by Andrew Edgecliffe-Johnson.
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ENRON IN CRISIS - Rivals steady the Enron ship.
By JOHN LABATE and SHEILA MCNULTY.

11/09/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

ENRON IN CRISIS - Rivals steady the Enron ship - COMPETITORS - Fears over price and disruption lay behind caution.
Enron's competitors refrained from taking advantage of its weakness to steal its business after the leading US energy trader started to come under pressure last month.
Enron acts as principal in 25 per cent of trades in those markets. It also delivers commodities - and financial and risk management services worldwide - while operating the largest web-based transaction system.
"A lot of entities have dealt with them for a long time and have a lot of exposure to them," says Philip Kassin of PwC Consulting. "Any major negative consequence to Enron would affect both physical commodities prices for electricity and gas as well as have a negative affect on financial energy products."
Enron's demise would not only hurt the thousands with exposure to the group through its trading operations; it would also would have a spill-over effect on other energy traders if investors backed away from the entire sector.
The 50 to 100 large counter-parties that do business with Enron daily could continue to trade without the market's biggest participant and even its trading platform; telephone trading remains a substantial part of the business. But without Enron, a liquidity crisis would probably ensue, disrupting energy markets and undermining business for many of its competitors.
"There's a fair amount of incentive for counter-parties to hang in there and not contribute directly into pushing (Enron) over the brink," says Christine Uspenski, energy analyst at Schwab Capital Markets.
So the majority has chosen stability over a bigger share of what would surely become a riskier market. They have continued to do business with Enron on much the same terms they had before October 16, when Enron disclosed a surprise balance sheet adjustment that brought to the fore long-simmering questions about its transparency.
Analysts had long advised investors to look past those questions. After all, with the launch of Enron's online platform in 1999, trading volumes had soared as the number of products traded over the internet grew to almost 2,000, ranging from weather derivatives to coal. Enron's revenue more than doubled to $101bn from 1999 to 2000.
Many admitted they were unsure how Enron made its money. Not only had the company so dramatically transformed itself from a traditional pipeline company but it had moved increasingly into unsupervised areas that made it harder to scrutinise Enron's finances.
"It became a new age holding company," says Paul Kedrosky, who teaches strategy and corporate governance at the University of British Columbia. "As long as the company performed, people were willing to forgive what was obviously horrific disclosure."
Those people included not only share market investors but also those in the business of buying and selling energy commodities. They needed goods and Enron delivered more natural gas and electricity than anyone else, often at better prices. It was the first stop for utilities who lacked sufficient generation facilities to keep the lights on for their customers.
They would go to the open market and purchase electricity, much of the time from Enron. Those that use natural gas to power their generation facilities obtained that through the open market as well. Many have locked themselves into long-term contracts with Enron that they cannot get out of - and they would be the ones with most to lose if Enron went under.
But those who were originally most spooked by the prospect of business without Enron - the energy traders - seem to have accepted the reality that Enron will most likely never dominate the markets as it had in the past.
Analysts and traders say the trading markets themselves have remained stable throughout Enron's troubles even as the risk of uncertainty has increased. "No one knows their positions or how they're hedged in the market, or how they might have to cover their positions," one energy trader said yesterday.
Even though Enron had been hailed as the innovator in building these markets to their current state of sophistication, it has been forced over the past few weeks to act increasingly like a newcomer.
However, analysts say some of Enron's partners in the US and Europe are demanding Enron provide evidence of the availability of cash or security that can be called on quickly.
Enron's main competitors are now able offer better prices, and - while still not openly seeking to undermine Enron - are undercutting its business as they report new customers and higher volumes. But, so far, no major counter-party has changed its terms with the company. "Out of respect for Enron's presence, my sense is the industry has tried to give them the benefit of the doubt to see if they can resolve this situation," says Michael Zimmer, of law firm Baker & McKenzie. See Lex.
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FRONT PAGE - COMPANIES & MARKETS - Enron rescue deal talks drag on.
By OUR FINANCIAL STAFF.

11/09/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

FRONT PAGE - COMPANIES & MARKETS - Enron rescue deal talks drag on - US energy group forced to restate accounts since 1997.
Enron, the US energy group, was yesterday forced to restate its accounts since 1997 as it scrambled to prevent its confidence crisis turning into financial meltdown.
Expectations of an early announcement of a rescue deal between Enron and Dynegy, a rival group, were dashed as talks dragged on through yesterday morning in Houston.
Enron said it was terminating the employment of its treasurer and the general counsel of one of its divisions, both of whom, it said, were involved in limited partnerships that conducted off-balance-sheet deals with Enron.
Enron, a stock market star until this year, is fighting to restore the confidence of investors, creditors, customers and regulators following last month's ill-explained decision to reduce shareholder equity by $1.2bn ( #820m) to meet off-balance-sheet obligations.
It tried to clarify the situation yesterday by laying out the accounting basis for the shareholder equity reduction and providing more information about the limited partnerships formed by Andy Fastow, Enron's former chief financial officer.
Enron said it believed Mr Fastow, who was replaced last month, had received "in excess of $30m" relating to his management and investment activities in the partnerships.
The group said it and its auditors had also decided some off-balance entities should have been included in its prior financial statements.
"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 (Securities and Exchange Commission) about these matters," said Ken Lay, Enron's chairman and chief executive, yesterday, adding that the group would continue to respond to investors' requests for information.
The group's banks, due to meet today, want to secure $3.3bn in unsecured credit lines drawn down in the past month. But they may not be able to renegotiate the terms unless Enron's situation worsens sufficiently to trigger a default. JP Morgan Chase and Citigroup, which have made $1bn in secured loans to Enron, are also understood to want to syndicate them to spread the risk, as nervousness increases.
In a regulatory filing, Enron said it had restated accounts from 1997 to the third quarter of this year, leading to an increase of $628m in debt for the year 2000, and changes in net income up to the third quarter of this year.
Enron's stock fell a further 5 per cent in morning trading - to $8.61 - and stands at barely a tenth of its level at the end of last year. The group's bonds rose only 4 points to 78 cents in the dollar reflecting scepticism about a rescue deal with Dynegy. Lex, Page 22 Enron in crisis, Page 27.
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LEX COLUMN - Enron.

11/09/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

Enron
Enron has provided the Securities and Exchange Commission with some more detail on concerns it had raised over the last three weeks, while the stock has declined 70 per cent. The $1.2bn equity charge relates to losses in LJM, the off-balance sheet private equity fund run by Andrew Fastow, its former chief financial officer. These, in turn, arise from a group of special purpose entities that LJM used to hedge risk associated with Enron's investment in a bankrupt broadband company. The charges resulted when the hedges were closed. All clear, then?
What emerges from the filing is an off-balance sheet mess of interlinking financing vehicles. The difficulty in unravelling it might be part of the reason why JP Morgan Chase and Salomon Smith Barney insisted that their last loan should be secured with assets. No doubt other lenders would like similar security. More clearly, Enron admits that three unconsolidated entities should have been consolidated. That means the earnings statements over the last five years were worthless. Enron has now reduced net income by a cumulative $600m for 1997-2000, not the kind of thing that reassures ratings agencies. Mr Fastow's resignation will leave him with more time to spend with the $30m he received for running the LJM partnerships.
It is hardly surprising that talks with Dynegy about a capital injection have dragged on. Would it really be wise for Dynegy to take on risk that remains very hard to assess and to put its own debt rating in jeopardy? Enron might look cheap, but the stock has collapsed for good reason.
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Financial
Enron Says Profit Was Overstated; Troubled Energy Firm Fires 2 More Officials
Peter Behr
Washington Post Staff Writer

11/09/2001
The Washington Post
FINAL
E01
Copyright 2001, The Washington Post Co. All Rights Reserved

Energy trading giant Enron Corp. disclosed yesterday that it had overstated its earnings by $567 million since 1997, and it fired two more company officials as questions continued to be raised over how much further the company's free fall may go.
Enron's stock has plummeted and energy companies have avoided doing business with it since Enron disclosed last month that its obligations to several partnerships involving company officials had reduced its shareholders' equity by $1.2 billion. Enron is facing a cash crunch, analysts said. Its credit rating has been slashed and if it falls to junk-bond status, the company would have to make accelerated payments on $3.4 billion in debt held by the partnerships.
As Enron made its disclosures yesterday, Dynegy Inc., Enron's smaller Houston-based competitor, continued to study a possible $8 billion acquisition of Enron.
A rescue by Dynegy and ChevronTexaco Corp., a major Dynegy shareholder, could provide Enron with $1.2 billion in cash, according to sources familiar with the negotiations. Dynegy also would take on $12.8 billion in Enron debt, the sources said.
Enron, the nation's largest trader of electric power and natural gas, said earnings from 1997 through the first six months of this year should have totaled $2.9 billion, not the $3.5 billion that it had declared. Enron blamed the reduction on investment losses in private partnerships that it says were not properly accounted for.
It also fired Treasurer Ben Glisan and a division general counsel, saying it believed they had made personal investments in some of these partnerships, whose activities have led to conflict of interest accusations by shareholders against senior Enron officials and board members.
The new disclosures were made to the Securities and Exchange Commission, which is investigating the partnerships. They also were published on Enron's Web site.
The firings follow Enron's dismissal of Chief Financial Officer Andrew Fastow, who until July had also directed some of the largest of these partnerships with the approval of Enron's board. Enron said Fastow made more than $30 million from two of these partnerships.
Using capital from Enron and private investors, the partnerships purchased power plants and other assets from Enron with the intention of selling them, a key to Enron's corporate strategy of concentrating on trading energy rather than producing it.
Dynegy confirmed yesterday that it was in talks with Enron about an acquisition, but did not comment further. Industry analysts believe that Dynegy is driving a hard bargain, seeking protection against the possibility of further disclosures of financial problems by Enron, and against the growing number of lawsuits by Enron shareholders. Dynegy "has the chips," said Brian Youngberg, an analyst with Edward Jones in St. Louis.
Another possible outcome could be a major investment in Enron by Dynegy and potentially other energy companies, if the right collateral can be found, sources said.
One question is whether a Dynegy acquisition of Enron would face a drawn-out regulatory and antitrust review that could block Enron's chances of recovering.
"Dynegy and Enron together are two of the biggest players in the trading space. It's a great concentration of power," said Raymond Plank, chairman of Apache Corp., a Houston natural gas producer. "We don't see any advantage to that."
If the Dynegy deal is approved, the purchase price would come to just over $10 per share, based on current market values. In August 2000, Enron's stock hit $90 a share, but the price fell steadily from that peak and has plummeted in the weeks since the losses from its partnership deals were disclosed. Enron's stock closed yesterday at $8.41, down 64 cents.
Enron handles about one-quarter of all energy trades, quoting prices and buying and selling commodities. While some of these transactions set the price of oil, natural gas, electricity other energy products, far more commonly the trades are financial deals between traders speculating on energy prices, or companies seeking insurance to limit the costs of energy purchases.
Energy companies and trading firms are working to reduce their vulnerability if Enron were to fail.
"The inability to quantify possible risks is causing people to stay at arms length from Enron now," said Louis B. Gagliardi, an analyst with John S. Herold Inc.
Plank said traders "have been trying to neutralize their books to the impact of a potential failure on Enron's part. We were able to get out of almost every trade [involving Enron]. "Not everyone has been able to do it." But Plank said energy markets are large enough to handle shocks.
"Markets would be pretty volatile in natural gas, power and oil" if Enron had to pull back from trading, Gagliardi said. "But we'd get back to normal pretty quickly."
Bond-rating companies have sharply cut their ratings on Enron's bonds since these disclosures, and its debt is now one step above junk status, by some ratings.
Analysts said that if Enron's bond rating fell below investment grade, they expect it to set in motion a forced sale of Enron assets held by the partnerships.
Two of the partnerships, named Marlin and Osprey, have a combined indebtedness of $3.4 billion, said Ralph Pellechia, an analyst at Fitch Inc., a bond-rating firm. That debt is to investors who purchased assets from Enron, including a water system in Britain and other holdings.
If Enron's bond rating crashes, the assets presumably would be sold and Enron would have to make up any remaining obligation to debt holders by delivering its stock to the partnerships, Pellechia said. Given the drop in Enron's stock price, that might not be possible.
"We don't believe the asset value that supports those partnership trusts at this point in time is fully adequate to pay down the debt," he said.
"Obviously there are a lot of options they [Enron officials] are exploring. We are watching it very closely."

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Enron Restatements Don't Go Far Enough
By Peter Eavis <mailto:peavis@thestreet.com>
Senior Columnist
TheStreet.com
11/08/2001 06:40 PM EST
URL: <http://www.thestreet.com/markets/detox/10003703.html>

Enron (ENE:NYSE - news - commentary) still hasn't come clean on the shadowy deals that led to many of the company's problems.
The battered power giant restated more than three years' worth of financials Thursday because previous numbers failed to take into account complex deals with a number of affiliated entities. As a result of the restatements, annual recurring earnings in the 1997-2000 period are now 10% to 25% lower than originally reported.
However, the picture could be even worse. The restatements of recurring earnings left out nearly $1 billion of losses suffered by a related entity called LJM2 in 2000 and 2001. Losses suffered by a similarly structured entity called LJM1 were factored into the restatement, while LJM2's were not. Enron didn't comment, but the press release detailing the restatements appears to argue that LJM1 was too thinly capitalized and, as such, it should always have been consolidated in Enron's core numbers. The inference, therefore, is that LJM2 losses weren't included because the entity was better capitalized than LJM1.
But that explanation isn't holding water in many quarters. In fact, the exclusion of LJM2 could be a source of further controversy for Enron. Enron fell 64 cents Thursday to $8.41.
Pulling a Fastow?
LJM2 has received much scrutiny in recent weeks, and is primarily responsible for events that have cratered Enron stock. The entity was led by Enron's now-ousted CFO Andrew Fastow, and the Securities and Exchange Commission is looking at the transactions Enron did with LJM2. In addition, these transactions prompted a $1.2 billion reduction in Enron's equity in the third quarter. Among investors in LJM2 were Credit Suisse First Boston, Wachovia, General Electric and the Arkansas Teachers Fund, according to recent reports in The Wall Street Journal.
It appears from other public documents that LJM2 could not have entered the deals that led to the losses if Enron had not agreed to issue $1.2 billion of stock. If so, the LJM2 deals weren't as arms length as Enron might want to project right now.
Therefore, to get a truer picture of Enron's profitability, investors should factor the LJM2-related losses into restated numbers. The result isn't pretty: The $1 billion of LJM2-related losses would've reduced the restated recurring earnings for 2000 and 2001 by some 30%. True, a portion of these losses were included in October's initial release of third-quarter financials, but they were taken as a charge that Enron asked investors to leave out of the recurring profits number that is supposed to give investors a view of core earnings power.
As a result of the restatements made Thursday, Enron said 2000 recurring earnings per share was $1.33, compared with the originally reported $1.47. But if the $501 million of LJM2-related losses were included, Enron only made 88 cents in 2000. If the $453 of losses were included in profits calculation for the first nine months of 2001, Enron actually made 98 cents per share, instead of the restated $1.36.
What is the basis for including these LJM2 losses when Enron doesn't? Well, Enron says in the Thursday press release that LJM1 was consolidated into the restatement "because of inadequate capitalization." It later says that it believes that initial capital commitments for LJM1 totaled $16 million, whereas the "aggregate capital commitments to LJM2 were $394 million."
Trimming the Hedges
The LJM2 number is certainly larger, but in and of itself the equity number means little when you look at sheer size of the deals LJM2 and Enron did together.
Enron asked LJM2 for protection against swings in the value of broadband and other assets. These so-called hedging deals were struck through specially-formed entities collectively known as Raptor, according to Thursday's press release. Through the Raptor deals, LJM2 agreed to make Enron whole for losses sustained if the assets declined in value, and it hoped to profit if these assets went up in value. Enron SEC filings show that the notional value of these Raptor hedges was a sizable $2.1 billion.
However, to make hedges of this size, Raptor would've needed adequate cushion against potential losses. The value of the equity LJM2 put into Raptor hasn't been disclosed. But it appears Enron took a radical step to give Raptor the cushion it needed. Enron seemingly created assets for Raptor to make it big enough to handle the hedges. From what can be pieced together from Enron disclosure, the company did that by agreeing to issue stock valued at $1.2 billion to Raptor under certain conditions. This stock pledge essentially served as Raptor's assets; in return, Enron took a note receivable, or simply a loan, from Raptor for $1.2 billion.
As it happened, Enron benefited massively from the assets hedge. It protected itself against a $500 million decline in the assets in 2000 and $453 million in 2001. These hedging gains were netted out to zero in Enron core earnings, because they were offset by declines in asset values. But without the hedges, Enron would've taken the losses in its expense line.
Vince Carter
Of course, the problem was that Raptor, and therefore LJM2, was losing from the hedges. That might've been tolerable if Raptor were making money from the stock agreement. But Enron's stock began falling sharply in 2001, depriving LJM2 of potential profits. Meanwhile, as the stock price slid, Enron was having to agree to issue more stock to keep the equity pledge to Raptor at $1.2 billion. As the decline continued into the third quarter, and the issuance commitment grew, it made sense to unwind all the Raptor deals with LJM2.
At this point, Enron took the $1.2 billion charge to equity in the third quarter to reverse the equity pledge. Enron did take some of Raptor's hedging losses itself, but it did so through a $711 million pretax charge, which it chose to exclude from operating earnings in the third quarter.
The big question is whether LJM2 actually took any losses itself from Raptor. Why is that crucial? If Enron shielded LJM2 from losses, it was essentially dealing with itself. The SEC and investors wouldn't like that. What clues are there that LJM2 didn't take a loss? Well, the Thursday press release says that Enron bought out LJM2's stakes in Raptor for $35 million. That makes little sense. How can LJM2 have had any Raptor equity left after the losses it appears to have sustained? If Enron made LJM2 whole, then this was all little more than a shell game.
Seems like Enron still has a whole lot more to tell us.

WORLD STOCK MARKETS - Wall St surges as Europe takes lead from Fed AMERICAS.
By MARY CHUNG.

11/09/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

US stocks surged in morning trade after the Bank of England and the European Central Bank followed the Federal Reserve's lead and lowered interest rates.
By midsession, the Dow Jones Industrial Average rose above its pre-attack level, up 127.18 to 9,681.55 while the S&P 500 index gained 16.24 at 1,132.04. The Nasdaq Composite rose 41.23 to 1,878.76.
Investors cheered as the Eurozone and UK central banks both surprised markets with aggressive half-point cuts in interest rates to help revive slumping global economies.
They were also heartened by the latest unemployment data, which showed a decline in the number of
Americans filing for first-time jobless claims last week.
Markets rallied broadly with technology stocks taking the lead. Sun Microsystem gained 9 per cent at $13.72 and Cisco Systems added 3.6 per cent at $19.61. Semiconductor stocks were boosted by an upbeat global sales forecast from an industry trade group. Intel, the world's biggest chipmaker, added 3 per cent at $29.19.
XO Communications was up 14 per cent at $1.33 after the company reported a smaller-than-expected third quarter loss.
Dynergy rose 12 per cent at $37 after the energy group confirmed that it is in talks to acquire Enron, the embattled energy trading company. Shares in Enron dipped 0.7 per cent at $8.99.
Retail stocks were mostly higher with Dow components Wal-Mart up 3 per cent at $55.36 and Home Depot 4 per cent at $43.49. Wal-Mart reported higher same-store sales last month.
AnnTaylor was up 7 per cent at $26.18 and Talbots 5 per cent at $32.60 in spite of the companies reporting a declines in October same-store sales.
Barnes & Noble, however, plunged 27 per cent at $27.75 after the bookstore company warned that full-year earnings would fail to meet previous Wall Street forecasts because of weaker-than-expected sales.
Financials were stronger with Citigroup up 2.5 per cent at $49.31 and American Express 4.8 per cent at $35.50. Other bright spots on the Dow included Walt Disney up 3.5 per cent at $19.13 and Alcoa 2.3 per cent at $35.17.
Coca-Cola, McDonalds and Hewlett-Packard were the few stocks moving lower. HP dipped 1.6 per cent at $18.87 amid mounting pressure from Hewlett and Packard family members to cancel its merger plans with Compaq Computer.
Toronto was led upwards by technology issues in morning trade. By midsession the S&P TSE 300 index had gained 0.7 per cent to 7,199.50. The tech-heavy industrial products sector rose 2 per cent.
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Business; Financial Desk
Enron Reissues Financial Reports Energy: The company restates four years to clear questions related to a series of controversial partnerships.
JERRY HIRSCH; NANCY RIVERA BROOKS
TIMES STAFF WRITERS

11/09/2001
Los Angeles Times
Home Edition
C-1
Copyright 2001 / The Times Mirror Company

Enron Corp. on Thursday reissued its financial statements for the last four years, shaving nearly $600 million in profit from what it previously reported.
The action was designed to clear nagging questions about the Houston-based energy concern's finances stemming from a series of controversial partnerships. Those questions have accelerated a free fall in the value of Enron shares and have forced it to seek new financing and enter into merger talks with rival Dynegy Inc.
However, the action still left analysts wondering whether further negative disclosures might be coming.
Analysts saw the restatement also as an effort to disclose negative news now, while it is negotiating to be acquired by Houston-based Dynegy.
Both companies confirmed merger talks Thursday. Some analysts suggested the deal has problems and could pose new risks for Dynegy.
Enron also said that it fired Ben Glisan, its treasurer, and Kristina Mourdant, an attorney with the company. Both executives had a financial interest in at least one of the partnerships. In October, Enron replaced Chief Financial Officer Andrew Fastow because of his involvement in the partnerships.
The restatement comes amid a probe by federal regulators into the relationship between several senior Enron executives and a series of partnerships created by the energy concern.
"A massive restatement like this doesn't look good. But since Enron was already under such scrutiny, it's really not much of a surprise," said Christopher Ellinghaus, an analyst with Williams Capital in New York.
"This would be very bad news if it had come out after a merger was announced," Ellinghaus added.
Enron shares fell 64 cents Thursday to close at $8.41, its lowest finish since 1992 and less than 10% of the nearly $90 high the company hit Aug. 23, 2000. Dynegy shares rose $3.50 to $36.50. Both trade on the New York Stock Exchange. .
Analysts said Enron ran into trouble with its strategy to create partnerships to purchase assets such as fiber-optic lines that Enron wanted to move off its books.
Although many companies have used similar techniques to improve their balance sheets, the deals are almost always with third parties and private investors rather than company executives. The involvement of executives as investors in these ventures raises the perception of a conflict of interest, said Brian Youngberg, an analyst with Edward Jones in St. Louis.
The Securities and Exchange Commission had asked for information about the financial transactions between Enron and the partnerships, which were approved by Enron lawyers and directors.
In essence, the partnerships reduced borrowings Enron listed on its balance sheet. They protected its credit rating, helping it to obtain favorable interest rates on its corporate borrowings.
However, after reviewing its accounting for three of the ventures, Enron said in an SEC filing Thursday that it should have included the financial performance of those businesses in its consolidated balance sheet.
The filing included a restatement of Enron financial statements for 1997 through 2000 and the first three quarters of 2001. It said its previous financial documents "should not be relied upon."
Enron's new assessment of its financial condition slashed its total net income for that nearly four-year period by $586 million, or about 20%, to $2.3 billion. The biggest change was a $250-million reduction in net income for 1999.
The Enron-Dynegy merger talks involve a stock swap valuing Enron at about $10 a share, or about $8 billion, according to sources familiar with the negotiations. ChevronTexaco Corp., which owns nearly 27% of Dynegy, would pour $1.5 billion in cash into Enron up front, with $1 billion to follow at the close of the transaction.
Dynegy would assume $12.8 billion in Enron debt, which does not include the off-balance-sheet partnerships, the sources said.
Enron Chairman and Chief Executive Kenneth L. Lay would remain on the board of the merged company but would not have day-to-day responsibilities, the sources said.
Dynegy Chairman and Chief Executive Chuck Watson would assume those jobs at the combined company, and Dynegy President Stephen Bergstrom would become president, they said.
There is no guarantee that an agreement will be reached, and if it is, such a merger would face a lengthy and difficult review by federal regulators. The potential merger would have its problems, some analysts said.
Dynegy risks losing Enron's most important asset, its energy traders, who can easily migrate to other energy trading firms in the Houston area, said Andre Meade, head of U.S. utilities research for Commerzbank Securities.
Dynegy, like Enron, needs a good credit rating and the ability to sell assets and issue stock to conduct its trading businesses, said Carol Levenson, an analyst with Gimmecredit.com. A thumbs-down by the stock market could seriously jeopardize Dynegy's financial flexibility, she said.
Although Enron management has repeatedly emphasized that its core energy trading and marketing business remains sound, the company's severe cash crunch has hurt. Enron's online trading operation has lost business in recent days.

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Small-Stock Focus: Visible Genetics, Net2Phone Slide As Finance Stocks Aid Russell 2000
By Larry Bauman
Dow Jones Newswires

11/09/2001
The Wall Street Journal
C6
(Copyright (c) 2001, Dow Jones & Company, Inc.)

NEW YORK -- Small-capitalization stocks ended lower after retracing solid intraday gains, with the bulk of the selloff taking place in the final hour of trading.
The overall Nasdaq market also fell, as investors took profits following the recent run-up of Nasdaq's large-cap technology components.
Both the small-cap market, as measured by the Russell 2000 index, and the Nasdaq Composite Index of large and small stocks underperformed the other major stock-market measures.
The Russell 2000 fell 1.74, or 0.39%, to 439.06, after posting an intraday gain of 5.31, and the Nasdaq Composite Index, at 1827.77, lost 9.76, or 0.53%, having been up as much as 50.86 earlier.
The small-cap market was able to post slimmer declines than the overall Nasdaq market because of the strength of financial stocks, which make up the largest industry group in the Russell 2000 following technology. The Nasdaq bank index rose 0.3%.
Visible Genetics, a Toronto maker of DNA-sequencing systems and diagnostic kits that analyze genes linked to diseases, tumbled $3.21, or 22%, $to 11.30. The company posted a third-quarter loss of 76 cents a share, compared with a year-earlier loss of 63 cents a share.
Shurgard Storage Centers shed 1.38 to 29.38. The Seattle real-estate investment trust said it may restate its financial statements for 1998, 1999, 2000 and the first half of 2001, and postponed its third-quarter earnings release and conference call. Shurgard said that its independent auditors changed their advice regarding the accounting treatment of four development joint ventures entered into since 1998, which will require the financial restatements, and that it believes it is prudent to delay its third-quarter results release until it has fully assessed the proposed accounting changes.
Net2Phone shed 24 cents to 5.60. The Hackensack, N.J., Internet-telephony service provider said that in an effort to save about $23 million annually, it will slash its work force by 290 jobs, or 43%, as well as reduce outsourced services.
NewPower Holdings surged 42 cents, or 52%, to 1.23. The Purchase, N.Y., energy company posted a third-quarter loss of $1.15 a share, a penny narrower than analysts had predicted. The company said it amended an agreement with Enron Corp., its largest commodity supplier, expanding the types of collateral that NewPower is permitted to post to Enron. NewPower said it expects to have adequate liquidity to continue normal operations into the second quarter, assuming "a broadly stable commodity price environment."
Tellium, an Oceanport, N.J., optical-systems provider, gained 68 cents, or 11%, to 6.62. The company reaffirmed revenue forecasts for the fourth quarter and 2002.
Pediatrix Medical Group rose 3.01, or 9%, to 36.51. The Fort Lauderdale, Fla., provider of physician-management services said it reached a settlement with the Nevada attorney general's Medicaid Fraud Control Unit, agreeing to pay $145,000 after a finding by state investigators that the provider of obstetric services had engaged in improper billing practices.
Pediatrix paid $35,000 last month to the state of Nevada as settlement for any potential claims related to certain Medicaid billings for neonatology, newborn and pediatric services. The company said there was no admission of liability on its part, nor violation of any state or federal regulations.
Salton was up 75 cents, or 6.1%, to 12.95. The Lake Forest, Ill., home-appliance company posted fiscal first-quarter earnings of 49 cents a share, compared with its year-earlier profit of $1.35 a share. The company said it expects to report first-half earnings of $1.80 a share, which is at the low end of its previous forecast range of $1.80 to $2.20 a share, but which exceeds analysts' projections of $1.52.
Pier 1 Imports added 74 cents, or 6.1%, to 12.82. The Fort Worth, Texas, home-furnishings retailer increased its third-quarter expectations because of strong sales in October and higher-than-expected gross margins. Pier 1 said October same-store sales rose 4% from a year earlier, and total sales rose 12%. As a result, the company said it now expects to earn 19 cents to 21 cents a share in the third quarter, up from previous expectations of 17 cents to 19 cents a share.
On the Nasdaq, advancing issues edged out decliners, 1,800 to 1,764, on overall volume of 2.295 billion, compared with 2.042 billion shares Wednesday.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Enron may have to sell UK assets
DAVID GOW IN NEW YORK

11/09/2001
The Guardian
Copyright (C) 2001 The Guardian; Source: World Reporter (TM)

Enron, the debt-stricken energy trading group, could be forced to sell its main British assets under the terms of an $8bn takeover being considered by Dynegy, its smaller rival.
The two companies confirmed yesterday that they were in talks about a takeover, which would see Houston firm Dynegy, about a fifth of the size of its target, pay a "fire-sale" price worth about a tenth of Enron's $70bn value a year ago.
The outcome would be a humiliation for Enron, Amer ica's largest energy trader, which was reportedly the biggest corporate contributor to the Republican party and the presidential campaign last year. It has been forlornly courting cash injections from groups such as Shell in the past few days to keep it afloat.
Enron's shares have lost 90% of their value this year, going into free fall in the past two weeks as it sacked finance director Andrew Fastow for unusual partnership transactions carried out off-balance sheet. These forced it to take a $1bn charge and cut shareholder equity by $1.2bn.
Two other senior officials, including Enron's treasurer, were fired yesterday following their involvement in the murky Fastow deals, which are being investigated by the securities and exchange commission.
Pressure to conclude the deal swiftly ahead of an important meeting today between Enron and its creditors mounted as the once dominant energy trader was forced to restate its earnings and substantial debts for the past four years, amid fears its bonds would soon be given junk status.
ChevronTexaco, the oil group which owns 27% of Dynegy, would inject up to $2.5bn if the deal goes ahead. Enron, also based in Houston, owns Wessex Water, for which it paid pounds 1.4bn in 1998, and gas-fired power stations in Britain, including the high-performing 1900MW Teesside plant. It recently announced deals to run the energy management operations of Sainsbury and Guinness.
Dynegy is paying pounds 421m for BG's gas storage business, a deal expected to be concluded next month, but, renowned for its "stingy" financial management, it has shied away from buying a series of British power stations on offer because of inflated prices.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Enron restates earnings as company confirms merger talks
By BRAD FOSS
AP Business Writer

11/09/2001
Associated Press Newswires
Copyright 2001. The Associated Press. All Rights Reserved.

NEW YORK (AP) - Now that Enron Corp. acknowledged it overstated earnings for years and its stock price has been punished accordingly, a much smaller rival, Dynegy Inc., is in talks to possibly buy the nation's top energy trader on the cheap.
Houston-based Enron has become inexpensive after investors pummeled its stock price over concerns that serious financial problems were being hidden from shareholders through business partnerships now under investigation by the Securities and Exchange Commission.
In an SEC filing Thursday, Enron said financial statements from 1997 through the first half of 2001 "should not be relied upon" and that outside businesses run by Enron officials during that period should have been included in the company's earnings reports.
That would have reduced Enron's profits for those years by $586 million, from $2.89 billion to $2.31 billion. In addition, the company revised its debt upward in each year from 1997-2000; at the end of 2000, Enron's debt was $10.86 billion, $628 million more than previously reported.
By not disclosing the debt earlier, Enron presumably maintained a stronger credit rating and was able to vastly increase the size of its core operations - trading natural gas and electricity on wholesale markets.
And while Enron kept certain details about its finances secret, the company's stature as the crown jewel among energy traders grew.
Investors from Wall Street to Main Street sought a piece of the action as Enron reported bigger and bigger profits and executives boasted they would successfully apply their energy trading strategies to other markets as well, including steel and broadband communications.
However, after a decade in which Enron firmly established itself as the nation's No. 1 natural gas and power marketing company, things have not gone according to plan lately and the former high-flyer has experienced a remarkably fast fall from grace.
Enron's stock price began a steady descent 10 months ago when its nascent high-speed Internet unit failed to live up to the hype. The downward momentum was further propelled by difficulties collecting money from power customers in India.
Then, in the past three weeks, Enron's share price plummeted fast and furiously as the company announced a $618 million third quarter loss, ousted its chief financial officer and undertook an apparently fruitless scramble for cash to remain an independent entity.
Several news organizations were reporting that Dynegy was negotiating to buy Enron for $8 billion in stock, but that the tentative deal could still fall apart.
Besides Dynegy, companies mentioned as possible suitors included General Electric's GE Capital unit and Royal Dutch/Shell Group.
On Thursday, both Dynegy and Enron released statements confirming they were in talks, but declined to provide any details.
The New York Times, The Wall Street Journal and the Houston Chronicle, among others, reported Thursday that Dynegy is considering paying about $8 billion in stock for Enron, citing people familiar with the matter. ChevronTexaco Corp., which has a 27 percent stake in Dynegy, would provide Enron an immediate cash infusion of $1 billion, the papers reported.
Enron's Lay would not be given any formal management position in the combined company, although he would have a seat on its board, the Journal reported.
Enron said it released the revised earnings so that investors could "appropriately value the strength of our core businesses."
"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 Kenneth Lay, Enron's chairman and chief executive
The company also fired treasurer Ben Glisan and a lawyer, Kristina Mordaunt, on Thursday. Last month, Enron ousted chief financial officer Andrew Fastow, who was in charge of some of the partnerships being probed by the SEC.
Jeff Skilling, Enron's former chief executive who left in August, has been called to testify before the SEC, although it's unclear when.
Wall Street analysts admitted they were stunned by the rapid demise of Enron, but said a merger with Dynegy would help improve Enron's credibility.
Still, Prudential Securities analyst Carole Coale remained puzzled as to "why Dynegy's management would want to take on the uncertainties and potential liabilities associated with a merger with Enron."
Christopher Ellinghaus of Williams Capital in New York said Enron's accounting "shenanigans" are legendary in the industry.
"I'm not willing to say it's fraud yet," Ellinghaus said. "Enron just likes to be fancy. They may have been too fancy for their own good."
Enron said the revised financial statements will include a reduction to net income of about $96 million in 1997, $113 million in 1998, $250 million in 1999 and $132 million in 2000, increases of $17 million for the first quarter of 2001 and $5 million for the second quarter and a reduction of $17 million for the third quarter of 2001.
Enron, the nation's top buyer and seller of natural gas and the top wholesale marketer in the United States, had become one of the nation's 10 largest companies, recording revenue of $100.8 billion in 2000.
---
On the Net:
http://www.enron.com
http://www.dynegy.com

AP Graphic ENRON RESTATEMENTS and AP Photo NY882
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Report on Business Column
TAKING STOCK
Beware the company that does not tell all
BRIAN MILNER

11/09/2001
The Globe and Mail
Metro
B9
"All material Copyright (c) Bell Globemedia Publishing Inc. and its licensors. All rights reserved."

Before its stunning fall from grace, Enron Corp. was a genuine market darling, with a throng of adoring investors, analysts and academics who held it out as a model of how to turn a sleepy, Old Economy company into a true star of the fast-paced New Economy. Even after the puncturing of the market bubble, the critics who had long questioned the Texas company's aggressive growth strategy and even more aggressive accounting were dismissed as old-fashioned cranks.
Now, in no small part because of its executives' own highhandedness and dismissive treatment of those same investors and analysts, Enron's reputation is in tatters, the U.S. Securities and Exchange Commission is probing billions of dollars worth of off-balance-sheet transactions, its once high-flying stock has tanked, its bonds are trading at levels usually reserved for troubled junk and the lawsuits are flying thick and fast.
About the only lessons to take away from this fiasco are among the oldest in investing and long espoused by the likes of Warren Buffett: Never buy anything you don't understand and don't touch a company whose finances are so murky as to defy description.
There's no shortage of major companies that appear to believe the less investors know about their true financial state, the better. The dot-bomb rubble is littered with them. They include Nortel Networks, Cisco Systems, Lucent Technologies, Amazon.com, JDS Uniphase, Qwest Communications, Motorola, Volkswagen and even Starbucks.
In these bearish times, most companies acknowledge, albeit reluctantly, that they would be better off coming clean with the people who have a vested interest in their future.
Here is what Joe Nacchio, defiant boss of troubled Qwest, told a conference last month: "You all think we cheat and lie and steal, obviously, and therefore you trade us at a discount to what a normal company with great revenue and great growth should be traded. . . . We'll just let the numbers speak for themselves on Oct. 31."
So along comes that fateful day, and we pass the mike over to Mr. Nacchio: "Some of you will recall that at a recent conference I said the results will speak for themselves. The reality is they do not speak clearly for themselves without some interpretation, given the current economic conditions and the effects of merger and other one-time charges." You can guess what happened to Qwest's credibility and its stock price.
As for Houston-based Enron, which is in a desperate hunt for liquidity to shore up its vast energy-trading business and keep its credit rating from being slashed below investment grade, the company confirmed yesterday it's in talks with smaller cross-town rival Dynegy. Several published accounts have said the talks involve an immediate cash infusion of up to $2-billion and an eventual merger.
Faced with the SEC probe and a rash of shareholder lawsuits, Enron also revealed that its profit statements since 1997 aren't worth anything. The company is restating earnings through the first half of this year, mainly to reflect a $1.2-billion (U.S.) drop in shareholder equity after the company terminated complex share transactions with certain limited partnerships. The dealings had enabled Enron to grow dramatically without having to show a huge whack of debt on its balance sheet, which would have affected its ability to raise capital and hampered its rapid transformation from regional gas pipeline utility to global energy-trading powerhouse.
Such transactions are common and practical. But Enron's were unusually complicated, and the company was roundly assailed for keeping the details to itself.
Disclosure has never been this company's middle name. The former CEO once used a seven-letter expletive to describe an analyst who had the temerity to ask for a balance sheet during an earnings conference call. But the real stunner was that, unknown to the investing public but with the board's apparent approval, two partnerships had been set up, to considerable personal profit, by Enron's own chief financial officer, Andrew Faston. He walked the plank on Oct. 24, and the company has been scrambling ever since.
Opaque accounting doesn't necessarily mean there is any skullduggery afoot. The finances of some companies are devilishly complicated, simply because of the nature of their businesses. And that goes for Enron and its massive energy-trading and hedging operations.
But investors should always be looking for as much financial visibility as possible and steering clear of any company that cannot -- or will not -- provide it. bmilner@globeandmail.ca

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

City - Enron crisis deepens as two top staff are fired.
By Roland Gribben.

11/09/2001
The Daily Telegraph
P36
(c) Telegraph Group Limited, London, 2001

THE crisis surrounding Enron, the beleaguered American energy trading group with power plant and trading investments in Britain, deepened yesterday with the dismissal of two key executives alleged to be involved in off-balance-sheet operations now under investigation by regulatory authorities.
Ben Glisan, managing director and treasurer, and Kristina Mordaunt, another managing director and lawyer of a subsidiary business, left after internal investigations.
Enron said it believed the pair and four other former Enron employeers were involved as partners in a limited partnership that had dealings with the company.
The dismissals came as Enron considered a "make or break" takeover offer from Dynergy, another US energy group with UK interests.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Dabhol Pwr Mtg Focus On Tata, BSES To Acquire Enron Stake

11/09/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

SINGAPORE -(Dow Jones)- Talks in Singapore aimed at salvaging the troubled US$2.9 billion Indian Dabhol power project are focusing on two potential buyers of Enron Corp.'s (ENE) 65% controlling stake in the Dabhol Power Co., a major Indian creditor of DPC said Friday.
"Two of India's largest private power companies Tata Power Co. (P.TPW) and BSES Ltd. (P.BSX) are the only contenders for buying out Enron's stake in Dabhol Power Co.," Industrial Development Bank of India (P.IDB) Chief General Manager V.K. Saxena told Dow Jones Newswires Friday.
The IDBI - a major creditor to Dabhol Power Co. - said the two-day meeting in Singapore concluding later Friday between the Indian lenders' consortium and DPC officials was progressing well.
"I remain positive about the outcome of the talks," Saxena said.
No further details about the content of the closed-door talks were available when Dow Jones Newswires contacted other Indian lenders and DPC.
DPC's domestic lenders include ICICI Ltd. (P.ICC), Industrial Development Bank of India (P.IDB), IFCI Ltd. (P.ICI) and State Bank of India (P.SBI).
Domestic lenders have provided US$1.4 billion of the project's total projected cost of US$2.9 billion. IDBI's exposure is in the excess of 20 billion rupees ($1=INR48.03), and the bank runs the risk of going deep into the red if this project goes bust.
"The domestic lenders have tried to facilitate a meeting between prospective buyers and the seller as we have a common interest in saving this power project from going bust," Saxena said.
DPC is at the center of a power supply dispute between the state government and DPC over what the government claims are "unaffordable" power tariffs.
-By Sri Jegarajah and Himendra Kumar, Dow Jones Newswires; 65-415-4066; sri.jegarajah@dowjones.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Enron Meets Indian Lenders on Power Plant Stake Sale (Update3)
2001-11-09 02:31 (New York)

Enron Meets Indian Lenders on Power Plant Stake Sale (Update3)

     (Adds lender's comments in ninth paragraph, detail on IDBI's
exposure to Enron in 11th.)

     Singapore, Nov. 9 (Bloomberg) -- Enron Corp., the world's
largest energy trader, is meeting lenders about its sale of a
stake in a $3 billion Indian power project as it seeks to raise
cash and forestall a possible credit downgrade.

     Enron, which lost 89 percent of its market value this year,
had its long-term credit rating cut as low as one notch above junk
status this week and would have to repay $3.3 billion in bonds
early if its rating is cut below investment grade.

     Dynegy Inc., which is in talks to buy Enron for about $8
billion in stock, is concerned about a downgrade after Enron
yesterday restated its earnings for more than four years to
include losses from investment partnerships arranged by senior
executives, people familiar with the situation said.

     ``Restating earnings for the past five years is suggestive of
fraud, which in itself is justification for a downgrade,'' said
Donald Coxe, who manages 78,000 Enron shares as part of the Harris
Insight Equity Fund. ``I'd be surprised if they're not
downgraded.''

     The decision by Enron Chairman and Chief Executive Officer
Kenneth Lay to reduce earnings by $586 million since 1997 is part
of Enron's efforts to regain confidence among investors stung by
the stock's plunge this year and a Securities and Exchange
Commission investigation into how the company accounted for
partnerships it sponsored.

     Enron fired Treasurer Ben Glisan and Kristina Mordaunt, a
lawyer for an Enron division. The company said it now believes
Glisan, Mordaunt and two other employees no longer working for
Enron bought interests in subsidiaries of a partnership run by
former Chief Financial Officer Andrew Fastow.

     Enron ousted Fastow last month after revealing an accounting
error for transactions with a group of the partnerships resulted
in a $1.2 billion reduction in shareholder equity in the third
quarter. Arthur Andersen LLP was Enron's independent auditor.

                               India

     Enron wants $1 billion for its 65 percent stake in an Indian
power plant unit, Dabhol Power Co. Potential buyers Tata Power Co.
and BSES Ltd., which are at the meeting with lenders in Singapore,
said that's too much.

     ``Tata and BSES are keen to buy the project but much will
depend on the terms Enron sets,'' said V.K. Saxena, chief general
manager at Industrial Development Bank of India, or IDBI, the
country's second-biggest lender. ``I'm positive'' on the outcome
of the talks.

     Enron on May 19 gave six months' notice to cancel sales to
the Maharashtra State Electricity Board, the only customer of
Dabhol Power. Dabhol's owed $64 million for bills that are 10
months overdue. The contract to sell the plant's electricity will
be canceled on Nov. 19.

     IDBI and the State Bank of India are among the local lenders
meeting Enron in Singapore. Indian banks, which have loaned $1.4
billion to Dabhol, have the most at stake if a buyer for Enron's
stake isn't found. IDBI alone has lent more than $400 million.

     The $600 million lent by ABN Amro, Bank of America Corp.,
Citigroup Inc. and other overseas banks are covered by government
guarantees, while Indian bank's loans are not.

     Still, not all investors in the local banks are worried by
the prospect of loans turning bad if talks with Enron and Tata and
BSES fail.

     ``This deal is too complex, too big to fail,'' said Rajat
Jain, who oversees 15 billion rupees at IDBI-Principal Asset
Management Co., a unit of the country's second-biggest lender.
``There's a lot of money at stake here. All parties, including
lenders, will have to take a hit but the deal will go through.''

     Jain's stock funds had 1.23 million shares of ICICI Ltd. at
end of September after selling 25,813 shares. ICICI is India's
biggest lender and one of Dabhol's key creditors.

     The meeting started yesterday and bankers that attended the
meeting said the talks will end today, Saxena said.

--Ravil Shirodkar in Mumbai at rshirodkar@bloomberg.net or (91 22)

Dhabol Power Confirms Enron In Talks With BSES,Tata Power

11/09/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

NEW DELHI -(Dow Jones)- A spokesman for Dabhol Power Co. Friday confirmed that majority owner Enron Corp. (ENE) is currently discussing the sale of its 65% stake to India's Tata Power Co. (P.TPW) and BSES Ltd. (P.BSX).
Enron has a controlling 65% equity stake in Dabhol Power Co., or DPC, the company responsible for the 2,184 megawatt Dabhol power project in the western Indian state of Maharashtra.
"I confirm that talks have narrowed down to two companies - BSES and Tata Power and the talks are still going on in Singapore," said DPC spokesman Jimmy Mogal.
Mogal refused to say what price Enron was seeking for its stake in the Dabhol project and what prices were being offered by the two interested companies.
He also declined comment on the likely outcome, saying: "Talks are going to continue till later in the day. Let's see what happens."
As reported, Indian lenders to DPC are currently at a two-day meeting that started Thursday with Enron and DPC officials in Singapore to salvage the controversial power project.
DPC's domestic lenders include ICICI Ltd. (P.ICC), Industrial Development Bank of India (P.IDB), IFCI Ltd. (P.ICI) and State Bank of India (P.SBI).
Domestic lenders have provided $1.4 billion of the project's total projected cost of $2.9 billion. IDBI's exposure is in the excess of 20 billion rupees ($1=INR48.03), and the bank runs the risk of going deep into the red if this project goes bust.
DPC is involved in a power supply dispute with the Maharashtra state government over what the latter claims are "unaffordable" power tariffs.
-By Himendra Kumar, Dow Jones Newswires; 91-11-461-9426; himendra.kumar@dowjones.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Officials try to salvage multibillion dollar Enron India project

11/09/2001
Associated Press Newswires
Copyright 2001. The Associated Press. All Rights Reserved.

SINGAPORE (AP) - Talks in Singapore aimed at salvaging the troubled dlrs 2.9 billion Indian Dabhol power project are focusing on two potential buyers for U.S.-based Enron Corp.'s controlling stake in the project, a major Indian creditor said Friday.
The Dabhol Power Co. is 65 percent by Houston-based Enron.
Two of India's largest private power companies - Tata Power Co. and BSES Ltd. - are the only contenders vying to buy Enron's stake in Dabhol, V.K. Saxena, chief general manager of the Industrial Development Bank of India, told Dow Jones Newswires Friday.
The bank, a major creditor to Dabhol Power Co., said a two-day meeting in Singapore between the Indian lenders' consortium and Dabhol officials was progressing well.
"I remain positive about the outcome of the talks," Saxena said.
No further details about the content of the closed-door talks were available. Dabhol officials declined to comment.
Indian lenders, including the Industrial Finance Corp. of India., had asked the court to order work on the project to resume so that the lenders can recover their money.
In May, Enron stopped construction of the 90 percent completed project - India's biggest ever foreign investment.
Enron also halted supply of electricity on the portion already finished because the Maharashtra State Electricity Board said it could no longer afford the fees it agreed to pay when the contract was signed seven years ago.
Indian lenders have provided about 61 billion rupees (dlrs 1.3 billion) to the power project, while Enron and its partners, General Electric and Bechtel Corp., say they have invested dlrs 1 billion.
"The domestic lenders have tried to facilitate a meeting between prospective buyers and the seller as we have a common interest in saving this power project from going bust," Saxena said.
(dj/rjm-ss)

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

India: Enron reverses stand, attends Singapore meet

11/09/2001
Business Line (The Hindu)
Fin. Times Info Ltd-Asia Africa Intel Wire. Business Line (The Hindu) Copyright (C) 2001 Kasturi & Sons Ltd. All Rights Res'd

MUMBAI, Nov. 8. IN a development late on Wednesday evening, Enron decided to participate in a multilateral meeting in Singapore to discuss an "amicable" resolution to the Dabhol issue.
The company had earlier said that the Singapore meeting had been cancelled due to the legal action taken by Indian financial institutions (FIs).
According to the company, it decided to change its stand after "personal requests from senior representatives of the Government of India and Indian financial institution".
It said late Wednesday evening, Dabhol Power Company (DPC) received assurances from the Centre and financial institutions that they intended to present new proposals at the Singapore meeting with respect to a negotiated settlement of the dispute, including purchase of foreign equity by the Government or FIs.
Top State officials are, meanwhile, camping in London to file the Government's reply to the ex parte order passed by a London Commercial Court restraining it from approaching any court in India over the issue of arbitration.
Our Bureau

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Canadian Pwr, Gas Mkts Benefiting From Enron's Woes
By Dina O'Meara
Of DOW JONES NEWSWIRES

11/08/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

CALGARY -(Dow Jones)- Canadian natural gas and power exchanges are gaining strength as market unease over U.S. energy giant Enron Corp.'s (ENE) financial woes increases and traders look to alternative vehicles, insiders said Thursday.
Buyers and sellers are turning more to Alberta's power and natural gas exchanges as they shun the increasingly wobbly Enron.
"We see this as an opportunity to capture some of the market EnronOnLine had," WattEx president Sheldon Fulton told Dow Jones Newswires.
"It has also resulted in reinforcing the need for transparent pricing mechanisms and forward price curves," he said.
Enron, a Houston-based market-mover accounting for a quarter of North American power and gas trades, has seen its credit ratings downgraded and its share price slashed since mid-October over uncertainty about its complex financial structure.
In response, energy companies in Canada have changed their strategies. Some, like PowerEx, British Columbia Hydro's marketing arm, reduced Enron's credit limit on day trades and dropped any long-term financial deals with the troubled company.
Others are keeping their strategies to themselves, commenting only that Enron's position as a major player makes it important for the entire industry to see a positive resolution to its woes, and maintain market liquidity.
"We continue to do business with Enron," said Jennifer Pierce, manager of public affairs for Duke Energy in Houston. "We will continue to monitor activities as they go on and deal with credit guidelines that are established with them."
And some are not dealing with Enron at all.
"We are not doing anything with (Enron)," a trader with a major natural gas pipeline said. "There are a lot of players out there."
Spot deals on Alberta's Natural Gas Exchange hit 1.6 billion cubic feet Thursday, volumes that were up but not record-breakers, NGX vice-president Gary Gault said.
"It's tough for us to tell if the increase is due to Enron's problems," Gault said. "But there is no question there are credit issues in the market right now over them."
Alberta's NGX and Enron recently started joint submissions of near-month and daily traded volumes on a real-time basis to the NGX-owned Canadian Gas Price Reporter Index. The move created a more realistic view of the Alberta market, traders said, as Enron's near-month volumes were consistently higher than the Canadian exchange.
"This has obviously created a lot more interest in other trading vehicles," one source said. "But this is just like when a big bank gets into trouble - the whole economy is affected."
Enron confirmed it is in talks with rival energy company Dynegy Inc. (DNY) in a US$7 billion to US$8 billion paper deal in stock.
The embattled company also restated nearly five years of earnings Thursday.
-By Dina O'Meara, Dow Jones Newswires; 403-531-2912 dina.omeara@dowjones.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Uncertainties Cloud View Of An Enron-Dynegy Combination
By Jason Leopold
Of DOW JONES NEWSWIRES

11/08/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

LOS ANGELES -(Dow Jones)- It's not clear yet how formidable an energy company would emerge if Dynegy, Inc. (DYN) were to step out of embattled Enron Corp.'s (ENE) shadow and acquire it.
Energy companies and analysts are united in one sentiment, though: a merger may be the only way to keep Enron from going under and possible harming U.S. energy markets overall.
Enron and Dynegy are both dominant natural gas and electricity marketers in the U.S., and meshing Enron's trading expertise with Dynegy's power plants would seem the recipe for success.
But there are too many unknowns at this point to speculate in much detail on the topic, analysts and energy companies said.
"They're in the same business and they know each other really well," said Steven Fleishman, an analyst at Merrill Lynch & Co. (MER). "But until I see terms of the deal and more important conditions, I'd be cautious on making any judgements."
On Thursday, the Wall Street Journal reported that Dynegy and Enron are in talks that could lead to a merger in a stock swap worth $7 billion to $8 billion. The talks are aimed at stabilizing Enron's finances. The Houston energy giant's credit ratings have been downgraded and the company's stock price has plunged 75% following the mid-October disclosure of a $1.2 billion writedown of shareholder equity. The U.S. Securities and Exchange Commission is investigating Enron partnerships associated with the writedown.
Dynegy confirmed that it's in talks with Enron for some sort of deal. It's not yet clear, however, whether that means a merger or just a capital infusion.
Enron has been turned away by a number of firms where it sought to secure financing. A merger, according to a number of sources, would help prevent big troubles for many energy companies.
"Enron is such a large player and they're so important in terms of maintaining liquidity of the markets," said Sandy Fruhman, a spokeswoman for Reliant Inc. (REI), a large energy company. "We see this [the potential collapse of Enron] as a situation that has potential downsides for the entire industry."
Dynegy, like Enron, is a leading marketer of natural gas and electricity. Its Houston offices are a stone's throw away from Enron's in what's known as "Energy Alley," where other companies like Reliant Energy Inc. (REI) and El Paso Corp. are also housed.
Dynegy, however, is more focused on hard assets. Dynegy owns and/or operates 19,000 megawatts of generating capacity in the U.S. and sells about 11 billion cubic feet of natural gas per day. It also has joint ventures in power plants with NRG Energy Inc. (NRG).
Its market share is far smaller than Enron's. But with Enron's pipeline assets, Dynegy's power plants and both companies' electricity and natural gas holdings, some analysts say a combined company would corner the market.
In some ways, it would be a natural fit. Dynegy has modeled its business, particularly its natural gas and electricity trading operation, after Enron's, said Andre Meade, an analyst with Commerzbank in New York.
"Dynegy has generally followed a lot of the moves Enron made over the years," Meade said. "Not surprisingly, they have a lot of the same business. Their trading and online platform are similar. Ideally, they would combine the two. They both nearly have the same loss from their broadband business. Dynegy wants to expand in Europe and Enron is already there."
Kevin Boone, an analyst with Bear Stearns in New York, said the Top 20 energy companies in the U.S. wouldn't likely be able to encroach on Enron's former share in the marketplace if Dynegy and Enron merge.
But big companies including Williams Cos. (WMB), Reliant and Duke Energy Corp. (DUK), could still easily compete if such a merger took place, he added.
Chevron Texaco Corp. (CVX) holds a 29% stake in Dynegy and would likely want to keep that share if the two companies were combined.
ChevronTexaco, which recently completed its own merger, may contribute about $1.5 billion to push the deal with Dynegy and Enron forward, according to published reports, and analysts had varying opinions on ChevronTexaco's involvement in the talks.
Others said ChevronTexaco would be interested in Enron's pipeline assets and one analyst said the oil giant's AA credit rating from Wall Street would help the combined company grow.
"The only reason Chevron is involved is they have a stake in Dynegy and they can keep the same stake if they contributed money," Fleishman said. "Chevron did that when Dynegy bought Illinova. Otherwise Chevron would get diluted. So it's important for them to hold onto."
Other oil companies are looking to invest in the power business. Duke Energy (DUK) had a joint partnership with Mobil Corp. in trading and marketing launched prior to 1997, though it is dissolving the partnership now that Mobil has merged with Exxon (XOM).
"Big oil companies use electricity companies to market their equity gas," Meade said.
-By Jason Leopold, Dow Jones Newswires; 323-658-3874; jason.leopold@dowjones.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Business
Enron Earnings Drop
Ali Velshi, Fred Katayama

11/08/2001
CNNfn: Business Unusual
(c) Copyright Federal Document Clearing House. All Rights Reserved.

ALI VELSHI, CNNfn ANCHOR, BUSINESS UNUSUAL: The energy trading giant Enron (URL: http://.www.enron.com/) is restating its earnings downward. This announcement comes less than a month after it said regulators were looking into its off balance sheet deals. Those are deals that push the company to reduce shareholders` equity by more than $1 billion. Fred Katayama has this report.
(BEGIN VIDEOTAPE)
FRED KATAYAMA, CNNfn CORRESPONDENT (voice-over): Enron delivered another bombshell on a day when Wall Street was anticipating a merger announcement. The tarnished trader of energy drastically restated its earnings to include losses from partnerships now under investigation. Enron is reducing its net income since 1997 by nearly $600 million. The company said it is consolidating the results of a few partnerships that had been left off the balance sheet. Enron would pump assets into a partnership, then have the partnership borrow money so that the debt was kept off of its books. Consolidating the partnerships also boosted Enron`s debt by more than $2.5 billion.
RON BARONE, UBS WARBURG: If they lose their investment grade on their debt, the possibility exists that they may have to pay off over $3 billion either in cash or Enron stock.
KATAYAMA: Enron fired its treasurer and a lawyer who it believes had invested in a partnership run by its former chief financial officer, Andrew Fastow (ph). The SEC is investigating the two partnerships set up by Fastow. Chairman Kenneth Lay said in a statement, 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.
ANDRE MEADE, COMMERZBANK SECURITIES: The disclosure probably raises as many questions as it answers and what Enron, what Enron`s trying to do is or what Enron has done.
KATAYAMA: Enron stock slumped further and Dynegy (URL: http://www.dynegy.com/) rose on the news. Investors were disappointed because they had hoped Dynegy would announce it would buy its beleaguered rival.
(END VIDEOTAPE)
KATAYAMA: Now some analysts say uncertainty hangs over any deal. Dynegy will have to recalculate Enron`s worth based on the restated numbers and as for those restated numbers, it may not be the last of those restatements. That`s because, in this current case, today`s disclosure concerned only three entities. Enron has done deals with more than 30 partnerships. Ali.
VELSHI: Fred, tell me about these partnerships. Is this common?
KATAYAMA: Other companies have these limited partnerships but the difference is the scope of Enron. Say it deals with more than 30 of them. Plus they`re extremely complex. Even Wall Street analysts said they couldn`t figure them out. And you don`t have a chief financial officer of your company running some of these partnerships that are doing business with your company.
VELSHI: Let`s talk about Enron stock. This used to be a darling stock. It`s trading $1.40 off its 52-week low. In fact at this moment, it`s one tenth of its 52-week high.
KATAYAMA: Right. You know, that stock used to be as you say, a darling of Wall Street. It traded almost like a tech stock. Because here was this pipeline company in Texas that all of a sudden was into fiber optics, was into broadband and it traded like a tech stock. It also fell like a tech stock. That stock is down 73 percent over the last month, down 89 percent year to date and was down 10 days in a row in October.
VELSHI: Let`s talk about Dynegy. Last night on this show the news came out that Dynegy was going to pump some money into Enron and that over the course of the next 12 hours, that became discussions on a merger and a partnership. I don`t want to use the word partnership. Tell me what`s likely to happen there.
KATAYAMA: Well, the thing is, Wall Street was really anticipating, based on yesterday`s build up, that we get an announcement today saying the two companies would merge, that Dynegy would buy Enron, possibly for 7, 8 billion. But a lot of analysts say one, Dynegy wants to recalculate those numbers based on those restatements and two, even if there is a deal, Enron will get zero premium or very little because there`s very little negotiating room. It`s got $13 billion of debt and all these troubles behind it.
VELSHI: Any indication of when we`re going to hear about this restating and what we`re going to see happen out of it? That`s always bad news when you`ve got to restate for that far back.
KATAYAMA: And it always hangs on a stock. You remember it happened to Cendant (URL: http://www.cendant.com/) . You remember it happened to Sunbeam (URL: http://www.sunbeam.com/) . The thing is, it`s probably going to unravel over weeks and it`s not going to be any time soon and that may also mean any deal may be dragged down. That`s a problem, because what are Enron`s assets? Traders, human capital. And in times of uncertainty, human capital goes to other companies and Texas has a lot of energy trading companies.
VELSHI: Fred, thanks very much for being with us.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Enron Shareholder Derivative Suit Filed

11/08/2001
PR Newswire
(Copyright (c) 2001, PR Newswire)

CHICAGO, Nov. 8 /PRNewswire/ -- The following statement was issued by Krislov & Associates, Ltd:
Two shareholders of Enron have filed a derivative suit in Federal Court in Texas alleging that certain directors of Enron breached their fiduciary duties to the Company. The plaintiffs are represented by Clinton Krislov, Michael Karnuth, and Michael Rosenblat, of Krislov & Associates, Chicago, Illinois and Michael Bradford, of Benckenstein & Oxford, Baumont, Texas. The suit was filed on behalf of Enron, to redress damages to the Company from Enron's investments in limited partnerships which were controlled by Andrew Fastow, Enron's then Chief Financial Officer, and approved by Enron's Board of Directors. These transactions resulted in losses to Enron estimated to be at least $35 million and a reduction in shareholders' equity of at least $1.2 billion. The suit alleges that the defendants breached their fiduciary duties of loyalty and due care that they owed to Enron and its stockholders.
Attorney Krislov was quoted: "They took a great Company and nearly destroyed it through financial manipulation. Maybe we can get some of it back for the Company and its shareholders."
If you would like additional information regarding this law suit you may contact, Krislov & Associates, Ltd., at 312/606-0500 or clint@krislovlaw.com or Benckenstein & Oxford, LLP, at 409/833-9182 or michaelbradford@benoxford.com .
MAKE YOUR OPINION COUNT - Click Here
http://tbutton.prnewswire.com/prn/11690X51679428

/CONTACT: Clinton Krislov of Krislov & Associates, Ltd., +1-312-606-0500, clint@krislovlaw.com , or Michael Bradford of Benckenstein & Oxford, LLP, +1-409-833-9182, michaelbradford@benoxford.com / 18:59 EST
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Enron Curtails Activity In US Power,Gas Mkt Thu -Traders
By John Edmiston and Mark Golden
Of DOW JONES NEWSWIRES

11/08/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

HOUSTON -(Dow Jones)- U.S. power and natural gas traders reported that Enron Corp. (ENE) pulled back its presence in some of its core markets Thursday.
Enron, which typically accounts for about a quarter of the volume of trade in U.S. power and gas markets, significantly limited its bids to buy and offers to sell power and gas on its Internet-based trading system EnronOnline, where it does the bulk of its business, traders said.
EnronOnline posted bids and offers for Gulf Coast and Northeast natural gas for only about an hour Thursday morning, compared with about three hours usually.
"They put their postings up, then they pulled them back off," one trader said.
Enron also posted a slim market in western U.S. gas and power early Thursday morning, a western power and gas trader said. EnronOnline posted a normal market later that morning, but by afternoon had sharply reduced its electricity market offerings, presenting bids and offers only for hourly products.
Postings in Northeast power markets were normal, a trader said. Another trader, however, said EnronOnline was posting much lower bids and higher offers on many liquid products than those presented by voice brokers or competing online platforms - the equivalent of pulling itself out of the market.
Enron spokesman Eric Thode didn't respond to a request for comment Thursday afternoon. Earlier in the day, Thode said transactions on EnronOnline totaled an above-average 6,200 on Wednesday. Volume estimates for Thursday weren't available then.
On Thursday, Enron confirmed reports that it was in talks for a cash infusion from and possible acquisition by competitor Dynegy Inc. (DYN).
Thursday morning, Enron said it was restating its financial statements from 1997 through the second quarter of 2001, saying its financial and audit reports were unreliable for all those periods. The company also fired its treasurer and general counsel.
The company's share price has fallen by about 75% and its credit ratings have been downgraded in the past three weeks, following disclosures of losses in shareholder equity related to transactions with partnerships headed by Enron's former chief financial officer.
-By John Edmiston, Dow Jones Newswires; 713-547-9209; john.edmiston@dowjones.com
(Mark Golden and Kristen McNamara in New York, and Jon Kamp in Chicago contributed to this article.)

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

IN THE MONEY:Enron Debacle Could Push Accounting Changes
By Carol S. Remond

11/08/2001
Dow Jones News Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

A Dow Jones Newswires Column

NEW YORK -(Dow Jones)- There may one good thing that comes out of the Enron Corp. (ENE) financial mess - stricter accounting rules governing consolidation of financial results.
Enron acknowledged earlier Thursday that it incorrectly accounted for its relationships with related partnerships by keeping them off its financial statements. It corrected that mistake by consolidating the partnerhips into its results, a move that led Enron to restate three years worth of earnings, lowering them by a collective $586 million.
Under current accounting regulations, companies don't have to consolidate loss or income from entities in which they have an interest below 51%, keeping those losses or gains off their books (the balance sheets and income statements).
The Financial Accounting Standards Board, or FASB, has been working on a project that would replace the standard of ownership by a more encompassing one of control. But that project has been languishing since 1982 when the board first started considering the issue.
"This is an area where FASB is struggling" to set new criteria, said Alan Bromberg, a professor of corporate and securities law at the Dedeman School of Law of The Southern Methodist University.
FASB has struggled in part because companies were fighting the changes and it has had difficulty in defining control to mean something other than majority ownership.
The Enron's restatement and consolidation is also focusing attention on another arcane accounting rule, one dealing with minimum ownership by unaffiliated outsiders.
Under a statement made by the Securities and Exchange Commission during an Emerging Issue Task Force meeting over a decade ago, the SEC stated that a minimum outside investment was needed for the special purpose entity to qualify for non consolidation. This guideline has remained in effect ever since.
According to EITF documents dated 1989 and 1990, a minimum outside investment of 3% or more in a special purpose entity may be necessary, depending on the credit risk, for it to qualify for non-consolidation status.
Given that some of the special entities created by Enron were controlled by some of its former executives, experts said it's possible that the SEC was considering the outside ownership of these entities insufficient for them to qualify for non consolidation.
Meanwhile, it's unclear how Arthur Andersen LLP, Enron's independent auditor since the late 1980s, will be affected by the company's restatement and recent financial turmoil. A spokesman for Arthur Andersen said his firm "continues to cooperate with Enron and its special committee to bring a resolution to this matter."
The accounting giant has had some recent run-ins with shareholders and regulators because of accounting issues. It recently agreed to pay $110 million to settle a shareholder lawsuit over audits it conducted for Sunbeam Corp. Sunbeam had been accused of overstating its revenues and subsequently went into Chapter 11 bankruptcy.
The accounting firm and three partners were fined $7 million by the SEC earlier this year over their audit of Waste Management Inc.'s financial statements, the largest SEC fine ever against an accounting firm. The SEC held that Andersen overstated Waste Management's pre-tax earnings by $1 billion.
The SEC has launched a formal investigation in the Enron matter. The Arthur Andersen spokesman said the SEC had not notified his firm that it is the subject of any investigation.
Carol S. Remond; 201-938-2074; Dow Jones Newswires
carol.remond@dowjones.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.