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Date: Sat, 10 Nov 2001 07:25:04 -0800 (PST)
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A full list of news articles will be distributed on Monday, but here is som=
e of the initial coverage.


Business/Financial Desk; Section A
Rival to Buy Enron, Top Energy Trader, After Financial Fall
By ALEX BERENSON and ANDREW ROSS SORKIN

11/10/2001
The New York Times=20
Page 1, Column 2
c. 2001 New York Times Company=20

With its stock plunging and its finances in doubt, the world's largest ener=
gy trader, the Enron Corporation, agreed to be acquired yesterday by the ri=
val Dynegy Inc. for about $9 billion in stock and the assumption of $13 bil=
lion in debt.=20

The deal is an extraordinary turnabout for Enron, a Houston-based company t=
hat had been a driving force behind electricity deregulation nationwide.

Its chairman, Kenneth L. Lay, a big contributor to the Republican Party, pr=
ovided political influence, while its former chief executive, Jeffrey K. Sk=
illing, helped create markets for the trading of electricity and natural ga=
s. But last winter, when California's effort to deregulate the electricity =
market led to soaring power prices and rolling blackouts, Enron was the sub=
ject of much criticism and political anger.=20

Recent disclosures of discrepancies in Enron's financial statements and an =
investigation by the Securities and Exchange Commission caused the shares t=
o plunge this week to their lowest level in a decade. As other companies be=
came wary of doing business with it, Enron -- also facing a potential cash =
squeeze -- apparently had little choice but to find a buyer, and a deal was=
 hastily cobbled together this week.=20

For critics who had complained about Enron's market power and its dominance=
, the combination poses additional concerns. Dynegy's acquisition of Enron =
will be reviewed by state and federal agencies, led by the Justice Departme=
nt and the Federal Energy Regulatory Commission. Analysts said today that t=
hey expected scrutiny of the combined companies' holdings in California, wh=
ere Dynegy owns power-generating plants and Enron accounts for much of the =
trading of natural gas -- fuel for the state's electric power plants.=20

Buying Enron at a deep discount -- it has lost $60 billion in market value =
this year -- could make Dynegy the dominant trader of electricity and natur=
al gas. But the agreement carries big risks as well. Along with Enron's gas=
 pipelines and high-technology trading floor, Dynegy will take on Enron's s=
ubstantial debt and a web of complex transactions that Enron has spun over =
the last decade.=20

In addition to the $13 billion in debt that Enron carries on its books, it =
has guaranteed at least $4 billion in off-balance sheet loans, and the hidd=
en debt could total as much as $10 billion, said Carol Coale, a stock analy=
st with Prudential Securities.=20

Charles L. Watson, Dynegy's chairman and chief executive, said yesterday th=
at Dynegy could sort through Enron's tangled finances. ''We know the compan=
y well,'' Mr. Watson said. ''It's not like we just started fresh. I'm confi=
dent that it's as solid as we thought it was.''=20

The new company will combine Enron's 25,000-mile natural gas pipeline syste=
m with the large number of power plants that Dynegy owns worldwide, as well=
 as Illinois Power, a Dynegy subsidiary that serves 650,000 customers in Il=
linois. But its most important asset will be its trading desk. It will be t=
he largest energy trader in the nation, trading more than twice as much pow=
er and natural gas as its closest competitors.=20

Mr. Watson said the company did not expect to sell significant properties a=
nd that the deal should pass regulatory scrutiny. ''There's really not a lo=
t of overlap in assets,'' he said.=20

Mr. Watson and Steve Bergstrom, Dynegy's president, will hold those positio=
ns in the new company, which will be called Dynegy and remain in Houston. M=
r. Lay, who created Enron in the mid-1980's, will not have any role in the =
combined company's daily operations. He has been asked to join its board bu=
t has not provided an answer. ''The last three weeks haven't been a lot of =
fun,'' he said.=20

In a statement announcing the agreement yesterday afternoon, Mr. Watson sai=
d he was confident that the merger would produce a strong new company. ''En=
ron is the ideal strategic partner for Dynegy,'' Mr. Watson said. ''We will=
 keep a strong balance sheet and straightforward financial structure as key=
 priorities.''=20

To shore up Enron's finances, Dynegy will immediately put $1.5 billion into=
 Enron through ChevronTexaco, the giant oil company, which already owns 27 =
percent of Dynegy. Another billion dollars will be injected once the deal i=
s completed.=20

Investors appeared comfortable yesterday that Dynegy could make the deal wo=
rk. After falling $3, to $33, on Wednesday, when the companies first said t=
hey were in discussions, Dynegy rose $5.76 on Thursday and yesterday to clo=
se the week at $38.76.=20

''On paper, it works,'' Ms. Coale of Prudential said. ''The combined compan=
y would be the leading trader, the market leader in most of their businesse=
s.'' Ms. Coale, who has a sell rating on Enron and a buy rating on Dynegy, =
said she planned to keep her buy rating on Dynegy.=20

As it works to have the deal approved, Dynegy will have to persuade Enron's=
 traders to stay with the combined company. The pain of the stock's 90 perc=
ent plunge this year will not be equally shared. Some Enron employees have =
held onto their shares and seen their retirement accounts eviscerated. Mean=
while, Mr. Lay, Mr. Skilling and other former and current executives sold h=
undreds of millions of dollars in Enron stock in 2000 and this year.=20

The companies also have very different corporate cultures. Dynegy emphasize=
s teamwork, while Enron is more competitive, said Ehud Ronn, director of th=
e Center for Energy Finance Education and Research at the University of Tex=
as. Even before the merger was announced, Enron had lost some of its employ=
ees to other energy trading companies, Mr. Ronn said.=20

Some investors and analysts say that the problems with Enron's finances may=
 extend beyond the partnerships that have been the subject of Wall Street's=
 scrutiny the last month. James Chanos, a short-seller who has been one of =
Enron's most vocal critics, said there was increasing evidence that Enron's=
 energy trading operations were not as profitable as the company had said. =
''There appears to be a culture at Enron of aggressively booking profits an=
d deferring or obscuring losses,'' Mr. Chanos said.=20

On Thursday, Enron said in a filing with the S.E.C that it had overstated i=
ts earnings by almost $600 million over the last five years. Mr. Chanos sai=
d more restatements were possible, noting that the filing disclosed partner=
ships had been used to hedge almost $1 billion in losses in 2000 and this y=
ear. So far, the losses from those partnerships remain off Enron's financia=
l statements, Mr. Chanos said.=20

Enron's stock had been under pressure for most of this year, as the company=
 ran up large losses with failed efforts to expand outside its core trading=
 operation. In August, Mr. Skilling resigned as chief executive, and Mr. La=
y resumed control of daily operations.=20

Still, the company appeared financially sound until last month, when it dis=
closed that its shareholders' equity, a measure of the company's value, dro=
pped by $1.2 billion because of deals disclosed only hazily in its financia=
l statements. The announcement unnerved investors, who wondered whether Enr=
on had found ways to inflate its profits and move debt off its balance shee=
t, and led the S.E.C. to begin an investigation.=20

Mr. Lay tried to reassure investors that Enron's finances were in order and=
 that its businesses remained strong. But the last three weeks have brought=
 a series of damaging revelations about partnerships that Enron formed with=
 some of its top executives, including its former chief financial officer, =
Andrew S. Fastow.=20

With questions mounting, the major credit-rating agencies began to downgrad=
e Enron's debt, putting additional pressure on the company. If Enron's debt=
 rating falls below investment grade, it would be forced to repay $3.3 bill=
ion in loans that it had guaranteed.=20

To strengthen its balance sheet and bolster its stock, Enron turned to big =
investors like Warren E. Buffett in search of billions of dollars of financ=
ing. When the financing did not quickly appear, its stock fell further.=20

By this week, some major energy traders were refusing to extend credit to E=
nron, worrying that the company would be unable to make good on its contrac=
ts. The Mirant Corporation, an Atlanta-based power plant owner and electric=
ity trader, sharply curtailed its trading with Enron this week. ''We're tra=
ding with them on a very limited basis,'' said James Peters, a Mirant spoke=
sman. ''It's not business as usual.''=20

On Wednesday, Enron's stock fell as low as $7 a share, its lowest level in =
more than a decade. That day, news of the Enron and Dynegy talks leaked out=
.=20

By late Wednesday, the boards of the two companies had tentatively agreed t=
o a deal. But Dynegy refused to go ahead until it learned whether Enron's c=
redit rating would remain investment grade and was comfortable with the eff=
ect of the deal on its own rating. The deal moved forward yesterday after D=
ynegy was assured Enron's debt was not in danger of being lowered to junk s=
tatus soon after the deal was announced, according to company officials.=20

Dynegy and Enron had provided Standard & Poor's and Moody's Investors Servi=
ce, the main credit agencies, with statements showing them what a combined =
company might look like and asked the ratings agencies for an expedited rev=
iew of the transaction, Mr. Watson said.=20

Under the deal, Enron shareholders will receive 0.2685 share of Dynegy stoc=
k for each Enron share, or $9.80 based on Dynegy's closing price on Thursda=
y. Enron's stock gained 22 cents yesterday, to $8.63.=20

''I never thought our stock price would be at this level,'' Mr. Lay said ye=
sterday.=20

Enron's shareholders will own only 36 percent of the combined company, and =
Dynegy will name at least 11 members of the company's 14-member board.=20

If the deal falls apart, Enron or Dynegy will have to pay a breakup fee of =
$350 million.=20

To protect Dynegy's and ChevronTexaco's cash infusion, the money will go to=
 an Enron unit that owns the Northern Natural Gas Pipeline. If the merger i=
s not completed, Dynegy will have the right to buy the unit.=20

An army of bankers and lawyers advised the companies. Lehman Brothers Inc. =
acted as financial adviser and Baker Botts and Akin, Gump, Strauss, Hauer &=
 Feld acted as counsel for Dynegy. J. P. Morgan & Company and Salomon Smith=
 Barney acted as financial advisers for Enron, and Vinson & Elkins and Weil=
 Gotshal & Manges acted as the company's counsel. Pillsbury Winthrop served=
 as counsel to ChevronTexaco.

Chart: ''A Marriage of Strength and Weakness'' A merger of Enron and Dynegy=
 would bring together two of the country's biggest energy companies -- and =
save Enron from potential collapse. Graph tracks the weekly closes of Enron=
 shares from 1999 through 2001. Top North American gas marketers SALES, OF =
BILLION CUBIC FEET PER DAY* Enron: 24.6 Reliant: 13.2 Duke Energy: 12.8 BP:=
 12.3 Mirant: 11.8 Dynegy: 10.9 Top North American power marketers SALES, O=
F MILLION MEGAWATT HOURS* Enron: 212.5 American Electric Power: 134.5 Duke =
Energy: 118.1 Reliant Resources: 86.1 PG&E National Energy Group: 73.2 Dyne=
gy: 70.1 *Figures are for the 2nd quarter of 2001. (Sources: Bloomberg Fina=
ncial Markets; Simmons & Co.; Natural Gas Week)(pg. C2)

...........................................................................=
..........................................................=20

Dynegy, Enron Merger Deal Worth Almost $25 Billion
Melita Marie Garza

11/10/2001
KRTBN Knight-Ridder Tribune Business News: Chicago Tribune - Illinois=20
Copyright (C) 2001 KRTBN Knight Ridder Tribune Business News; Source: World=
 Reporter (TM)=20

Enron Corp., the nation's biggest power trader, was taken over by its small=
er, more conservative rival, Dynegy Inc. in a merger deal valued at nearly =
$25 billion, company officials announced Friday.=20

The combined company will be called Dynegy Inc. and will be headed by Chuck=
 Watson, Dynegy's chairman and chief executive. If it wins regulatory and s=
hareholder approval, the deal would propel Dynegy, the sixth-largest U.S. p=
ower trader, to the No. 1 position, with more than 30 percent of the market=
.

The Houston-based competitors are new-breed energy companies, formed to cap=
italize on wholesale power marketing and trading, with Dynegy emphasizing i=
ts own power generation capabilities.=20

Enron, meanwhile, has been laid low in recent weeks by soured transactions =
with energy partnerships run by one of its former executives and by a serie=
s of revelations about questionable accounting practices. Enron this week w=
as forced to restate its earnings over the past five years -- revising them=
 downward by 20 percent, or $586 million -- and has seen its stock price pl=
unge more than 80 percent in the past three weeks.=20

Both Enron and Dynegy have extensive business dealings in Illinois, one of =
the first states to begin deregulating its electric power industry; among o=
ther things, Dynegy owns Illinois Power, a Downstate utility.=20

The new Dynegy would become one of the largest companies in the world, with=
 revenues exceeding $200 billion and assets of roughly $90 billion, company=
 officials said. By comparison, ExxonMobil, the nation's largest company, r=
eported revenues of $232.7 billion in 2000.=20

"We needed to do something to strengthen our balance sheet and get the inve=
stor community focused on the core energy business," said Kenneth Lay, Enro=
n's chairman and chief executive. "We looked at several alternatives; this =
was in the best interests of our employees and shareholders."=20

Lay said he would not have a role in running the new company, but was consi=
dering a request to serve on the newly combined board.=20

Watson, Dynegy's chairman, said the merger compact included escape clauses =
for Dynegy. "But, I wouldn't be standing here if I expected to see that (us=
ed). I really believe the value degradation in Enron had nothing to do with=
 their core business. We looked under the hood, it is just as strong as we =
thought it was."=20

Still, Watson acknowledged the possibility that more problems may surface a=
t Enron. "I don't think anybody can absolutely unequivocally say there's no=
thing (more) there," he said.=20

Dynegy's stock price closed higher Friday, rising $2.26, or 6.2 percent, to=
 $38.76. Enron's stock was down 33 cents, or 3.7 percent, at $8.63 a share.=
=20

Together, the companies have natural gas sales of about 40 billion cubic fe=
et per day through the third quarter of 2001 and power sales exceeding 500 =
million megawatt hours through the third quarter of 2001. In addition, the =
new Dynegy's delivery network will include more than 22,000 megawatts of ge=
nerating capacity and 25,000 miles of interstate pipelines. In Enron, Dyneg=
y is taking on a company saddled with a heavy debt load and a credit rating=
 that has been downgraded to near junk bond status and is under the cloud o=
f a Securities and Exchange Commission investigation.=20

Under the stock for stock swap portion of the deal, valued at $8.846 billio=
n, Dynegy is paying about $10.41 a share for the 850 million outstanding En=
ron shares. Dynegy would pay .2685 shares of its stock for each share of En=
ron.=20

In addition, Dynegy agreed to provide $1.5 billion infusion in cash to help=
 stabilize its much larger competitor and assume an estimated $15 billion i=
n debt.=20

Just Thursday Enron reported that its debt was an estimated $12.9 billion p=
ending completion of financial statements dated Sept. 30. A day later the c=
ompany's accounting of its debt jumped $2 billion.=20

Dynegy's current shareholders, including Chevron Texaco Corp., will end up =
owning 64 percent of the new company. Chevron Texaco said it would invest a=
n additional $2.5 billion in Dynegy.=20

Enron's stockholders will own about 36 percent of the combined company's st=
ock at closing, which is anticipated for the third quarter of 2002.=20

In Illinois, in addition to Illinois Power, Dynegy owns a Chicago area elec=
tricity peaker plant and is a partner with Nicor Inc., in Nicor Energy, an =
unregulated natural gas utility in the Chicago area.=20

Enron's subsidiary, Enron Energy Services, has a high-profile contract to p=
rovide 60 percent of Chicago city government's electricity. It also has con=
tracts to provide electricity to Quaker Oats Co. and the University of Chic=
ago, among others.=20

In addition to Watson, other top Dynegy management will remain in place in =
the new company. Steve Bergstrom, president of Dynegy Inc., and Rob Doty, c=
hief financial officer of Dynegy Inc., will retain those positions in the c=
ombined company. Enron's current president and chief operating officer, Gre=
g Whalley, will become an executive vice president of the new Dynegy. The b=
oard of directors of the combined company will be comprised of 14 members. =
Dynegy's 11 designees will include three from ChevronTexaco. Enron will hav=
e the right to designate a minimum of three board members.

...........................................................................=
..........................................................=20

Business/Financial Desk; Section C
Regulators Struggle With a Marketplace Created by Enron
By JEFF GERTH with RICHARD A. OPPEL Jr.

11/10/2001
The New York Times=20
Page 1, Column 2
c. 2001 New York Times Company=20

WASHINGTON, Nov. 9 -- For years, the Enron Corporation used its political m=
uscle to build the markets in which it thrived, pushing relentlessly on Cap=
itol Hill and in bureaucratic backwaters to deregulate the nation's natural=
 gas and electricity businesses.=20

Its achievement, as one Enron executive said today, in creating a ''regulat=
ory black hole'' fit nicely with what he called the company's ''core manage=
ment philosophy, which was to be the first mover into a market and to make =
money in the initial chaos and lack of transparency.''

Now, Wall Street's dissatisfaction with Enron's secretive ways has delivere=
d the company into the arms of its much smaller Houston rival, Dynegy Inc.,=
 in a deal worth about $9 billion in stock and the assumption of $13 billio=
n in debt. The combination of the two companies, energy experts and lawmake=
rs said today, poses a novel set of challenges for regulators still struggl=
ing to grasp the complexities of the marketplace that Enron invented.=20

''We're in a supersonic-speed era of electronic trading with a horse-and-bu=
ggy-era regulatory system to protect consumers,'' said Representative Edwar=
d J. Markey, a Massachusetts Democrat who has devised legislation to close =
the regulatory gap.=20

Dynegy's acquisition of Enron is expected to be reviewed by numerous state =
and federal agencies, led by the Justice Department, the Federal Trade Comm=
ission and the Federal Energy Regulatory Commission.=20

Analysts said today that sharp scrutiny would be given to the combined comp=
anies' holdings in California, where Dynegy owns generating plants and Enro=
n controls a large part of the market for trading natural gas -- the fuel f=
or a big share of the state's electric power plants.=20

''Dynegy would now have a greater ability to take the dominant position in =
gas and raise the price of electricity,'' said Frank Wolak, a professor of =
economics at Stanford University.=20

Mr. Wolak, a consultant to the Justice Department on a 1999 antitrust case =
that led to limits on another merger of electricity and natural gas compani=
es in Southern California, said he was skeptical that regulators were up to=
 the task of reviewing today's deal.=20

The transaction ''is something the Department of Justice needs to look at, =
and they are going to have a hard time looking at,'' Mr. Wolak said. ''And =
it's beyond the ability of the F.E.R.C. to look at.''=20

Pat Wood -- named chairman of the federal energy commission earlier this ye=
ar with the backing of Kenneth L. Lay, the chairman of Enron -- acknowledge=
d in an interview today that the agency had ''a long way to go'' in matchin=
g the sophistication of the companies it regulates.=20

But he said that the commission had made great strides in grappling with th=
e new risk management techniques pioneered by Enron, Dynegy and other energ=
y companies. It is hiring more experts, he said, adopting more restrictive =
rules on how much ''market power'' one party can control and requiring more=
 disclosure of certain energy transactions.=20

In an interview this evening, Charles L. Watson, the chairman of Dynegy, sa=
id he did not believe that regulators reviewing the deal with Enron would r=
equire the sale of any assets. ''We haven't really identified any pitfalls =
that require any sort of asset divestiture,'' he said. ''There's not really=
 any overlap.''=20

A senior executive at one of Enron's largest energy-trading rivals disagree=
d. ''I don't think this deal gets through unscathed,'' he said today. ''I'm=
 sure the Justice Department and the F.T.C. will look closely at the pretty=
 substantial concentration of market power these companies will have in the=
 energy-trading area.''=20

Enron is mainly a trader of natural gas and electricity -- indeed, the bigg=
est player in both those markets -- and it also owns a network of gas pipel=
ines. Dynegy processes and sells natural gas and generates and sells electr=
icity. Each company owns a local electric utility, too: Dynegy owns Illinoi=
s Power in Decatur, Ill., while Enron owns Portland General Electric in Por=
tland, Ore., but last month announced plans to sell it to another Oregon ut=
ility.=20

For a decade, as it transformed itself from a gas pipeline operator into th=
e nation's biggest energy trader, Enron enjoyed unalloyed lobbying success =
in Washington and the enthusiastic backing of Wall Street.=20

In the early months of the Bush administration, Mr. Lay -- whose company wa=
s one of the biggest financial backers of George W. Bush's presidential cam=
paign -- played a prominent, and some said unusual, role in helping the Whi=
te House pick nominees to the federal energy commission. Enron executives m=
et with Vice President Dick Cheney, whose energy task force backed many of =
the deregulatory initiatives pushed by Mr. Lay.=20

Now, ''the company has become a pariah,'' an Enron executive said today. ''=
The Bush administration doesn't want to have anything to do with us.''=20

The problems began with the energy crisis in California, where Enron's outs=
poken defense of deregulation, even more than its electricity trading activ=
ities, made the company a favorite whipping boy of politicians and consumer=
 advocates. In the financial markets, meanwhile, Enron's confusing disclosu=
res, tolerated when its stock was soaring, drew disdain as the calming of t=
he energy storms in California and other parts of the country beat the shar=
es down, starting last spring.=20

''Enron fell victim to their own inconsistencies on transparency,'' Mr. Wol=
ak said. As California officials sought to understand why energy prices had=
 soared out of control, he said, Enron's ''view was that we want everybody'=
s data, but if you want ours, get a subpoena.''=20

Energy executives and regulators said that sort of arrogance had long marke=
d Enron's attitude about government oversight.=20

Electricity sales had for decades been the job of local utility companies, =
operating as monopolies and selling power at regulated rates within their s=
ervice areas. A few entrepreneurs, led by Mr. Lay, conceived a different mo=
del in which power could be sold by generators or middlemen to big corporat=
e users or utilities in faraway regions, at whatever price the market would=
 bear.=20

In the early 1990's, Congress -- under heavy lobbying by Enron -- passed le=
gislation that began to open up electricity sales to marketers. Before long=
, Enron became one of the first companies to receive government approval to=
 sell electricity at market rates. The market for interstate sales of natur=
al gas had been freed up a few years earlier, and critics complained that t=
raders like Enron were gleaning their profits by stoking volatility in gas =
prices.=20

In the mid-1990's, independent gas producers backed legislation in Congress=
 to allow the creation of a co-operative marketing organization, which, the=
y hoped, would have helped stabilize prices.=20

Raymond Plank, the chairman of the Apache Corporation, a gas producer based=
 in Houston, said that the big gas marketing and trading companies, includi=
ng Enron, successfully lobbied to kill the plan, leaving prices as volatile=
 as ever.=20

''It was a great concept,'' Mr. Plank said. ''We could have headed off the =
problems we have today.''=20

Enron's final lobbying success came last year. With a strong push from the =
company's lobbyists, Congress passed futures trading legislation that exemp=
ted Internet energy trading platforms like EnronOnline, the industry leader=
, from oversight by the Commodity Futures Trading Commission. Enron takes t=
he other side of trades on its exchange. In traditional markets like the Ne=
w York Mercantile Exchange, which remain subject to oversight, the exchange=
 acts as a middleman between buyers and sellers.=20

Under Mr. Watson, Dynegy has been less of a pathbreaker than Enron, and tho=
ugh California politicians denounced it, too, as a profiteer during the ene=
rgy crisis, most analysts say it has been less aggressive than Enron in bot=
h its business practices and its lobbying.=20

Indeed, the rival energy-trading executive today predicted ''a huge culture=
 clash'' as the Houston neighbors merge. ''Blood will flow in Houston over =
the integration of the trading operation,'' he said.=20

But regulators may find Dynegy easier to deal with.=20

Earlier this year, the federal energy commission asked for comments on whet=
her it should tighten scrutiny of dealings between natural gas pipelines an=
d energy-trading shops owned by the same company.=20

Enron wondered what all the bother was. ''Would stricter rules prevent real=
 affiliate abuse that current rules do not,'' it wrote in a regulatory fili=
ng, ''or would they instead merely restrict the activities of some of the m=
ore successful participants in the marketplace?''=20

Dynegy, by contrast, painted a grim picture and invited regulators to crack=
 down. ''Abuses abound,'' it said, ''because of financial windfalls, diffic=
ulty of detection, lengthy investigations and increased complexity of the m=
arket.''

...........................................................................=
..........................................................=20
=20
Report on Business: Canadian
Dynegy to buy troubled rival Enron
Reuter News Agency

11/10/2001
The Globe and Mail=20
Metro
B4
"All material Copyright (c) Bell Globemedia Publishing Inc. and its licenso=
rs. All rights reserved."=20

NEW YORK -- Energy provider Dynegy Inc. agreed yesterday to acquire fast-si=
nking rival Enron Corp. for $9.5-billion (U.S.), signalling the demise of a=
 company that just months ago was one of Wall Street's highest fliers.=20

Terms of the transaction call for Dynegy to swap 0.2685 shares of its own s=
tock for each Enron share, the companies said. That would value Houston-bas=
ed Enron at $10.41 a share, including convertible stock, a premium of 21 pe=
r cent over yesterday's closing price of $8.63.

ChevronTexaco Corp., which owns a 27-per-cent stake in Dynegy, has agreed t=
o infuse $1.5-billion immediately into Enron to support it until the deal c=
loses. "With its market-making capabilities, earnings power and proven stra=
tegic approach to wholesale markets, Enron is the ideal strategic partner,"=
 said Dynegy chairman and chief executive officer Chuck Watson.=20

Enron, the United States' largest energy trader, has been struggling to ove=
rcome a plummeting stock price and credit rating in the past month followin=
g disclosures of deals being investigated by the U.S. Securities and Exchan=
ge Commission for possible conflict of interest.

...........................................................................=
..........................................................=20
=20

Financial Desk
The Nation Smaller Rival to Acquire Teetering Enron Power: Energy giant tha=
t pressed for deregulation in California is on the brink of collapse.
NANCY RIVERA BROOKS; THOMAS S. MULLIGAN; NANCY VOGEL
TIMES STAFF WRITERS

11/10/2001
Los Angeles Times=20
Home Edition
A-1
Copyright 2001 / The Times Mirror Company=20

Enron Corp., the once-highflying energy giant whose aggressive efforts to p=
rofit from California's energy deregulation made it a target of consumer an=
d political backlash, on Friday agreed to be saved from possible financial =
collapse through a proposed acquisition by rival Dynegy Inc.=20

The roughly $7.7-billion deal is a stunning plot twist for Houston-based En=
ron, which was vilified in California as it was being glorified on Wall Str=
eet. In only the last month, a series of disturbing financial revelations p=
ushed to the edge of ruin this once-powerful company, whose top executives =
had lectured California on its energy foibles and who influenced the direct=
ion of national energy policy.

Enron muscled its way to the top of the energy heap using aggressive and, i=
n the end, financially suspect strategies that proved its undoing.=20

Now, the company that late last year had a market value of $63 billion is w=
orth one-tenth that and has agreed to be swallowed by a cross-town competit=
or one-quarter its size. Enron's proud and influential chairman and chief e=
xecutive, Kenneth L. Lay, who became a focus of bitter attacks by Californi=
a politicians and regulators, would lose his job, as would many others at E=
nron.=20

Even the name would disappear. The combined company would be called Dynegy =
Inc. if the deal receives all the necessary regulatory and shareholder appr=
ovals.=20

California officials took no joy in Enron's fate Friday, though there was p=
erhaps some sense of retribution from its many critics in the state.=20

"This is basically a rogue corporation," said Sen. Steve Peace (D-El Cajon)=
, an outspoken critic of Enron for years who dealt with the company as he c=
haired the committee that hammered out the legislative portion of Californi=
a's landmark electricity deregulation plan in 1996. "It has from the beginn=
ing been a rogue corporation which answered in its mind to a higher law--a =
fundamental belief that there are laws of economics that supersede the law =
of the land."=20

A Failed Experiment=20

Steve Maviglio, spokesman for Gov. Gray Davis, said that although Enron was=
 never a major force in California's doomed electricity market, it was outs=
poken in support of deregulation.=20

"In a sense, their experiment was much like California's experiment--a fail=
ure," he said.=20

Said Harvey Rosenfield, president of the Foundation for Taxpayer and Consum=
er Rights in Santa Monica: "Nothing could better illustrate the disaster of=
 deregulation than the fact that one of its biggest proponents, which reape=
d the reward of deregulation, is suffering the consequences."=20

Enron is the world's largest energy trader, handling one of four energy dea=
ls in the United States through its online trading operation, EnronOnline. =
Since it reported a surprising third-quarter loss on Oct. 16, partly tied t=
o shadowy investment vehicles, Enron has endured a huge loss of investor co=
nfidence, which brought on a massive cash crunch and some shrinkage of its =
trading business.=20

Under the deal announced Friday, Dynegy, invited in two weeks ago after Enr=
on fell short in its efforts to line up new financing, would immediately he=
lp Enron by pouring $1.5 billion in cash into the company. The money would =
be provided by ChevronTexaco Corp., the San Francisco oil company that owns=
 nearly 27% of Dynegy.=20

Enron shareholders would get 0.2685 Dynegy share for each Enron share, whic=
h values the company at about $7.7 billion based on Friday's stock close. D=
ynegy shares surged $2.26 to close at $38.76 per share on the New York Stoc=
k Exchange; Enron added 22 cents to close at $8.63 per share, still off 89%=
 year to date.=20

If the deal closes in six to nine months, as the parties expect, Dynegy and=
 ChevronTexaco would invest $1 billion additionally in the combined company=
.=20

"This is just a financial bonanza really for both companies," said Charles =
L. Watson, Dynegy chairman and chief executive, who will head the combined =
company. Watson said the merger would immediately add to Dynegy's earnings.=
=20

Even so, the repercussions of Enron's fall from grace could be far-reaching=
. Coming on the heels of California's energy crisis, Enron's troubles may s=
low the country's march toward energy deregulation, which Lay and Enron cha=
mpioned for years as a potential boon to consumers and the economy in gener=
al.=20

But the deal announced Friday will prevent an even worse outcome, energy ex=
perts said: the threatened collapse of Enron, which would clog up for a tim=
e the business of buying and selling electricity, natural gas and oil. That=
 could interfere with delivery of energy around the country, they said.=20

"This is an encouraging development for the energy industry," said Stephen =
Baum, chairman of Sempra Energy, the San Diego-based parent of Southern Cal=
ifornia Gas and San Diego Gas & Electric. "The Enron-Dynegy combination wil=
l create a credit-worthy counter-party which will help preserve order in th=
e marketplace. It also will reinforce confidence in the energy trading busi=
ness going forward."=20

But some in the industry are less pleased.=20

Raymond Plank, chairman of Apache Corp., a Houston-based natural gas explor=
ation and development firm, said he is considering a motion to the Federal =
Trade Commission against the proposed merger.=20

"There are issues of concentration in a combination of the largest energy t=
rader, Enron, and the fifth-largest, Dynegy," Plank said. "California shoul=
d be particularly concerned because Dynegy owns power plants there and Enro=
n has pipelines and other interests."=20

Troubles Mount as Stock Plunges=20

The swagger that was Enron is long gone. Consider:=20

* Enron's brash chief executive, Jeffrey K. Skilling, touted only months ag=
o as one of the young stars of American business, abruptly resigned in Augu=
st, citing personal reasons. Enron's stock already had fallen from its high=
 of nearly $90 per share as investments in water and telecommunications tur=
ned sour, a fact that contributed to Skilling's departure.=20

* The Securities and Exchange Commission has launched an investigation of E=
nron's controversial dealings with a number of limited partnerships, some o=
rganized and run by Enron managers, including Enron Chief Financial Officer=
 Andrew S. Fastow, who was ousted last month.=20

* In an extraordinary confession Thursday, Enron announced that it had over=
stated profit by $586 million, or 20%, during the last five years. The earl=
ier financial statements reported to Wall Street and the investing public, =
Enron said, "should not be relied upon."=20

* The company also fired its treasurer and a corporate lawyer, both of whom=
 it said were investors in one of the limited partnerships. Yet some analys=
ts questioned whether, even in its admission of accounting trickery, Enron =
wasn't still holding something back.=20

* Credit-rating agencies, which already have downgraded Enron's bonds to ba=
rely above "junk" status, continue to pore over Enron's books. Analysts hav=
e said a further downgrade to the level of junk, or below investment grade,=
 could precipitate a crisis akin to a run on a bank and threaten Enron's su=
rvival while the merger is pending.=20

With its stock crumbling and trading partners leery about its ability to pa=
y its debts, Enron was forced to walk hat in hand down Houston's Energy All=
ey to negotiate a saving takeover by Dynegy, the rival once jokingly dismis=
sed as "Enron Lite."=20

In the trading markets where Enron still holds a leading but increasingly v=
ulnerable position, other players already are stepping up to grab a bigger =
share of the business. Even if Enron's trading operation survives more or l=
ess intact, under the wing of a Dynegy or some other company, experts said =
it may never regain its former level of dominance.=20

"Enron has been a very innovative shop, willing to spend considerably to es=
tablish new markets," said analyst Andre Meade of Commerzbank Securities in=
 New York. "If that culture is not kept, everyone loses."=20

Skilling and mentor Lay had worked for a decade to create both a new kind o=
f company and a new set of markets for it to play.=20

In large part, they succeeded. Enron transformed itself from a traditional =
gas pipeline company into a high-tech global trader of everything from elec=
tricity to pollution credits to aluminum. The company's overarching strateg=
y was to pare its physical assets to the minimum to get the maximum profit =
bang from its intellectual capital: the ranks of MBAs and PhDs that filled =
its Houston trading floor.=20

Rather than maintain its own expensive gas fields and power plants--which i=
t relegated to stodgy utilities and oil companies--Enron would handle every=
thing by contract, relying on a network of suppliers to obtain, store and d=
eliver the goods while the company focused on squeezing out the best price.=
=20

Dynegy, in contrast, has invested in such energy assets, including three po=
wer plants in Southern California. It uses those assets to back its trading=
 operation, which is much smaller than Enron's.=20

Enron pulled off a migration from the "dirty" extreme of the oil patch, the=
 asset-intensive domain of drillers and explorers, to the "clean" end, wher=
e all the deals are done on a computer screen. It also was a migration from=
 lower profit margins and lower risk to high margins and high risk.=20

Shannon B. Burchett, chief executive of Risk Limited Corp., an energy-orien=
ted strategic-management consultancy in Dallas, compared Enron to the inves=
tment bank Salomon Bros., where he used to work in the former PhiBro commod=
ities unit.=20

Enron, Burchett said, embodies "a Wall Street culture that happens to be in=
 Houston."=20

Wall Street certainly "got it," or thought it did.=20

Accounting Rules Pushed to the Limit=20

At Enron's zenith last year, when its stock peaked near $90 a share and it =
was pushing into esoteric markets for weather derivatives and fiber-optic b=
andwidth, Enron seemed to be a one-company wave of the future.=20

Enron's aggressiveness, brainpower and willingness to back radical new idea=
s with serious capital helped it acquire an aura that in some ways was its =
undoing, analysts said.=20

Investors accorded Enron's stock a price-to-earnings valuation that was con=
sistently higher than those of its peers, reflecting the view that its cutt=
ing-edge business model could consistently deliver faster-growing profit th=
an its competitors.=20

To keep profits arcing ever upward to justify the outsize valuation, Enron =
began pushing the accounting rules as hard as it pushed competitors in the =
trading arena. It acknowledged as much in its statement Thursday, conceding=
 that the operations of three of the limited partnerships should have been =
consolidated with Enron's own financial statements instead of being held se=
parate.=20

By raising capital and running deals through the limited partnerships, Enro=
n could keep large amounts of debt and certain volatile assets off its own =
balance sheet, while simultaneously booking profit from the partnerships' t=
ransactions, analyst Meade said.=20

Deals Backed by Costly Guarantees=20

One risky aspect of some of Enron's deals through the partnerships was what=
 Meade called a "double-trigger guarantee," under which Enron would pledge =
a cash payout if either its bond rating fell below investment grade or its =
stock declined below a certain price.=20

The guarantees must have seemed a cheap way to sweeten a deal when Enron's =
stock was flying high, but they came back to haunt the company later, when =
it had to pay cash to make good on its obligations, Meade said.=20

Other energy-trading companies use similar devices, but Enron carried it to=
 an extreme and disclosed too little detail to make the process understanda=
ble to investors, he said.=20

Enron's magic, like that of the Internet-stock phenomenon, had never been e=
asy to understand in the first place. The company had a reputation among an=
alysts for providing scanty financial detail and hard-to-grasp explanations=
 of some of its dealings.=20

But as long as the reported profit kept climbing, Enron kept getting the be=
nefit of the doubt.=20

M. Carol Coale, a respected Houston-based analyst for Prudential Securities=
, ruefully recalled a time last winter when she told Enron she could find "=
no positive catalyst for the stock" and was considering downgrading her inv=
estment opinion.=20

Skilling telephoned Coale and asked her to hold off, promising her that the=
re was unspecified good news on the horizon that would justify her faith.=
=20

"I believed him," Coale said last week in an interview in Houston. She held=
 her rating steady at that time but has since downgraded Enron to an outrig=
ht "sell."=20

Instead of Skilling's promised good news, questions mounted during the spri=
ng, and Enron's stock continued a steady decline. Coale and other analysts =
were troubled that a large proportion of Enron's earnings seemed to come no=
t from its core trading operations but from unusual transactions involving =
the company's own stock or that of affiliates.=20

In California, Enron played a key role as chief cheerleader for electricity=
 deregulation and a key energy middleman in the state. As wholesale electri=
city prices soared and the state plunged into its energy crisis late last y=
ear, Enron and other out-of-state electricity generators and traders became=
 favorite targets of California politicians and regulators, who said the co=
mpanies were manipulating the market and charging too much for power.=20

But significantly, California was not a directly successful territory for E=
nron.=20

Markets in water did not develop as Enron subsidiary Azurix envisioned. And=
 Enron's plans for selling electricity to retail customers were deferred ev=
en as deregulation took effect in 1998 because the state's deregulation for=
mulas didn't allow room for retail competition.=20

Lay complained about California frequently and met with the governor to try=
 to influence the state's moves to repair its energy problems. In an interv=
iew in his Houston office in January--overlooking Enron's new headquarters =
building, which is still under construction as the company's name disappear=
s--Lay said he and other Enron executives had objected to the way Californi=
a regulation was set up.=20

"We objected more vehemently than anyone. We opposed the concept of the poo=
l," he said, referring to the now-defunct California Power Exchange, in whi=
ch most of the state's power was bought and sold in an hourly market. "What=
 competitive market in the world has a pool? We don't buy our groceries thr=
ough a centralized PX."=20

Enron also backed away from building a small power plant in California last=
 year when the state imposed price caps.=20

One of the loudest complaints by Davis and other California officials was t=
hat generators of electricity were playing "games" to get higher prices.=20

They criticized Enron severely, too, even though it was not a major generat=
or, because the level of its worldwide trading operations--buying and selli=
ng contracts worth billions of dollars in electric power every day--gave En=
ron immense sway over pricing and supplies of electricity. They also believ=
e that Enron and Lay helped play a part in the reluctance of federal regula=
tors for several months to place restraints on the California marketplace.=
=20

CEO's Future Role Uncertain=20

"Millions of people in California businesses lost money because this rogue =
company succeeded in controlling the government of the United States," said=
 state Sen. Peace, one of the architects of the state's deregulation plan.=
=20

"Ken Lay was a mystic," Peace said. "Whatever he said had to make sense bec=
ause he was Ken Lay. It was hero worship.=20

"Many of the people working as economists at the Federal Energy Regulatory =
Commission worshiped Ken Lay. As a consequence, the things Enron promoted a=
nd pushed for were never challenged, intellectually and otherwise."=20

Lay, who has been asked to sit on the board of the combined company, said F=
riday that he had not yet decided whether to accept.=20

He described his time building Enron as "a very long ride. It's been a very=
 good ride for the most part.=20

"I have to say the last few weeks have not been very much fun," he said.=20

*=20

Rivera Brooks reported from Los Angeles and Mulligan from Houston and New Y=
ork. Times staff writer James Flanigan in Los Angeles contributed to this r=
eport.=20

*=20

RELATED STORY=20

Fallen CEO: Enron's Lay is a brilliant man defeated by arrogance, associate=
s say. A22=20

RELATED STORY=20

Energy crisis: Power firms have seen their fortunes dim in recent months. S=
unday Business C1

PHOTO: Dynegy Chairman and Chief Executive Charles L. Watson, right, announ=
ces the merger, with Enron Chairman Kenneth L. Lay.; ; PHOTOGRAPHER: Associ=
ated Press; PHOTO: "This is just a financial bonanza really for both compan=
ies," says Charles L. Watson, Dynegy chairman and chief executive.; ; PHOTO=
GRAPHER: Associated Press

...........................................................................=
..........................................................=20

Dynegy to buy Enron
Associated Press

11/10/2001
Deseret News=20
D07
Copyright (c) 2001 Deseret News Publishing Co.=20

HOUSTON -- Energy marketer Dynegy Inc. announced Friday that it will buy it=
s much larger rival, the once mighty but now troubled Enron Corp., for $8 b=
illion in stock. Dynegy also will assume a hefty $15 billion in Enron debt.=
=20

The announcement came after Enron's stock price plummeted about 80 percent =
over the past three weeks because of concerns that the company wasn't revea=
ling serious financial problems to shareholders.

Under the deal, ChevronTexaco Corp., which owns more than a quarter of Dyne=
gy, would quickly provide about $1.5 billion. ChevronTexaco also would cont=
ribute an additional $1 billion upon completion of the deal, the companies =
said.=20

"With its market-making capabilities, earnings power and proven strategic a=
pproach to wholesale markets, Enron is the ideal strategic partner for Dyne=
gy," Dynegy chairman and chief executive officer Chuck Watson said in annou=
ncing the purchase.=20

Watson made it clear that he would not tolerate the sort of financial pract=
ices that prompted explosive disclosures by Enron this week -- including an=
 admission that more than half a billion dollars in debt had been kept off =
the company's books.=20

"As a combined company, we will focus on leveraging our core skill sets and=
, as always, we will keep a strong balance sheet and straightforward financ=
ial structure as key priorities," Watson said.=20

Enron is the country's top buyer and seller of natural gas, and the No. 1 w=
holesale power marketer. The company operates a 25,000-mile gas pipeline sy=
stem, and also markets and trades metals, paper, coal, chemicals and fiber-=
optic bandwidth.=20

Dynegy controls nearly 15,000 megawatts of power generating capacity throug=
h investments in power projects, and sells the energy in wholesale markets =
and through utilities.=20

At a news conference, Watson said company officials who negotiated the deal=
 came away convinced that Enron was worth buying despite its recent trouble=
s.=20

"We looked under the hood . . . it's just as strong as it ever was," Watson=
 said.=20

Under the terms of the deal, Enron shareholders will receive .2685 Dynegy s=
hare for each share of Enron common stock, valuing each Enron share at $10.=
41. Enron has about 775 million common shares, said spokeswoman Karen Denne=
.=20

That represents a 21 percent premium above Enron's closing price of $8.63 F=
riday on the New York Stock Exchange -- but still just a fraction of their =
52-week high of $84.87. Dynegy's shares climbed $2.26, or 6 percent, to clo=
se at $38.76 on the NYSE.=20

In after hours trading on the NYSE, Enron shares shot up 15.6 percent, or $=
1.35, to $9.98. Dynegy shares were unchanged.=20

Dynegy's stockholders will own approximately 64 percent of the new company,=
 with Enron's stockholders holding the remainder.=20

The boards of both companies have unanimously approved the transaction, whi=
ch is expected to close next summer. The deal is expected to save the combi=
ned company between $400 million and $500 million annually because of conti=
nued elimination of "non-core" Enron holdings and lower operating costs.=20

Watson will remain as chairman and chief executive of the combined company,=
 which will retain the Dynegy Inc. name. Steve Bergstrom will remain as pre=
sident of Dynegy.=20

Enron chairman and chief executive Kenneth L. Lay will no longer have a rol=
e in day-to-day management of the company, but has been offered a seat on t=
he combined company's board and will help shepherd the merger through.=20

"I am personally committed to working with Chuck Watson, Steve Bergstrom an=
d their colleagues in the months ahead to accomplish the merger and to buil=
d a solid foundation for future value creation," Lay said.=20

Dynegy said that Greg Whalley, the current president and chief operating of=
ficer of Enron, will become an executive vice president of the new Dynegy. =
He said the merger sets the best course for Enron.=20

"Few of the options we considered for our core business going forward provi=
ded us with the earning potential and immediate synergies that a merger wit=
h Dynegy could deliver," Whalley said. "Together with Enron's recently anno=
unced bank commitments, this cash infusion gives Enron immediate liquidity,=
 which we believe will enable the company to maintain its investment grade =
credit rating."=20

The merger was announced a day after Enron acknowledged it overstated earni=
ngs by about 20 percent over the past four years and kept large amounts of =
debt off its balance sheets through business partnerships now under investi=
gation by the Securities and Exchange Commission.=20

Analysts said the merger rescues Enron, but leaves Dynegy in uncharted terr=
itory -- with the outcome of the SEC investigation completely unknown. "The=
re is still a shroud hanging over Enron that now moves over to Dynegy," sai=
d Carol Coale, an analyst with Prudential Securities.

...........................................................................=
..........................................................=20


Business
Dynegy, Enron OK $25 billion deal ; New company would rank among largest
Melita Marie Garza, Tribune staff reporter

11/10/2001
Chicago Tribune=20
North Final ; N
1
(Copyright 2001 by the Chicago Tribune)=20

Enron Corp., the nation's biggest power trader, was taken over by its small=
er, more conservative rival, Dynegy Inc., in a merger deal valued at nearly=
 $25 billion, company officials announced Friday.=20

The combined company would retain the Dynegy name and would be headed by Ch=
uck Watson, Dynegy's chairman and chief executive. If it wins regulatory an=
d shareholder approval, the deal would propel Dynegy, the sixth-largest U.S=
. power trader, to the No. 1 position, with more than 30 percent of the mar=
ket.

The Houston-based rivals are new-breed energy companies, formed to capitali=
ze on wholesale power marketing and trading, with Dynegy emphasizing its ow=
n power generation capabilities.=20

Enron, meanwhile, has been laid low in recent weeks by soured transactions =
with energy partnerships run by one of its former executives and by a serie=
s of revelations about questionable accounting practices. Enron this week w=
as forced to restate its earnings over the past five years--revising them d=
ownward by 20 percent, or $586 million --and has seen its stock price plung=
e more than 80 percent in the past three weeks.=20

Both Enron and Dynegy have extensive business dealings in Illinois, one of =
the first states to begin deregulating its electric power industry; among o=
ther things, Dynegy owns Illinois Power, a downstate utility.=20

The new Dynegy would be one of the largest companies in the world, with rev=
enues exceeding $200 billion and assets of roughly $90 billion, company off=
icials said. By comparison, ExxonMobil Corp., the nation's largest company,=
 reported revenues of $232.7 billion in 2000.=20

"We needed to do something to strengthen our balance sheet and get the inve=
stor community focused on the core energy business," said Kenneth Lay, Enro=
n's chairman and CEO. "We looked at several alternatives; this was in the b=
est interests of our employees and shareholders."=20

Lay said he would not have a role in running the new company but was consid=
ering a request to serve on the newly combined board.=20

Watson said the merger agreement included escape clauses for Dynegy, "but I=
 wouldn't be standing here if I expected to see that [used]. I really belie=
ve the value degradation in Enron had nothing to do with their core busines=
s. We looked under the hood; it is just as strong as we thought it was."=20

Still, Watson acknowledged the possibility that more problems may surface a=
t Enron. "I don't think anybody can absolutely unequivocally say there's no=
thing [more] there," he said.=20

Dynegy's stock price closed higher Friday, rising $2.26, or 6.2 percent, to=
 $38.76. Enron's stock was up 22 cents, or 2.6 percent, at $8.63 a share.=
=20

Through the third quarter of 2001, the companies together have natural gas =
sales of about 40 billion cubic feet per day and power sales exceeding 500 =
million megawatt hours. In addition, the new Dynegy's delivery network woul=
d include more than 22,000 megawatts of generating capacity and 25,000 mile=
s of interstate pipelines.=20

In Enron, Dynegy is taking on a company saddled with a heavy debt load, a c=
redit rating that has been downgraded to near junk bond status and which is=
 under the cloud of a Securities and Exchange Commission investigation.=20

Big premium=20

Under the stock-for-stock-swap portion of the deal, valued at $8.846 billio=
n, Dynegy is paying the equivalent of $10.41 a share for the 850 million ou=
tstanding Enron shares, a 24 percent premium. Dynegy would pay .2685 shares=
 of its stock for each share of Enron.=20

In addition, Dynegy agreed to provide a $1.5 billion cash infusion to help =
stabilize its larger competitor and to assume an estimated $15 billion in d=
ebt.=20

On Thursday Enron reported that its debt was an estimated $12.9 billion pen=
ding completion of financial statements dated Sept. 30. A day later the com=
pany's accounting of its debt jumped $2 billion.=20

Dynegy's current shareholders, including Chevron Texaco Corp., will end up =
owning 64 percent of the new company. Chevron Texaco said it would invest a=
n additional $2.5 billion in Dynegy.=20

Enron's stockholders would own about 36 percent of the combined company's s=
tock at closing, which is anticipated in the third quarter of 2002.=20

Chicago-area operations=20

In Illinois, in addition to Illinois Power, Dynegy owns a Chicago- area ele=
ctricity peaker plant and is a partner with Nicor Inc. in Nicor Energy, an =
unregulated natural gas utility in the Chicago market.=20

Enron's subsidiary, Enron Energy Services, has a high-profile contract to p=
rovide 60 percent of Chicago's city government's electricity. It also has c=
ontracts to provide power to Quaker Oats Co. and the University of Chicago,=
 among others.=20

In addition to Watson, other top Dynegy management would remain in place in=
 the new company. President Steve Bergstrom and Rob Doty, chief financial o=
fficer, would retain those positions in the combined company. Enron's presi=
dent and chief operating officer, Greg Whalley, would become an executive v=
ice president.=20

The board of directors of the combined company would have 14 members. Dyneg=
y's 11 designees would include three from ChevronTexaco. Enron would have t=
he right to designate a minimum of three board members.

...........................................................................=
..........................................................=20

Financial
Enron Accepts $8 Billion Buyout Offer From Dynegy; Energy Giant Was Forced =
to Negotiating Table After Disclosing That It Had Overstated Earnings
Peter Behr
Washington Post Staff Writer

11/10/2001
The Washington Post=20
FINAL
E01
Copyright 2001, The Washington Post Co. All Rights Reserved=20

Embattled Enron Corp. yesterday accepted a buyout offer valued at about $8 =
billion from crosstown rival Dynegy Inc. If the deal is completed, it would=
 end Houston-based Enron's reign as the leader in the huge energy trading m=
arkets that set the prices of power and natural gas in the nation.=20

Its cash dwindling and its credit rating hammered, Enron was forced to the =
negotiating table after its recent disclosures that its obligations to a co=
mplex web of partnerships involving company officials had caused the tradin=
g powerhouse to overstate its earnings and obscure its total debt obligatio=
ns. Four top Enron officials have resigned or been replaced since July and,=
 once Dynegy takes control, Enron's chairman and chief executive, Kenneth L=
ay, will also leave the company. Lay said yesterday that he had not decided=
 whether to accept Dynegy's offer to serve on the combined company's board.

"It's been a good ride for a long time," Lay said in a conference call last=
 night. "The last three weeks haven't been a whole lot of fun."=20

The final deal was announced after the close of stock trading. Enron's shar=
es -- which had fallen from $33 to $8 after the disclosures -- ended the da=
y slightly higher, at $8.63. Dynegy's stock closed at $38.76, up $2.26.=20

Dynegy offered all stock for the Enron shares, so the total value of the de=
al will fluctuate with Dynegy's stock price. Dynegy also said it would assu=
me about $13 billion in Enron debt, bringing the total value of the transac=
tion to around $21 billion.=20

Dynegy's rescue of Enron will begin with an immediate cash infusion of $1.5=
 billion, which will be supplied by ChevronTexaco Corp., a major Dynegy sto=
ckholder. ChevronTexaco will invest another $1 billion in Dynegy after the =
acquisition has passed regulatory review and is completed, which executives=
 said they expect will take six to nine months as Enron tries to unscramble=
 the complex partnerships that are now under investigation by the Securitie=
s and Exchange Commission.=20

The takeover agreement gives Dynegy an escape clause permitting it to cance=
l the purchase if Enron winds up with heavy regulatory fines or legal judgm=
ents from shareholder suits tied to its handling of the partnerships.=20

Chuck Watson, Dynegy's chairman and chief executive, said in the conference=
 call that a close scrutiny over the past two weeks of Enron's financial co=
ndition convinced him that the company's trading and pipeline businesses we=
re solid. "We looked under the hood, and guess what? It looked just as stro=
ng as we thought it was." Watson said he did not think more damaging disclo=
sures were forthcoming from Enron.=20

Until the partnership mess, Enron was the nation's dominant energy trader, =
and it had front-door political connections to the White House. Lay, its lo=
ngtime chairman, raised more then $100,000 for the presidential election ca=
mpaign of his friend George W. Bush. Enron rode the growth of energy tradin=
g markets beginning in the mid-1990s, as first natural gas, and then electr=
ic power sales were deregulated at the wholesale level. Its revenues leaped=
 from $9.2 billion in 1995 to $100.8 billion last year.=20

During those heady times, the Houston company could choose which questions =
to answer about its dealings with related partnerships and its Byzantine bo=
okkeeping.=20

"It was always very difficult to get information," said Louis B. Gagliardi,=
 an analyst with John S. Herold Inc. "They would always rebuff you."=20

Until this fall, the muscular company seemed too big to stumble, said inves=
tment manager David Coxe, with Harris Insight Equity Fund in Chicago.=20

Coxe bought 78,000 shares of Enron at $40 a share in August, after wrestlin=
g with the decision for months, he said. Then Jeffrey Skilling, Enron's chi=
ef executive and strategic mastermind, unexpectedly resigned. The stock, wh=
ich had been as high as $90 in August 2000, pitched downward.=20

"Enron seemed so indispensable to the nation's energy markets that I though=
t it inconceivable it could implode," Coxe said. "That's how I got sucked i=
n."=20

Enron's fall is "classic hubris," Coxe said: a Greek tragedy striking someo=
ne who chose to defy the gods -- "in this case, the rules of the system."=
=20

Among the rules that Enron now acknowledges it didn't follow were the accou=
nting standards that applied to the complex partnerships it created. The pu=
rpose of the partnerships, Enron said, was to reduce the risks of investmen=
ts in Internet transmission systems and to sell power plants and other asse=
ts it no longer wanted.=20

The accounting errors were described in a 20-page SEC filing Enron made Thu=
rsday. The errors resulted in a $1.2 billion reduction in the value of shar=
eholders' equity. The company also said it had overstated its earnings by $=
586 million since 1997.=20

Enron created partnerships that would buy major assets -- such as a power p=
lant -- that Enron wanted to sell, or in other cases, assets such as fiber-=
optic cable networks that Enron intended to run but did not want to have on=
 its balance sheet.=20

The partnerships had outside investors, but the general partner of two of t=
hem was Enron's own chief financial officer, Andrew Fastow. He earned $30 m=
illion in fees from managing two of the largest partnerships, according to =
the SEC document.=20

Enron added to the capital of these partnerships by pledging its stock, or =
securities convertible into stock. Some of those stock transactions should =
have been counted as loans, resulting in the $1.2 billion drop in sharehold=
er equity, Enron now says.=20

Investors are asking why Enron's auditor, Arthur Andersen LLP, did not insi=
st that these transactions be handled that way in the first place. Enron's =
SEC filing mentions but does not explain some "proposed audit adjustments" =
over the past four years that were overruled.=20

Even though, as Enron now acknowledges, it created an information barrier, =
masking critical information and violating standard accounting rules, many =
financial analysts who were recommending the stock to investors were not pu=
shing hard enough to punch through that barrier, some analysts acknowledge.=
=20

"It was so complicated that everybody was afraid to raise their hands and s=
ay, 'I don't understand it,' " Gagliardi said.=20

The questions are now coming, from a new committee reporting to Enron's boa=
rd that will investigate how the company's financial reporting was handled;=
 from the SEC; and, eventually, from teams of lawyers representing aggrieve=
d shareholders.=20

Lay indicated yesterday he had not been aware until recently that Enron emp=
loyees other than Fastow had profited from the partnership activity. Enron =
directors had approved Fastow's management of the partnerships, but Fastow =
quit the partnerships in July and was then replaced as chief financial offi=
cer.=20

Enron this week fired Treasurer Ben Glisan and Kristina Mourdant, an Enron =
division lawyer, who it said had invested in partnerships that were tied to=
 one of the major partnerships headed by Fastow. The Enron report to the SE=
C describes a central role in these transactions played by Michael J. Koppe=
r, an associate of Fastow who left Enron in July to take over Fastow's fina=
ncial interests in the partnership, the company said.=20

Enron will hold a conference call next week to discuss what it has uncovere=
d about outside partnership investments.

http://www.washingtonpost.com

...........................................................................=
..........................................................=20


Financial Desk
The Nation NEWS ANALYSIS A Visionary Fallen From Grace
JAMES FLANIGAN
TIMES STAFF WRITER

11/10/2001
Los Angeles Times=20
Home Edition
A-22
Copyright 2001 / The Times Mirror Company=20

A year ago, Enron Corp. Chairman Kenneth L. Lay was on top of the energy wo=
rld. As a leading fund-raiser, contributor and energy advisor to the Bush a=
dministration, he played a key role in shaping the new president's energy p=
olicy. As head of the world's largest energy trading company, he had an eno=
rmous influence on the price of energy in California and across the nation.=
 Enron's highflying stock helped him cash out $123 million in stock options=
 last year alone.=20

On Friday, with Enron being saved from financial collapse by agreeing to be=
 acquired by rival Dynegy Inc., Lay's career and reputation are in shambles=
. Under the merger, he will be stripped of a management job. His integrity =
is tattered, with Enron's controversial financial dealings under federal in=
vestigation. Enron investors and employees are chagrined and outraged becau=
se the company's stock lost 80% of its value in recent weeks.

The rapid rise and fall of Lay, 58, is a story of how a brilliant man with =
innovative ideas and a grand scheme to transform the world's energy markets=
 was overcome with arrogance, associates and critics say. Under Lay, Enron =
stretched the limits of the law and took risks that nearly caused its finan=
cial collapse, they say. That in turn could have resulted in a widespread d=
isruption in energy supplies.=20

"Enron's behavior casts doubt on the integrity of our financial markets. It=
 is a very serious matter," said Edward R. Muller, an energy investor and f=
ormer president of Edison International's Mission Energy subsidiary.=20

"Nobody denies he's smart, but it's a question of integrity," said Raymond =
Plank, chief executive of Apache Corp. and an associate of Lay's in Houston=
's vibrant oil and gas industry.=20

Lay and longtime partner Jeffrey K. Skilling, who served briefly as Enron's=
 chief executive before resigning abruptly in August, rose to prominence in=
 the last decade through the use of innovative financial techniques designe=
d to exploit a reduction in government regulation of energy.=20

Lay transformed world energy industries through his vision of new, market-d=
riven ways to finance natural gas and electricity production and transmissi=
on.=20

The financial markets that Lay and his Enron associates created had an enor=
mous effect on California's disastrous experiment in electricity deregulati=
on. Critics say his influence was excessive and misguided.=20

"Ken Lay was a mystic," said state Sen. Steve Peace (D-El Cajon), an outspo=
ken critic of Enron. "Whatever he said had to make sense because he was Ken=
 Lay. It was hero worship. Many of the people working as economists at the =
Federal Energy Regulatory Commission worshiped Ken Lay. As a consequence, t=
he things Enron promoted and pushed for were never challenged, intellectual=
ly and otherwise."=20

Lay, who has a doctorate in economics, had modest beginnings as the son of =
a poor country preacher who did farm labor on the side to raise money for h=
is children's education. In the Navy in the late 1960s, Lay was assigned to=
 the Defense Department because of his economic acumen. "He allocated Penta=
gon dollars more efficiently in purchasing for the military," said Mark Pal=
mer, chief spokesman for Enron.=20

Lay worked for Exxon and other energy firms in the 1970s, amid soaring oil =
prices, gasoline shortages and still-regulated natural gas. He headed Houst=
on Natural Gas, a predecessor firm of Enron, in the 1980s as falling prices=
 for oil and natural gas presented grave problems for Houston's energy indu=
stries.=20

When the federal government allowed pipelines to carry the gas of any produ=
cer, Lay turned Enron into a foremost firm in the new, deregulated industry=
. Still, Enron almost went bankrupt in the late 1980s, with natural gas in =
oversupply and prices falling.=20

It was then that Skilling, a McKinsey & Co. consultant, suggested to Lay th=
at the firm trade long-term contracts for gas, promising to deliver the com=
modity to customers at fixed prices, buying and selling contracts of varyin=
g maturities "the way mortgage companies deal with mortgages," in Skilling'=
s words.=20

The innovation started Enron's rapid growth and rise to prominence as the e=
mbodiment of a new kind of energy company. In the 1990s, the federal govern=
ment called for deregulation of electricity.=20

Lay saw opportunities. He and Skilling created a market for contracts in el=
ectricity in 1994, and by 1996 Enron was the world's leading firm doing suc=
h business.=20

Lay's central idea was that, by creating a market of millions of buyers and=
 sellers constantly taking positions, power supplies could be allocated eff=
iciently and prices lowered. Lay liked to lecture, in an avuncular way, abo=
ut the new economics of energy trading.=20

"Technology is changing, and there's a lot more value in flexibility and op=
tionality. Just about in every industry, you can make them a lot more effic=
ient when you have more optionality," Lay said in an interview in January i=
n his Houston offices overlooking the sparkling new Enron headquarters buil=
ding, which still is under construction.=20

As Enron's business profile grew, so did Lay's political influence. He serv=
ed as an energy advisor to both Bush administrations and headed Texas fund-=
raising for George W. Bush's presidential campaign. Lay raised $100,000 for=
 the Bush-Cheney campaign, and with his wife, Linda, Lay contributed anothe=
r $100,000 to help finance the inaugural gala this year.=20

As the administration prepared its energy plan, Lay gained national stature=
 as a preacher of market economics applied to electricity.=20

"There's no way you can centralize a command-control environment and make t=
he best decisions to have an efficient, low-cost, reliable electricity indu=
stry," Lay said.=20

His sermon was intended for California, which suffered sharply higher price=
s for electricity last winter, to the point that private utilities fell int=
o or near bankruptcy and the state budget incurred a cost of $12 billion, w=
hich Sacramento now is trying to recover through the sale of revenue bonds.=
=20

Because Enron, trading billions of dollars a day in power contracts worldwi=
de, had an immense effect on electricity prices, Lay's preaching grated on =
state officials. Driven to intemperance, state Atty. Gen. Bill Lockyer said=
 in May that he'd like to "escort" Lay to a prison cell.=20

But more than economic philosophy was behind Lay's goading of California. T=
he state's debacle gave energy deregulation a bad name and chilled deregula=
tion moves by many other states.=20

That in turn reduced growth prospects for Enron. The promise of continued g=
rowth in deregulation had helped make Enron a Wall Street darling. Its stoc=
k price, at one point nearly $90 a share versus less than $10 now, pushed u=
p the value of Enron stock options, held by almost all employees but owned =
in great amounts by Lay, Skilling and other company officers.=20

Lay cashed in last year, converting options for a gain of $123 million, whi=
le Skilling gained $62 million by converting his options. As they cashed in=
, Enron was encountering other problems. Attempts to set up trading markets=
 in water and broadband Internet transmission were floundering. A major pow=
er plant venture in India was in grave economic and political trouble.=20

But in the last month, Enron revealed that it had reduced the firm's equity=
 value by more than $1 billion due to write-offs in a hitherto hidden partn=
ership.=20

Revelations then cascaded. The firm had 33 such partnerships, which had bil=
lions of dollars in debt for which Enron was liable. Lay and Skilling piled=
 up debt in hidden partnerships, analysts explain, because the firm needed =
huge amounts of debt to support its greatly expanding levels of trading in =
electricity, natural gas and other commodities.=20

But the firm could not support such debt and still retain its credit rating=
, growth rate and high stock price. After weeks of gamely protesting that t=
he business was sound and that he personally took offense at investment ana=
lysts' suggestions of impropriety, Lay fell silent.=20

*=20

Times staff writer Nancy Vogel in Sacramento contributed to this report.

PHOTO: With the takeover of his once-soaring firm, Enron chief Kenneth Lay'=
s career is in tatters.; ; PHOTOGRAPHER: Reuters

...........................................................................=
..........................................................=20

Business
Struggling Enron agrees to takeover by smaller rival Dynegy One-time energy=
 giant and Southern Co. often scrapped over access to markets
MATTHEW C. QUINN
STAFF

11/10/2001
The Atlanta Journal - Constitution=20
Home
F.1
(Copyright, The Atlanta Journal and Constitution - 2001)=20

Energy giant Enron Corp. capitulated to a mounting financial crisis Friday =
and agreed to be taken over by a smaller competitor. But Atlanta-based Sout=
hern Co. was not gloating at the misfortunes of its vanquished rival.=20

It wasn't easy.

For years, the two companies were locked in a struggle over access to elect=
ricity markets. Enron pushed for competition and deregulation, while Southe=
rn resisted to protect its dominance in the fast-growing Southeast.=20

Sometimes the battle got nasty.=20

"If Thomas Alva Edison came back from the dead and called Southern Co. to g=
et some electricity, he'd find that nothing has changed," Jeffrey Skilling,=
 then Enron's president, said in November 1997. "These guys are living in a=
n industry that was created 100 years ago, and they want to keep it that wa=
y."=20

Fast forward four years.=20

Southern Co. has split itself in two, retaining its regulated Southeastern =
utility business and spinning off its own unregulated power generation and =
energy trading arm, Mirant Corp. Southern reported net income of $1 billion=
 for the first nine months of this year, and Mirant's profits were $538 mil=
lion. Southern's shares are up 19 percent this year. Mirant's have declined=
 7 percent.=20

Enron, on the other hand, lost 90 percent of its stock market value this ye=
ar alone and this past week restated earnings for the past 4 1/2 years, red=
ucing profit by more than $500 million.=20

Skilling was named chief executive in February but abruptly resigned after =
six months. This week he was subpoenaed to testify in a Securities and Exch=
ange Commission probe of the Texas company's questionable relationships wit=
h outside partnerships.=20

Houston-based Dynegy Corp., a crosstown rival, said late Friday it will buy=
 Enron --- once valued at $69 billion --- for $7.8 billion in stock.=20

Enron will be wrapped into a "new Dynegy" managed by top Dynegy executives.=
 That suggested even the name Enron --- synonymous with innovation in recen=
t years in the utility industry --- will go by the wayside.=20

Southern spokesman Todd Terrell declined to comment earlier in the day on E=
nron's problems.=20

A.W. "Bill' Dahlberg, who retired as Southern's chief executive in April an=
d is now Mirant's board chairman, said he regretted Enron's troubles.=20

"They were a rival and got credit for doing a lot of innovative things in o=
ur industry," Dahlberg said. "You always like to win the competition becaus=
e you do well, not because somebody else does badly."=20

Enron was a pioneer in the wholesale trading of electricity and natural gas=
, and has been widely imitated, from Mirant's sprawling energy trading floo=
r at Perimeter Center to an energy management subsidiary launched this year=
 by AGL Resources, parent of Atlanta Gas Light Co.=20

As the largest U.S. energy trading firm, Enron's tentacles run deep. It was=
 active at the Public Service Commission in 1998 when rules for Georgia's n=
atural gas deregulation were written, only to opt out of becoming a gas mar=
keter itself. But New Power Co., which is 45 percent owned by Enron, became=
 Georgia's newest marketer this year.=20

A Dynegy-Enron combination will create a $200 billion-a-year enterprise tha=
t will dwarf Mirant in both the electricity and natural gas sectors.=20

Dynegy and Mirant are considered more stable than was Enron because they re=
ly more on their own power plants for electricity and less on trading for p=
ower produced by others. And Dynegy is no stranger to Georgia. It is a mino=
rity partner with AGL Resources in Georgia Natural Gas Services, the state'=
s No. 1 gas marketer.=20

But the partners have been at odds for months.=20

AGL sued Dynegy in July, alleging it "earned millions of dollars at the exp=
ense" of the marketing company that it supplies with natural gas.=20

Dynegy's counterclaim accused AGL, among other things, of scheming to shift=
 the partnership's gas supply deal to AGL's own subsidiary, Houston-based S=
equent Energy Management.=20

Dynegy in May started up a 500 megawatt natural gas-fired power plant in He=
ard County despite opposition from nearby residents. Dynegy is also a major=
 buyer of electricity produced at Southern Co.'s new power plant in Jackson=
 County.=20

"They're a big customer, a partner and a competitor --- all of those things=
," said Southern's Terrell.

Graphic POWER POWERHOUSE A merger of Enron Corp. and Dynegy Corp. would cre=
ate an energy powerhouse. Atlanta-based Mirant Corp. would be far behind, b=
ased on second-quarter figures. Top 20 North American Gas Marketers, 2nd qu=
arter 2001 Company........................ Billions of cubic feet a day 1..=
.Enron...................... 24.6 2...Reliant.................... 13.2 3...=
Duke Energy................ 12.8 4...BP..........................12.3 5...M=
irant......................11.8 6...Dynegy......................10.9 7...Aq=
uila Energy.............. 10.3 8...Sempra......................10.1 9...El =
Paso......................9.2 10. American Electric Power......8.5 ........=
................ Top 10 North American Power Marketers, 2nd quarter 2001 Co=
mpany........................Millions of megawatt hours 1...Enron..........=
............212.5 2...American Electric Power....134.5 3...Duke Energy.....=
...........118.1 4...Reliant Resources.......... 86.1 5...PG&E National Ene=
rgy Grp... 73.2 6...Dynegy......................70.1 7...Mirant............=
..........69.7 8...Aquila......................66.3 9. Williams............=
........ 63.4 10. Exelon Power Team.......... 52.5 Source: Natural Gas Week

...........................................................................=
..........................................................=20


BUSINESS
Dynegy to Acquire Troubled Enron / Energy giants in $7.8B stock deal
COMBINED NEWS SERVICES

11/10/2001
Newsday=20
ALL EDITIONS
A16
(Copyright Newsday Inc., 2001)=20

Houston - Energy marketer Dynegy Inc. announced Friday it will buy much lar=
ger rival Enron Corp. for $7.8 billion in stock.=20

The announcement came after Enron's stock plummeted about 80 percent in the=
 past three weeks over concerns that the company wasn't revealing serious f=
inancial problems to shareholders.

"Dynegy is taking out a competitor, acquiring some attractive assets, and t=
hey're doing it at an incredible price," said Joseph Correnti, an analyst a=
t Wayne Hummer Investments.=20

The two Houston-based companies began negotiations a week ago as it became =
apparent Enron needed cash to stay in business. Dynegy, which is 26-percent=
 owned by ChevronTexaco Corp., agreed to the deal after Moody's Investors S=
ervice maintained an investment-grade rating on Enron, eliminating a stumbl=
ing block in negotiations.=20

The combined company will have annual revenue of more than $200 billion, ra=
nking it as one of the nation's 10 largest. It will have more than 22,000 m=
egawatts of electric generating capacity and 25,000 miles of natural gas pi=
peline.=20

On Thursday, Enron acknowledged it overstated earnings by about 20 percent =
over the past four years and kept large amounts of debt off its balance she=
et through business partnerships now under investigation by the Securities =
and Exchange Commission. Enron said financial statements from 1997 through =
the first half of 2001 "should not be relied upon."=20

Revised statements reduced Enron's profits for those years by $586 million =
and increased its debt by $628 million.=20

During its recent turmoil, Enron fired chief financial officer Andrew Fasto=
w, who ran some of the partnerships under investigation by the SEC.=20

Dynegy chief executive Charles Watson will head the combined company.=20

The terms of the deal value each Enron share at $10.41, based on Friday's c=
losing stock prices. That represents a 21-percent premium above Enron's clo=
sing price of $8.63. Dynegy's shares closed at $38.76, up 6 percent.=20

It was not immediately clear what role Enron chairman and chief executive K=
enneth L. Lay would have in the new company.=20

While Watson has led a diversified company that put as much emphasis on bui=
lding power plants as on energy trading, Lay focused on the wholesale tradi=
ng of natural gas and electricity. He had expanded Enron in the 1980s from =
a natural gas pipeline into the most formidable competitor in the business =
of energy trading, which was created by deregulation of energy markets in t=
he United States and Europe.

...........................................................................=
..........................................................=20


Dynegy announces $8 billion deal to buy larger rival Enron
By JUAN A. LOZANO
Associated Press Writer

11/09/2001
Associated Press Newswires=20
Copyright 2001. The Associated Press. All Rights Reserved.=20

HOUSTON (AP) - Energy marketer Dynegy Inc. announced Friday that it will bu=
y its much larger rival, the once mighty but now troubled Enron Corp., for =
$8 billion in stock. Dynegy also will assume a hefty $15 billion in Enron d=
ebt.=20

The announcement came after Enron's stock price plummeted about 80 percent =
over the past three weeks because of concerns that the company wasn't revea=
ling serious financial problems to shareholders.

Under the deal, ChevronTexaco Corp., which owns more than a quarter of Dyne=
gy, would quickly provide about $1.5 billion. ChevronTexaco also would cont=
ribute an additional $1 billion upon completion of the deal, the companies =
said.=20

"With its market-making capabilities, earnings power and proven strategic a=
pproach to wholesale markets, Enron is the ideal strategic partner for Dyne=
gy," Dynegy chairman and chief executive officer Chuck Watson said in annou=
ncing the purchase.=20

Watson made it clear that he would not tolerate the sort of financial pract=
ices that prompted explosive disclosures by Enron this week - including an =
admission that more than half a billion dollars in debt had been kept off t=
he company's books.=20

"As a combined company, we will focus on leveraging our core skill sets and=
, as always, we will keep a strong balance sheet and straightforward financ=
ial structure as key priorities," Watson said.=20

Enron is the country's top buyer and seller of natural gas, and the No. 1 w=
holesale power marketer. The company operates a 25,000-mile gas pipeline sy=
stem, and also markets and trades metals, paper, coal, chemicals, and fiber=
-optic bandwidth.=20

Dynegy controls nearly 15,000 megawatts of power generating capacity throug=
h investments in power projects, and sells the energy in wholesale markets =
and through utilities.=20

At a news conference, Watson said company officials who negotiated the deal=
 came away convinced that Enron was worth buying despite its recent trouble=
s.=20

"We looked under the hood and, guess what, it's just as strong as we though=
t it was," Watson said.=20

Under the terms of the deal, Enron shareholders will receive .2685 Dynegy s=
hare for each share of Enron common stock, valuing each Enron share at $10.=
41. Enron has about 775 million common shares, said spokeswoman Karen Denne=
.=20

That represents a 21 percent premium above Enron's closing price of $8.63 F=
riday on the New York Stock Exchange - but still just a fraction of their 5=
2-week high of $84.87. Dynegy's shares climbed $2.26, or 6 percent, to clos=
e at $38.76 on the NYSE.=20

In after hours trading on the NYSE, Enron shares shot up 15.6 percent, or $=
1.35, to $9.98. Dynegy shares were unchanged.=20

Dynegy's stockholders will own approximately 64 percent of the new company,=
 with Enron's stockholders holding the remainder.=20

The boards of both companies have unanimously approved the transaction, whi=
ch is expected to close next summer. The deal is expected to save the combi=
ned company between $400 and $500 million annually because of continued eli=
mination of "non-core" Enron holdings and lower operating costs. Watson sai=
d it was too soon to say if the deal would result in job cuts. Enron has ab=
out 20,000 employees, while Dynegy's work force is about 6,000.=20

Watson will remain as chairman and chief executive of the combined company,=
 which will retain the Dynegy Inc. name. Dynegy's Steve Bergstrom will cont=
inue as president.=20

Enron chairman and chief executive Kenneth L. Lay will no longer have a rol=
e in day-to-day management of the company, but has been offered a seat on t=
he combined company's board and will help shepherd the merger through.=20

Dynegy said that Greg Whalley, the current president and chief operating of=
ficer of Enron, will become an executive vice president of the new Dynegy. =
He said the merger sets the best course for Enron.=20

"Few of the options we considered for our core business going forward provi=
ded us with the earning potential and immediate synergies that a merger wit=
h Dynegy could deliver," Whalley said. "Together with Enron's recently anno=
unced bank commitments, this cash infusion gives Enron immediate liquidity,=
 which we believe will enable the company to maintain its investment grade =
credit rating."=20

The merger was announced a day after Enron acknowledged it overstated earni=
ngs by about 20 percent over the past four years and kept large amounts of =
debt off its balance sheets through business partnerships now under investi=
gation by the Securities and Exchange Commission.=20

Analysts said the merger rescues Enron, but leaves Dynegy in uncharted terr=
itory - with the outcome of the SEC investigation completely unknown. "Ther=
e is still a shroud hanging over Enron that now moves over to Dynegy," said=
 Carol Coale, an analyst with Prudential Securities.=20

Early Friday, Moody's Investors Service downgraded Enron's debt ratings to =
one level above junk bond status and said the company's long-term debt rati=
ngs remain under review for further downgrade.=20

In an SEC filing, Enron said financial statements from 1997 through the fir=
st 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 com=
pany's earnings reports.=20

The revised statements reduced Enron's profits for those years by $586 mill=
ion, from $2.89 billion to $2.31 billion. The revisions also increased the =
company's debt each of the four years, reaching $10.86 billion - $628 milli=
on more than previously reported - by the end of 2000.=20

Keeping the debt off its balance sheets likely ensured Enron could maintain=
 a strong credit rating to support expansion of its core businesses - whole=
sale trading of natural gas and electricity.=20

But the company's stock price started dropping 10 months ago when its high-=
speed Internet unit foundered and Enron had trouble collecting money from p=
ower customers in India.=20

The stock price began to free fall after Enron announced a $618 million thi=
rd quarter loss, and news of the SEC investigation surfaced.=20

Enron responded by firing its chief financial officer and scrambled to get =
cash and increase credit lines in an attempt to regain investor confidence,=
 but investors dumped Enron shares and sent its stock plummeting.=20

The ousted chief financial officer, Andrew Fastow, ran some of the partners=
hips under investigation by the SEC.=20

Jeff Skilling, Enron's former chief executive who left in August, has been =
called to testify before the SEC, although it's unclear when.=20

---=20

On the Net:=20

http://www.enron.com=20

http://www.dynegy.com

AP Graphic DYNEGY ENRON

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..........................................................=20

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =20


