NEW YORK (Reuters) - Energy provider Dynegy Inc. (NYSE:DYN - news) agreed on
Friday to acquire fast-sinking rival Enron Corp. (NYSE:ENE - news)
The deal marks a spectacular fall from grace for Enron, which crashed in
the past month on investor unease over murky transactions that sparked an
investigation by U.S. regulators, and its chairman and chief executive,
Kenneth Lay.
``It's an unbelievable ending to an unbelievable story,'' said Michael
Barbis, an analyst at Fulcrum Global Partners LLC. ''The company that
created the industry is gone -- it's all Dynegy now.''
Dynegy will control the new 14-member board, holding 11 of its seats,
and the top executive positions. The boards of Dynegy and Enron
unanimously approved the transaction.
ChevronTexaco Corp. (NYSE:CVX - news), a major Dynegy
shareholder with a 26.5 percent stake, gains the right to increase its interest and three of Dynegy's board members. Within
three years after the merger is completed, the company will have the right to buy $1.5 billion in Dynegy common stock.
The deal puts Chuck Watson, the pioneering chairman and chief executive of Dynegy who has long labored under the shadow
of Enron, firmly in charge of the merged company.
Watson will remain chairman and chief executive officer of Dynegy, while its president, Steve Bergstrom, and chief financial
officer, Rob Doty, will retain those positions.
Greg Whalley, the current president and chief operating officer of Enron, will become an executive vice president of the new
Dynegy. These four executives will comprise the Office of the Chairman upon the merger's completion.
Barbis said after the sudden plunge in the past month of Enron's stock price, when it lost 75 percent of its value and shed about
$19 billion in market value, the company was not in a good negotiating position.
``At the end of the day they had no choice,'' Barbis said.
Dynegy will swap 0.2685 shares of its stock for each Enron share, the companies said. That would value Houston-based
Enron at $10.41 per share, including convertible stock, a premium of about 21 percent over Friday's closing price of $8.63.
The price is a far off its lofty high of $90.56 set Aug. 23, 2000, during last summer's energy crisis when energy stocks soared.
Dynegy's current stockholders, including ChevronTexaco, will own about 64 percent and Enron's stockholders will own about
36 percent of the merged company.
ChevronTexaco has agreed to invest $2.5 billion in Dynegy, including an immediate $1.5 billion infusions of asset-backed
equity.
Enron, the nation's largest energy trader, has been struggling to overcome a plummeting stock price and credit ratings in the
past month following disclosures of off-balance sheet deals now under investigation by the U.S. Securities and Exchange
Commission for possible conflict of interest.
The new Dynegy is expected to have annual revenues of more than $200 billion and assets worth $90 billion, including more
than 22,000 megawatts of electricity-generating capacity and 25,000 miles of natural gas pipelines.
Dynegy said it expects the new company to earn $3.40 to $3.50 per share in 2002, an increase of 35 percent, or 90 cents to
95 cents per share, for current Dynegy shareholders, before taking into account expected synergies and cost savings.
Dynegy estimates annual pre-tax savings of $400 million to $500 million as a result of the sale or winding down of non-core
businesses in the Enron portfolio and other measures.
The merger still requires approval by regulators and both sets of shareholders but is expected to close by the end of the third
quarter of 2002.
Lehman Brothers was financial advisor to Dynegy. J.P. Morgan Chase and Salomon Smith Barney, a unit of Citigroup, were
financial advisors to Enron.
Gruß Dr. Broemme
