By: Bergman on Mercoledì 28 Novembre 2001 20:04
Dynegy abandons Enron deal
Shares of energy trader fall near $1 as rating cut to junk
By Lisa Sanders, CBS.MarketWatch.com
Last Update: 12:47 PM ET Nov. 28, 2001
HOUSTON (CBS.MW) -- Enron shares collapsed Wednesday after Dynegy abandoned plans to buy the largest U.S. energy trader and Standard & Poor's and Moody's cut their credit ratings on the company to junk bond status.
FRONT PAGE NEWS
Buyers shy, U.S. shares decline
Alliance rejects outside security; CIA officer killed
New York Times enters bidding for Red Sox
Intel takes tech spotlight
Mobile phone stocks under pressure after Nokia
Sign up to receive FREE e-newsletters:
Get the latest news
24 hours a day from our 100-person news team.
Enron shares (ENE: news, chart, profile) were last trading a little above $1, having lost as much as 75 percent of their value on the day. More than 167 million Enron shares had changed hands by midday. Dynegy shares (DYN: news, chart, profile) were down 10 percent at $36.81.
Trading in both companies was halted, pending an announcement.
A person familiar with the situation said Enron also turned off its flagship Enron Online trading platform and told employees that Dynegy had walked away from the deal. Through the EnronOnline platform, the company once bought and sold commodities at volumes totaling about $3 billion a day.
Analysts said the next step for Enron would likely be a bankruptcy filing. Officials at both companies could not be reached for comment.
"Chapter 11 is not the worst of all worlds by any means," said John Olson, a Houston energy analyst. "The key to salvaging the business is the level of debtor-in-possession financing they can get to allow them to trade in some realistic fashion."
DIP financing takes precedence over all other claims, he said.
"The equity people are now at the very bottom of the barrel, and the only people lower than them are (the people who filed) the stockholder suits," Olson said.
In a note to clients, analyst Michael Heim at A.G. Edwards said that Enron, without Dynegy, has "no value."
"Enron...will most likely be declared bankrupt shortly," Heim said. "Unlike other bankruptcies in which a stock continues to trade at a low price, there are no hard assets to salvage."
Ahead of this news, S&P cut Enron's rating to B-minus, or junk status, from BBB-minus, which is the lowest investment-grade rating. The rating agency said that the move reflects "concerns about the viability of the merger agreement with Dynegy and liquidity implications of the possible failure of that transaction. The ratings are placed on CreditWatch with developing implications."
Todd Shipman, the lead Enron analyst at S&P, was not immediately available for comment or were analysts at Moody's Investors Service and Fitch.
Dynegy, which had originally offered to buy Enron for $9 billion in stock, confirmed Tuesday that the two companies were discussing a new deal structure, and said ahead of the news Wednesday that discussions were continuing.
"I'm not aware of any changes in any status of the merger," Dynegy spokesman John Sousa said before the S&P announcement. The merger agreement, as it now stands, contains a material adverse affect clause that, if triggered, would allow Dynegy to walk away from the deal.
The decline in Enron's stock price and information contained in the company's 10-Q filing of Nov. 19 could had activated the clause, but Olson said the S&P downgrade clearly fit the description of a material adverse affect. See story on 10-Q filing. Also Wednesday, UBS Warburg and RBC Capital cut their ratings on Enron to "hold" from "strong buy," and from "strong buy" to "buy-speculative."
Lisa Sanders is a Dallas-based reporter for CBS.MarketWatch.com.