I am an Analyst that frequented Enron's board of Analysis meetings with only about 25 people and upper management and its really my opinion that the perpetrators behind the fraudelent scheme is more on the shoulders of Jeff Skilling and Andrew Fastow more than that of Ken Lay. Though Ken Lay was the CEO before Skilling took over and after his departure, Skilling was the chief architect of the Broadband network and the other international bad investments. Lay is the CEO and should have known more of what was going on but I truly feel he may have had ideas and knowledge, but was not the real culprit and may have been naive to the extent of the limited partnerships debt accumulation. For investment purposes the company to buy TODAY is Dynegy. Though Enron created the online marketplace for commodities, the need is still there and Dynegy can swoop in and attain a significant amount of business. Also, the material changes in Enron, mean that Dynegy will not have to pay a cent when pulling out of the merger. Dynegy also will recieve Enron's North Texas natural gas pipeline, an asset which Enron cannot claim under bankruptcy protection, because of its separate entity status under the deregulation statutes. I honestly feel Chuck Watson (Dynegy CEO, Aeros) planned from the get-go that Enron's debt would be downgraded, causing a huge amount to be called upon, allowing Dynegy to back out of the deal without paying a $350 million dollar fee and also recieving the Natural Gas pipeline for $1.5 billion dollars because of an inflow from ChevronTexaco (approx 30% owner of Dynegy) Which is a steal for the natural gas pipeline. And Dynegy is now trading close to its 52-week low and is trading at a significant discount to the market based on its impressive growth rates. Dynegy is also not as aggressive like Enron in terms of optimizing efficiency by limiting assets. Though it sounds nice, on paper that means no assets to sell of for Enron and ultimately a very low breakup value. Irony: Jeff Skilling at an Analyst meeting in February stated he thought the Enron Broadband Network was worth over $30 billion Buy Dynegy...the public are fools and they are selling Dynegy instead of realizing the fundamental gains to the firm.
I think i'm infamous for ending threads.... I should probably make my posts short and less articulate: ok here goes!! Go Rockets .......Jazz Suck.......!
F.D. Khan, Just a question about dynegy/enron . I guess I thought Enron was a major energy comapny. Turns out to my way of thinking they are (were?) a just a sort of ebay for energy broadband and other commodities. Why is this an opportunity for Dynegy? As I understand it the problem with Enron is that there is nothing to sue, but some office space, used computers and some employees who are soon to move on to other companies. What is to prevent other folks from setting up a dot com to do this, too? Also does dynegy now do the same thing already?
I vaguely heard that the Federal Government was supposed to step in and help these folks with their retirment plans, but I'm not sure that I heard that correctly.
To add to what F. D. Khan posted, Ken Lay's declared holdings of Enron common stock, as of 11/27/01, total almost 2.9 million shares. It's unimaginable to me that he would have knowingly condoned and/or participated in the accounting shenanigans that have come to light with that much personal wealth at stake. 52 week high for Enron was 84.88 and it closed today at .26. Feel free to do that math!
Enron is not your ordinary energy company and neither is Dynegy to a lesser extent. Enron created an online market place for commodities in energy, natural gas, broadband, paper pulp, weather, steel and countless other markets. They created a framework for companies to hedge their interests in just about anything. Similar to how an individual can write a call option on a stock they buy to hedge risk, Enron allowed that in many different areas of the market in addition to promoting efficiency in the energy markets post and during deregulation. If power is needed in Idaho and there is excess at a cheaper price in Texas, the system is inefficient. Its not that the energy will be physically transported, but its like wiring money through the banking system. The broadband idea was a significant blow to Enron, and Jeff Skilling was the main culprit behind it. They basically fell in the same ditch as the entire broadband market when huge national networks were created yet only 5% of the broadband was being used. If broadband demand skyrocketed Enron would have been there to reap the benefits as well as allow for the trading of broadband so it is not beneficial to simply large institutions. Dynegy has a hand in the deregulated markets and will eat some of the 188 billion in revenues that Enron generated last year (if they really did). 90% of their revenues derived from their Enron Online system which makes the breakup value next to nothing because its based on reputation and trading ability. The markets created by Enron are fulfilling a very useful service and are revolutionary in this world of efficiency and deregulation. The real jewel though is the North Texas pipeline that Dynegy will own for a fraction of the worth, plus the material change in the bond rating of Enron makes the $350 million breakup fee a non-issue.
So.....There isn't much left of Enron, but there still might be enough left for a bit of a fight. The pipeline is worth fighting over. Just as the exact definition of the phrase "material change" is open to discussion, cannot Enron claim that Dynegy didn't do everything necessary to help maintain the value of the company they were claiming they would buy? It looks to me like Dynegy stole the most valuable asset that Enron had under the guise that they where their white night. After the papers were signed though, they just left Enron out with the buzzards. I don't recall any press releases from Dynegy stating how they would make good on all of Enron's outstanding deals/debt. Enron is already making rumblings (albeit fairly weak ones IMHO) that they are going to fight for the pipeline. If (big IF) Enron prevails in the battle, haven't they basically proven that Dynegy had no right to walk? Think in terms of Enron's defense of their position being that it was actually Dynegy's actions (or lack thereof) that caused the degredation in bond status (or material change if you're Dynegy). If that happens, wouldn't Dynegy be liable for the 350 million "you're free to walk away from the table" charge?
my personal silver lining the lease for my law practice's office space comes up in about 17 months...just about the time the market for office space will be feeling the full effects of two brand new empty downtown towers
F.D Khan - thanks for the insight. Maybe you can help me understand the Enron business a little bit better. Early this year, a friend of mine who works in the nergy business warned me that Enron was going to face tough times because of the way they finance trades. My simplified understanding was that when they facilitated a trade, they had to provide finance for it, causing them to become very cash dependent. I also noticed in Enron's proposed survival package, they were proposing a new "Buyer Finances" structure. Am I on the right track?
Thank you Mr. Oily and Davo...I appreciate the comments. In Regards to your Question Davo, this goes back to the current changes in the US Business Model. We shifted from a manufacturing based economy to a service oriented economy. Enron has been divulging much of its physical assets to increase its efficiency and simply become a trading company for various "commodities" such as energy, natural gas, paper and pulp, weather etc. As great as the idea is and was, the fact that they have no residual break-up value because they simply facilitate transactions , the company was dangerous because in the event of flaws in their business model and changes in revenues and/or EOL (enron online), the firm would have little value. In terms of how they financed trades, I feel that led so some of what I would call "shady accounting", but the bulk of the problem came from funneling capital from outside partnerships into Enron to finance operations outside of their core competencies, this includes but is not limited to investments in India and the Broadband network. The one thing that does worry me about Dynegy is that the company followed Enron on many ventures and could feasibly have some of the same accounting problems in the future, though I still feel at this time it presents an extrordinary opportunity. Dynegy is more conservative and more asset intensive and will benefit from the loss of Enron in the market place, and the acquisition of the North Texas pipeline will be the icing on the cake.
khan -- my understanding is that Enron was forming subsidiaries to make the big capital investments necessary to play in an industry that is capital-intensive...then they could show them as assets on the books without having the debt that goes along with it...which should have kept their credit ratings high... i'm seeing this a lot in all kinds of industries right now at work...it's nothing really all that new, but it seems Enron had it down to a science and sort of perfected it.
That is true in the respect that Enron was adamant about raising its bond rating status to improve its liquidity. So the most defining reason as to their cash funneling scheme was, as you stated to keep debt down, to finance their unsustainable growth. The assets they felt would create value, ie the Broadband network which Jeff Skilling once "valued" at $36 billion dollars turned out to bite them in the behind as they left their core competencies. The costs associated with keeping these losing projects alive was what was acruing so much debt within Enron, that forced them to find scheming methods to limit debt-equity levels. A company that is really going to begin feelings some MAJOR heat is Anderson Consulting. They did the auditing for Enron, but were making a fortune through their consulting side A Conflict of Interest? Maybe Not only that, but they were fined $7,000,000 by the SEC for their actions in another Houston Debacle : Waste Management If people don't remember there are Ironic Parallel's between the Houston Companies Enron and Waste Management, and the one that stands out the most is Anderson Consulting.
Going Back to the Sweetening the Assets Utilization of a company to make it look better. When analyzing companies now days in a more Service, Technology market, break-up aka book value is not as servicable a tool anymore. In many Companies, assets are as proposterous as intellectual capital, an asset that becomes useless to many. With technology changing as rapidly as it is, though certain assets may be worth an amount within the realms of a company operation, to other firms it may be useless. Or going even farther, software applications change rapidly and the patent becomes useless if a better tool is on the marketplace. Enron was very much a victim of the internet within its anchor of its Broadband dreams. Expectations on demand for bandwidth were phenomenal, and today less than 5% of the networks are even being used. Enron's funneling of cash to produce its broadband operation is similar to the losses of such companies as Nortel Networks, JDS Uniphase, Corning and others in the fiber optic market. Yet those companies could live with the losses and did not try to hide them and/or funnel capital to artificially inflate prices. Enron was also a victim of companies like JDS Uniphase whose technology (DWDM Dense Wavelength Division Multiplexing, basically reflecting the signal to increase flow) made each strand of fiber optic cable much more conducive to transmitting information, subsequently, less network space was needed.
I agree that Andersen is in for rough sledding. Just a point of clarification, however. Andersen (Worldwide) the accounting firm is a separate entity from Accenture (formerly known as Andersen Consulting) as the consulting firm was spun-off several years ago. Andersen performed both audit and consulting work for Enron. According to the papers, Enron was Andersen's second largest client in the U.S. I don't know if Enron was a client of Accenture, but I wouldn't be surprised.
