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Money > PTI > Report November 29, 2001 |
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Enron's fate sealed as Dynegy calls off acquisitionDealing a major blow to the survival of troubled Enron Corp, Dynegy Inc. has abandoned its plans to buy out the once-dominant energy trading company leaving it with little alternative than to file for bankruptcy, media reported on Thursday. Dynegy's decision to pullout of the negotiations came yesterday, after two agencies downgraded Enron's credit rating to junk status. Enron now faces over $7 billion in debts, due during the next year. And it has no lenders in sight. "Its credit is in tatters, its pipelines mortgaged or sold and its credibility with investors shattered," said the The Washington Post. Dynegy chairman Chuck Watson said in a statement that his company pulled out of the negotiations because of Enron's "breaches of representations, warranties, covenants and agreements" in the initial purchase agreement. Dynegy had agreed to buy Enron on November 9 for about $23 billion. But when Enron's stock plummeted following the deal, Dynegy demanded a renegotiation of terms to lower the price. And even that effort collapsed when Standard & Poor's Corp. and Moody's Investors Service cut Enron's credit rating to junk status, exposing Enron to accelerated repayment of more than $3 billion in debt that it could not fully cover, the Post said. "It leaves Enron in desperate straits. Bankruptcy is fairly likely at this point", the paper quoted Andre Meade, a financial analyst in New York, as saying. Analysts said Enron being the most important middleman matching buyers and sellers of power, natural gas and other products, its failure could disrupt energy trading markets, possibly causing sharper swings in short-term energy prices. However, others said any disruptions would likely be temporary because other companies are ready to fill Enron's shoes. Meanwhile, the crisis-ridden energy giant said it was suspending all payments "other than those necessary to maintain core operations". "Uncertainty during the past few weeks with respect to the merger has dramatically lowered the market's confidence in Enron and its trading operations. "With Dynegy's termination of the merger and the ratings agency downgrades, we are evaluating and exploring other options to protect our core energy businesses," said Kenneth Lay, Enron chairman and CEO, said in a statement. It said Enron "is taking actions designed to preserve value in the company's core trading and other energy businesses. Chief among these is a temporary suspension of all payments other than those necessary to maintain core operations". YOU MAY ALSO WANT TO READ:
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