Posted on 12/03/2001 9:28:43 PM PST by lewislynn
Dec. 3, 2001, 12:40AM
Two weeks ago, Enron Corp. and Dynegy were preparing a marriage of their energy businesses. On Sunday, they landed in divorce court.
Enron is suing Dynegy for $10 billion, claiming Dynegy's cancellation of their merger set in motion the chain of events that led Enron into Chapter 11 bankruptcy.
The merger between the rival Houston energy traders was announced Nov. 9 as a way to save Enron from its mounting woes. When Dynegy scrapped the deal last week, it breached that contract, Enron said in a lawsuit filed Sunday in U.S. Bankruptcy Court in New York.
Enron argues that Dynegy took advantage of Enron's precarious situation to further its own business goals.
"By terminating the merger agreement, Dynegy sought to put an end to Enron as a competitive force," the lawsuit said.
In a statement late Sunday, Dynegy Chairman and Chief Executive Officer Chuck Watson called Enron's lawsuit "frivolous and disingenuous."
"We want to be perfectly clear on this point: Enron's lawsuit against Dynegy has no merit whatsoever in law or in fact, and is one more example of Enron's failure to take responsibility for its demise," the statement said.
Dynegy apparently will countersue Enron.
"Dynegy will not lose Enron's frivolous case and intends to pursue an action for the damages that Enron has caused Dynegy," Watson said.
Dynegy spokesman John Sousa said earlier in the day that the company had not seen the lawsuit but was confident that it terminated the merger properly under the "material adverse change" provisions of the deal.
In a Nov. 19 filing with the Securities and Exchange Commission, for example, Enron disclosed it had materially less cash and greater payment obligations than it disclosed 10 days earlier when the deal was signed, Sousa said.
Enron counters in its suit that Dynegy had full knowledge of Enron's financial troubles after conducting two weeks of due diligence prior to the merger announcement. By falsely implying later that it had additional study to do on the merger, Dynegy unsettled the market, seizing the opportunity to grab more of Enron's trading business, the suit said.
Enron argued that any adverse changes to its business were caused in part by Dynegy itself. Dynegy knew that doubts about the merger would lead to a further downgrading of Enron's credit to "junk" status, the lawsuit said. The ratings downgrade triggered obligations that forced the company to seek bankruptcy protection.
Several financial analysts sided with Dynegy on Sunday.
"I don't think Enron has much of a leg to stand on with its $10 billion lawsuit against Dynegy, who, as we see it, made a good-faith effort," said Carol Coale of Prudential Securities in Houston.
Ron Barone of UBS Warburg said it appears that there were material adverse changes in Enron's businesses, based on the disclosure in the company's quarterly financial report of $690 million in debt that was due
Making the lawsuit a part of the bankruptcy filing means that a decision on the issue will be up to a bankruptcy judge, and any recovery will be viewed as a potential asset to satisfy creditors.
Dynegy is already being punished by investors who, anticipating a lawsuit, pushed the company's stock down 26 percent Thursday and Friday.
In addition to seeking damages for the failed merger, Enron said Sunday it was fighting Dynegy's efforts to take ownership of Enron's Northern Natural Gas pipeline system.
The pipeline system, which covers 16,500 miles reaching from Texas to the Great Lakes area, was not a part of the company's bankruptcy filing.
In return for providing financing for Enron under the merger deal, Dynegy got the right to buy the pipeline business. Dynegy has stated it plans to take over the pipeline Dec. 12.
Sounds more like a breach of promise than a divorce.
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