Enron, the Texas energy giant with trading operations around the globe, was teetering on the brink of a spectacular corporate collapse last night after its smaller rival Dynegy pulled out of an 11th-hour merger deal that leaves thousands of UK jobs at risk.
After weeks of alarming financial statements pointing to serious accounting irregularities, Enron was unable to talk Dynegy into taking on its ever more pressing debt burden in exchange for control of its oil, gas and financial trading network. With no other saviour in sight, its shares slashed to near nothing and its bonds yesterday reduced to "junk" status, the Houston-based company appears to have run out of road to travel. More than 20,000 jobs are at stake, including 5,400 in the UK.
Enron's shares, which rose above $90 last year, fell 85 per cent to end at 61 cents last night after Moody's, Fitch and Standard & Poor's cut the company's credit ratings. This triggered the demand for the immediate repayment of $3.9bn (£2.7bn) of its $13bn debt mountain.
"It's the end of Enron, no question about it," Gordon Howald, an analyst at Credit Lyonnais Securities, in New York, said. "I don't know who else could step in."
Dynegy had seemed all set to buy Enron for $9bn (£6bn) in a deal hammered out earlier this month. But that was before Enron revealed it had over-reported $600m in profits over the past four years, prompting the Securities and Exchange Commission to launch an investigation into its off-balance sheet accounting practices.
As Enron's stock continued to fall,Dynegy came back to renegotiate the deal but it became apparent the accounting problems would take months to fix and the talks broke down irretrievably on Tuesday night.
Mark Bernstein, an energy specialist at Rand, said Dynegy had no need to buy Enron. "The assets are the people. You can just hire the people, you don't need the company," he said.
Yesterday, Enron announced the suspension of its online trading service once considered the golden cog in its corporate machine. In London, several of the 2,000 staff at its trading centre in Victoria were reported to have gone home early. Enron denied rumours they had been told they had lost their jobs.
The startling demise of Enron is likely to have a major knock-on effect in the energy and financial sectors worldwide. It is also an embarrassment for the US President George Bush, who is old friends with Enron's chairman, Kenneth Lay. Mr Lay contributed some $400,000 to the Bush election campaign last year, and Enron made political contributions of more than $2m over the same election cycle.
In the UK, where Enron has operated since 1979, the company's assets include the Victoria energy trading business and the world's largest privately owned combined heat and power plant in Teesside. Other UK assets include a smaller generation facility in nearby Wilton, a retail gas and electricity operation in Oxford and Wessex Water, which provides water to 1.2 million households in Britain and sewage services to 2.5 million. Lord Wakeham, a former Tory energy secretary, is a director.
UK banks' exposure to Enron is mainly through syndicated debt, with Barclays leading the largest syndicate. It is followed by Royal Bank of Scotland, Bank of Scotland, Standard Chartered, Bank of Ireland and HSBC. In the US, Citigroup and JP Morgan have lent Enron $1bn.Reuse content