Background: Collapsing Giant
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RAY SUAREZ: As today’s closing bell sounded on Wall Street, shares of Enron traded at 36 cents, continuing a spectacular fall for a giant that only months ago was worth more than $80 a share. Once a poster child for the economic boom of the ’90s, Enron is now on the verge of bankruptcy. At Houston headquarters, some of the company’s 21,000 employees feared for their jobs.
EMPLOYEE: It’s a tough day for Enron right now.
SPOKESMAN: It’s a tough day for you?
EMPLOYEE: You better believe it.
EMPLOYEE: I got here this morning, and it’s the way it’s been all week and last week. It’s kind of a state of paralysis. Nobody really knows what’s going on. And everyone is just prepared to go somewhere else.
RAY SUAREZ: Enron got its start in 1985 as a small natural gas supplier. But as the era of deregulation and Internet technology expanded, the company’s business evolved from energy supplier to energy trader. Enron soon became one of the largest traders of natural gas and electricity in the U.S. and overseas, and expanded its business to include marketing coal, paper, plastics, and Internet bandwidth. The company’s success was part of Houston’s growth. The company paid $100 million for the rights to name Enron field, the home of the Houston Astros. The masterminds behind the company’s success– its chief executives Jeffrey Skilling and Kenneth Lay– were featured on the covers of business magazines. Lay was also well known as a good friend of President Bush.
But negative news for the company began last year. During the height of California’s energy shortage, Governor Gray Davis accused Enron and other companies of manipulating the market to increase natural gas prices, a charge Enron executives, who have been staunch advocates of deregulation, have denied. In the spring, the company faced accusations of false accounting practices. In August, as the stock began its downward spiral, Jeffrey Skilling resigned after just six months as CEO. Last month, the Securities and Exchange Commission launched an investigation of Enron’s business practices. And earlier this month, Enron revealed that more than $580 million in losses over the last five years had been kept off the company’s books. And the company reported a third quarter loss of more than $600 million.
A way out seemed possible when cross-town competitor Dynegy, Inc., agreed to purchase the company for $9 billion. But yesterday, Dynegy pulled out of the deal and Enron’s credit rating was downgraded to junk bond status. Enron shut down its online trading site and halted trading in some of their foreign markets as a result. Executives at Enron announced today that they were continuing talks with banks and creditors to forestall filing for Chapter 11 bankruptcy protection, but would not rule out liquidating the company.