Harvey Pitt -SEC
a global provider of energy and communications outlets, entered the story
of Enron's collapse when it sought to merge with the faltering giant for
$9.5 billion in stock and cash. The merger would have created one of the
largest energy trading companies in the world, with more than 22,000 megawatts
of generating capacity and 25,000 miles of natural gas pipelines.
Like Enron, Dynegy is headquartered in Houston, Texas, and was founded in the mid-1980s. While Enron skyrocketed in size and scope, Dynegy remained smaller, employing around 6,000 people and turning a profit of about $29 billion last year. Fortune magazine ranks Dynegy 54th on its list of the 500 largest global companies.
At the time, Dynegy CEO Chuck Watson, who headed the company for 17 years, projected the combined company would grow 15 to 20 percent over the next three years. The stock market welcomed news of the proposed merger; shares of Dynegy stock surged by 15 percent and Enron stock climbed 11 percent.
Despite the SEC's ongoing investigation into Enron's financial statements, the two Texan energy giants continued merger talks. As talks went on, Dynegy CEO Chuck Watson said confidently, "We are 90 percent sure we've seen all the downside on the Enron books."
But hopes for a merger were dashed when credit rating agencies lowered Enron's credit status, triggering an immediate need for Enron to begin payments on its huge debt. Dynegy terminated talks as the severity of Enron's financial troubles intensified.
Dynegy withdrew from the deal citing a significant "adverse change" in Enron fortunes. As more grim details of Enron's financial insolvency surfaced, Dynegy sought legal action against Enron citing a "breach of contract." Shortly afterward Enron declared bankruptcy.
Dynegy, which had provided Enron with an immediate $1.5 billion cash infusion at the deal's onset, sued Enron over disputed ownership of the Northern Natural Gas pipeline, asserting that the pipeline was collateral for the $1.5 billion. Dynegy prevailed, but now faces a $10 billion wrongful termination counter-suit from Enron.
Many business experts question whether Dynegy knew about Enron's misleading accounting methods since Dynegy had complete access to Enron's books during merger talks.
Enron-related issues aside, legal troubles continue to hound Dynegy. California Lt. Governor Cruz Bustamante has charged Dynegy with energy price manipulation that resulted in the state's 2001 energy crisis. A lawsuit was filed in May. The Senate Committee for Energy and Natural Resources recently held hearings concerning whether the energy market should submit to federal regulations and oversight.
Despite the terminated merger with Enron, Dynegy reported steady fourth-quarter earnings, although its 2001 financial statement will include $67 million in Enron-related losses.
Amid a continuing SEC inquiry into Dynegy's accounting methods and decreasing share prices, Watson resigned as the company's chief executive and chairman on May 28.
Daniel L. Dienstbier, president of the company's Northern Natural Gas pipeline business, will become interim chief executive, and Glenn F. Tilton, also a Dynegy board member and a vice chairman of ChevronTexaco, will serve as interim chairman.
-- By Carl Ballard, Online NewsHour (June 2002)