Enron, which has lost around $2.5 billion in market value since yesterday, is obligated to immediately pay back its $3.9 billion in outstanding debt due to its new bond status.
Enron’s shares, peaking to $85 per share eleven months ago, bottomed out today to sixty-one cents upon the news.
A Dynegy spokesman explained that it needed to protect company shareholders, citing “Enron’s breaches of representations, warranties, covenants and agreements in the merger agreement, including the material adverse change provision” made the buy-out impossible.
In early November, smaller rival power marketer Dynegy had offered to buy Enron for $9 billion in stock in addition to an immediate capital influx of $1.5 billion from Chevron Texaco, a major shareholder of Dynegy.
Enron today suspended all payments other than those necessary to maintain its core energy operations.
The company had provided the United States with between one-half and one-third of the country’s natural gas supply and had been at the forefront of the energy deregulation push.
The company’s downturn became apparent this summer when Chief Executive Officer Jeff Skilling resigned shortly after being accused of profiting from California’s electricity crisis.
Investor confidence continued to plunge when the company revealed that the Securities and Exchange Commission had ordered an investigation of Enron’s finances and investments. Enron admitted to overstating its earnings by nearly $600 million since 1997.
In October, the company also announced a $1.2 billion charge against shareholders’ equity due to deals with business partnerships owned by former Chief Financial Officer, Andrew Fastow, who resigned that month.
The Treasury Department said it would monitor the effect of a possible bankruptcy on the market.
Enron operates in over 40 countries and owns businesses ranging from trading energy-based commodities over the Internet to running a 25,000-mile pipeline system in the U.S.