The fall from grace of US energy trading giant Enron moved closer yesterday, when it emerged that the company is in talks with rival, Dynergy, over a $2bn cash injection which could lead to the merger of the two companies. A deal could be announced this week, according to sources close to the talks.
Yesterday the New York Times said that Enron had already approached a number of firms and investors including Warren Buffet, chairman of Berkshire Hathaway in an attempt to rescue the company, which has seen its stock price plummet from a high of $90 in August to as low as $7 in yesterday’s trading.
For Dynegy, the merger would catapult it to the top of the energy trading industry now dominated by Enron. Last year, the company had $29bn in revenues, compared to $100bn for Enron.
Enron are seeking a cash injection to protect its trading position and instil confidence in investors. Dynergy have a vested interest in maintaining Enron’s role in the energy trading market in order to sustain liquidity. Fears that traders might cease trading with Enron appeared to be realized when Apache Corporation, said it ended some hedging agreements because of concerns about increasing risk in the energy derivatives market caused by the Enron crisis.
Dynergy would require the approval and assistance of Chevron Texaco if a merger was to go ahead. The recently almalgamated oil concern has a 27 per cent stake in Dynergy and was one of the founding investors.
Enron, the nation’s largest trader of natural gas and electricity, has been under fire for failing to explain off-balance sheet transactions conducted with partnerships run by ousted chief financial officer Andrew Fastow. Investors said they reeked of conflict of interest and demanded a full explanation they never got.
Fastow left the company last month in what has become a growing line of high-profile departures from Enron, topped by the August resignation of chief executive Jeff Skilling after just six months on the job.
The crisis has undermined confidence in Enron’s financial stability, which in turn has forced the company to seek cash and credit to back the energy trading operations that provide most of its revenue and earnings.
Time is running out for Enron. A number of credit lines become due in the next few months and the exposed banks are anxious to see a speedy resolution to the current crisis.