Enron Corp. Friday selected investment bank UBS Warburg AG as the successful bidder for its North American wholesale electricity and natural gas trading business, after a private auction overseen by a US bankruptcy judge.
Terms of the proposed transaction, subject to approval by Judge Arthur Gonzalez in New York, call for Enron to retain a residual interest in the income of the business. The parties are expected to file executed documents with the court Monday. Gonzalez scheduled a Tuesday hearing to report whether he has approved the deal.
Enron Chairman Kenneth L. Lay called the proposed deal a “key milestone” in the company’s effort to reorganize and emerge from Chapter 11 bankruptcy protection. Before collapsing, Enron was the world’s largest energy merchant, accounting for about 25% of all trades in a market it helped pioneer.
Lay made revival of the trading organization a cornerstone of a revitalized company. Enron Online, largely inactive since the company sought bankruptcy protection Dec. 2, generated most of the company’s $101 billion in 2000.
Jeff McMahon, chief financial officer, said Enron evaluated numerous bids and chose UBS Warburg after “intense negotiations.” Citigroup Inc., New York, and UBS Warburg, Switzerland’s largest bank, were reported to have submitted bids for up to 51% of the trading operation. The UK’s BP PLC was said to be interested in buying certain back office and computer systems.
Analysts said UBS’s AA credit rating will help attract other banks to participate in any syndication. J.P. Morgan Chase & Co., one of Enron’s biggest creditors, withdrew a bid last month. Citigroup and Morgan agreed to lend Enron $1.5 billion in debtor-in-possession financing, after the company filed for bankruptcy protection. These loans will have to be farmed out to other financial institutions.
Numerous creditors already have filed objections to the proposed sale. Some has asked that funds from the sale be placed in an escrow account. Creditors will have 10 days to appeal a Gonzalez ruling.
Enron’s finances began deteriorating in October after it disclosed a series of partnerships that were used to keep millions of dollars of debt off the balance sheet. Subsequently, the company restated earnings, losing almost $2 billion in shareholder equity and earnings between 1996 and the third quarter of 2001.
The company is now the subject of numerous investigations, including a criminal inquiry by the US Department of Justice. Thursday, US Atty. Gen. Attorney General John Ashcroft recused himself from the investigation, after receiving campaign contributions from the fallen energy giant.
As the scandal continued to spread, Arthur Andersen LLP Thursday reported employees “disposed” of a “significant” number of documents relating to audits of Enron Corp.