Enron shares sink as company looks for cash
Enron Corp shares sank below the $10.00 mark for the first time in nearly a decade on Tuesday as the energy trading giant sought cash to calm investor worries about business deals being probed by federal regulators.
Shares in the Houston-based firm closed down $1.50, or 13.4 per cent, to $9.67, a level not seen since May 1992, as Enron stock continued a downward spiral that has lopped off 88 per cent of its value this year.
It was the most actively traded issue on the New York Stock Exchange, with 29.6 million shares changing hands, and the fourth-biggest percentage loser.
Analysts attributed the drop to ongoing investor anxiety about the company's deteriorating credit ratings, which have been cut to near-junk levels and raised questions about Enron's ability to continue to finance its business.
The company, which is the nation's No 1 trader of natural gas and electricity, was once a Wall Street star, but has fallen under fire for failing to explain off-the-balance sheet transactions that led to a $1.2 billion reduction of shareholder equity and contributed to a $1 billion charge on October 16. Its stock has lost $18.5 billion in market value since that date.
The deals, conducted with partnerships run by then-chief financial officer Andrew Fastow, are under investigation by the US Securities and Exchange Commission for possible conflicts-of-interest.
Fastow took a leave of absence on October 24 in the latest of a growing line of high-profile departures topped by the August resignation of chief executive Jeff Skilling. He left after just six months on the job, saying he wanted a lifestyle change.
To bolster fading investor confidence, Enron has been gathering cash and credit and trying to sell off assets to pay down debt.
The Wall Street Journal reported on Tuesday that Enron had talked with private equity firms and rivals in the power-trading business about providing a capital infusion of at least $2 billion in exchange for an equity stake and other terms.
The infusion was needed, it said, because access to financing is drying up and asset sales are going slower than expected.
The report said Enron had approached such buyout firms as Blackstone Group and Clayton, Dubilier & Rice to gauge their interest and had gotten calls from a number of power traders, none of whom the paper could identify.
Enron, Blackstone, and Clayton Dubilier all declined comment. People familiar with the situation said Clayton Dubilier wasn't interested, but Blackstone is willing to discuss an Enron proposal.
A TOUGH READ
They said investors may be wary because Enron's books are difficult to understand and therefore the depth of its problems unknown, but not lost on them is that last year the company had $100 billion in revenues and $1.4 billion in net earnings.
"It's definitely an opportunity," said one advisor to private equity funds. "It's a distressed situation and it has stable cash flow."
Image experts said Enron could make itself more attractive by responding fully to investor demands for more information, rather than clamming up as it has in recent days while it tries to get its house in order.
"Their perception is that there's obfuscation going on, in terms of senior people making pronouncements without fully understanding the nature of what they're talking about and that in turn gives the impression that they're hiding something," said John Lister of Lister Butler Consulting, a brand identity consulting firm.
He said the company should quit listening to lawyers and come clean.
"What tends to happen in these situations is lawyers get inserted into the situation. The first thing a lawyer tells you is to shut up. And unfortunately that is the antithesis of what good brand stewardship requires," he said.
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