By the OGJ Online Staff
HOUSTON, Nov. 28, 2001 — Dynegy Inc. Wednesday terminated the merger agreement with Enron Corp. citing Enron’s alleged breaches of representations, warranties, covenants, and other agreements in the merger agreement.
Under the Nov. 9 deal terms, Dynegy walks away with Enron’s Northern Natural Gas pipeline. Dynegy gets the pipeline in exchange for a $1.5 billion cash infusion that Dynegy’s major stakeholder ChevronTexaco Corp. contributed to the proposed deal.
The news comes on the heels of downgrades to Enron’s corporate credit rating by Standard & Poor’s, Moody’s Investors Service, and Fitch IBCA to junk bond status. The downgrade essentially crippled Enron’s trading organization.
Dynegy said the purchase of Enron was based on the value contained in the trading operation. It said there was essentially “no value” in Enron’s other mostly overseas assets.
Financial analysts said the ratings agencies held off any downgrades following the merger announcement because they had hoped confidence would return based on the merger news and Enron would have access to more capital.
But the markets reflected loss of credibility.
“Enron’s financial performance including the “significant consumption of cash in operations from counter party demands for cash margin had diminished prospects for the completion of the merger,” Moody’s said.
The New York Stock Exchange halted trading of Enron Corp.’s stock at 12:34 EST “pending news,” said a spokeswoman. The stock had melted down earlier today to just above $1 on fears of the collapse of the Dynegy deal and fears of bankruptcy.