Dynegy will pay Enron to settle merger dispute
Compiled from Times wires
HOUSTON -- Dynegy Inc. has agreed to pay rival Enron Corp. $25-million for backing out of a November merger between the Houston-based energy marketers, the companies said Thursday.
Under the settlement of the lawsuit, Enron has agreed to release Dynegy from all claims related to the terminated merger. Both companies' boards have signed off on the deal, but Enron's bankruptcy judge in New York still must approve the terms.
In turn, Dynegy has agreed not to pursue any claims related to its acquisition from Enron of its Northern Natural Gas Co. pipeline in the merger breakup aftermath.
"We are pleased to have reached a settlement that enables both companies to move forward without the shadow of protracted litigation," Enron interim chief executive Stephen F. Cooper said. "This settlement maximizes value for our creditors, which is Enron's top priority at this time."
Enron officials said earlier this year that they hoped the suit would provide billions to help pay off the energy company's creditors. Enron alleged Dynegy used a pretext to cancel its bailout bid so it could kill off a competitor. Enron shareholders, bondholders, employees and lenders lost more than $50-billion in the company's collapse.
"I don't think creditors will end up seeing a dime of this money," said Charles Tatelbaum, a Hartford, Conn., bankruptcy lawyer representing a company who did construction work on some of Enron's Houston offices.
With legal and administrative fees running into the millions each month, the settlement proceeds will be eaten up quickly, Tatelbaum said.
Dan Dienstbier, interim chief executive of Dynegy, said the deal with Enron paves the way for the company's pending $928-million sale of the Northern Natural pipeline company to MidAmerican Energy.
"This settlement resolves a matter that has been weighing on our company and our stakeholders, and we are pleased to have done so on terms that are reasonable for Dynegy," he said.
Dynegy warned Wednesday in a Securities and Exchange Commission filing that it might follow its rival into bankruptcy if the sale of the pipeline snags. The company still expects the sale to be completed this month, but it said several risk factors remain. A delay could create a cash crunch, which could force the energy company to file for protection from its creditors.
In the filing, Dynegy said it is aiming for a quick sale of the pipeline and hopes to have in place other aspects of its $2-billion money-raising program by next spring.
Dynegy walked away from its planned $8-billion merger with Enron on Nov. 28, saying the company had failed to fully disclose the scope of its financial woes.
Enron, once the seventh-largest corporation in the world, was reeling at the time from allegations it manipulated its books to hide debt and inflate earnings. The company's shares lost $68-billion in value from their peak in August 2000. Enron filed for Chapter 11 bankruptcy Dec. 2 and laid off thousands of employees.
Enron also sued Dynegy for $10-billion, claiming its smaller rival illegally abandoned the merger.
Dynegy acquired Northern Natural Gas, the largest of Enron's four pipelines, in exchange for a $1.5-billion investment in Enron before a merger of the two Houston-based companies collapsed last November.
Enron gave up its fight to keep the pipeline in January, and Dynegy completed the transfer.
-- Information from Associated Press and Bloomberg News was used in this report.
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