Enron Corp.’s $25 million settlement of a lawsuit filed against one-time rival and 15-minute merger partner Dynegy Inc. was approved in New York City late Thursday by the bankruptcy court overseeing Enron’s massive case. The resolution will free up more than $62 million for Enron, which had been held in escrow since late last year.
U.S. Bankruptcy Court Judge Arthur Gonzalez called the settlement agreement between the two companies in the “best interests of Enron and its creditors.” On the day it filed for bankruptcy last December 2, Enron also filed a $10 billion lawsuit against Dynegy, which had withdrawn its merger offer days before. Enron claimed then that Dynegy had withdrawn its offer to buy out Enron for about $8 billion as part of a scheme to actually force its Houston neighbor into bankruptcy (see Daily GPI, Dec. 4, 2001).
Dynegy had called off the three-week-old merger in late November 2001, citing “breaches of representations, warranties, covenants and agreements” (see Daily GPI, Nov. 29 ). Enron also maintained that it was entitled to keep its Northern Natural Gas Pipeline Co. (NNG), which Dynegy was supposed to obtain under the agreement (unless Enron repaid $1.5 billion), and if “there was a material adverse change in Enron’s business or financial condition.”
After Enron filed its lawsuit, Dynegy countersued to protect its interests in NNG and to “protect our shareholders’ interests,” said former Dynegy CEO Chuck Watson at the time. Ironically, Watson also forecast 2002 earnings when the countersuit was announced, predicting Dynegy would earn between $2.50-$2.60 a share. “We have every reason to believe that notwithstanding our investment in NNG and our original forecast that planned for the recovery of the economy in the second half of 2002, we feel very comfortable to reiterate our earnings forecast,” he had said.
Shareholders and analysts on that bleak day may have set a larger pattern in motion for Dynegy and the rest of the energy merchants. Credit Suisse First Boston analyst Curt Launer said then that Dynegy would be impacted by the lawsuits “for some time,” but expected the company to gain market share in its “regular way and electronic trading.” However, while Enron’s meager stock climbed a few cents the day the lawsuits were publicly announced (to 40 cents from 26 cents), Dynegy’s fell almost 11% that day, losing $3.18 to close at $27.17. Since then, of course, Dynegy and its peers have taken a remarkable tumble. Dynegy closed on Friday at $2.08, gaining 7 cents over Thursday.
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