Enron Corp. and Dynegy Inc. announced last Thursday that they settled a $10 billion lawsuit Enron filed against Dynegy for backing out of a merger agreement and claiming Northern Natural Co.’s pipeline system in the process. Enron filed the lawsuit Dec. 2, 2001 in conjunction with its Chapter 11 bankruptcy filing. The settlement agreement has been approved by the boards of both companies.

Under the terms of deal, Dynegy will pay Enron $25 million and Enron will release Dynegy from all claims relating to the terminated merger and will dismiss litigation against the company. In addition, Dynegy has agreed not to pursue any claims for working capital adjustments relating to its acquisition of Northern Natural (NNG) from Enron in February. This will result in the release of funds to Enron that had been escrowed in connection with the sale of NNG, pending a review of working capital as of the closing date. The settlement amount and the release of escrowed funds are subject to bankruptcy court approval.

Dynegy last month sold NNG for $928 billion in cash and the assumption of $950 million in debt to MidAmerican Energy, a midwestern energy utility holding company controlled by billionaire investor Warren Buffett’s Berkshire Hathaway. In a filing made to the Securities and Exchange Commission last Wednesday, Dynegy warned that it could face bankruptcy if the MidAmerican deal fell through. However, the settlement agreement between Enron and Dynegy paved the way for the sale to MidAmerican to go through on Friday following early termination of the Hart-Scott-Rodino waiting period by the Federal Trade Commission.

According to the settlement, Enron will continue providing transition services to NNG once MidAmerican’s purchase of the pipeline is completed later this month. Enron has been providing services on a transition basis under an agreement established between the two companies when Dynegy acquired NNG. Enron has agreed to allow the assignment of that agreement, which runs until Jan. 31, 2003, to MidAmerican Energy.

“This settlement maximizes value for our creditors, which is Enron’s top priority at this time,” said Enron Interim CEO Stephen F. Cooper. “Through the transition services agreement, we will continue to work with Dynegy and MidAmerican Energy to ensure that the NNG transition goes smoothly and that NNG’s customers continue to receive safe and reliable service.”

Dynegy CEO Dan Dienstbier said, “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. The transfer of the transition services agreement is an important step in the timely completion of our sale of NNG to MidAmerican Energy.”

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