Enron Corp.’s incredible stumble in the stock market and continued concerns by the investment community may offer some inroads for other energy companies that have long envied the world’s largest energy trader’s ability to capture and sustain its huge share of the marketplace. Some analysts are even speculating that Enron could possibly become a takeover target, an irony considering it has long been considered the model energy marketer that has set the gold standard for others to follow.

On Thursday morning, there was more bad news, with Reuters reporting that in the next six months Enron will close its European broadband telecommunications business in London and move the operations to Houston. Enron first announced cutbacks both in the United States and Europe within its troubled broadband unit in August (see Daily GPI, Aug. 21). And less than two weeks ago, it announced it would trim 250-500 jobs from its metals unit in London.

Energy analyst Ronald Barone of UBS Warburg said Thursday that Enron is “still the market maker,” adding that if “push comes to shove” as far as Enron’s liquidity, the company could “generate substantial cash” if it sold other assets such as its pipelines segment. However, he warned that “at a minimum, if Enron’s shares were to deteriorate much further, we would view it as a potential acquisition target for other substantially larger and better capitalized entities looking to immediately become a sizable player in the global unregulated wholesale/retail energy space.”

While Barone admits that even though there are no guarantees, “the odds of this company becoming completely illiquid are low,” and the odds of it “regaining some level of stature or returning an attractive return to shareholders from current levels over the next 12-18 months are medium-to-high.” With all of its current problems, there are few companies that could even handle the type of business Enron has succeeded in building, and no one so far is naming any names.

At Tulsa-based Williams, which announced its third quarter results Thursday, COO Steven Malcolm said that Enron’s physical business transactions business would not be as easy to secure as the large structured transactions it favors. During a conference call with investors and analysts on Thursday, Prudential Securities analyst Carol Coale asked whether Williams expected to see customers moving away from Enron and using the energy trading services offered by Williams. “How equipped would your marketing business be to take these financial customers away?” she asked.

Malcolm, who was appointed COO in September, said, “We lack the margins, we lack the profitability associated with the margins,” but offered that “clearly, to the extent (if) that there’s a void in terms of services offered…in terms of Enron or others moving out…that would offer opportunities to Williams, but I’m not necessarily going to suggest that we change our focus or look to grow our physical business in terms of what Enron has.”

Malcolm, who is expected to succeed Keith Bailey upon his retirement as CEO in May 2002, said that Williams currently has more than 120 “quality” projects on the table and “that certainly takes a lot of attention of our people.” The “most exciting opportunities,” he said, “are in the large structured transactions part of the business.”

As Enron’s stock fell this week, other energy merchants — many with stellar third quarter reports — watched their stocks fall as well. But Barone does not believe the shadow cast by the stock decline will last long. “The collateral damage to the rest of the space, such as Dynegy Inc. and El Paso Corp., is overdone,” Barone said, offering instead, “an attractive buying opportunity.”

Curt Launer, an energy analyst with Credit Suisse First Boston, agreed, noting Thursday he had raised Dynegy’s rating from “buy” to “strong buy” in recognition of the valuation opportunity created by its 13% stock decline on Wednesday. “Dynegy was the focus of speculation related to Enron that had Dynegy cutting off business with or limiting credit to Enron,” but Launer said his information and analysis showed that those types of speculations were not correct, adding that Dynegy had “emphatically” denied cutting off Enron’s credit on Wednesday.

“Our contacts in the industry indicate that business in the merchant arena is progressing normally, despite Enron’s issues,” said Launer. “We continue to view the merchant business as capable of producing in excess of 20% growth rates for industry participants, including Enron.”

Still, Enron’s problems are far from over, and shareholders continue to express their displeasure, as another securities class action lawsuit was filed on Wednesday on behalf anyone “who acquired Enron Corp. securities between Jan. 18, 2000 and Oct. 17, 2001 by Bernstein Liebhard & Lifshitz LLP of New York City in the U.S. District Court for the Southern District of Texas, Houston Division. Named as defendants in the complaint are Enron, CEO and Chairman Kenneth L. Lay, former CEO Jeffrey K. Skilling and former CFO Andrew S. Fastow.

The complaint alleges that Enron issued a series of statements concerning its business, financial results and operations which failed to disclose that its Broadband Services Division was experiencing declining demand for bandwidth and the company’s efforts to create a trading market for bandwidth were not meeting with success as many of the market participants were not creditworthy; that Enron’s operating results were materially overstated as the result of it failing to writedown in a timely manner the value of its investments with certain limited partnerships that were managed by the company’s CFO; and that Enron was failing to writedown impaired assets on a timely basis.

U.S. energy company Enron said on Thursday it will shut its European broadband telecommunications business in London within the next six months and move the operations to its headquarters in Houston, according to a Reuters report. The change was dictated by poor demand for broadband services, exacerbated by falling prices.

Enron’s CEO Kenneth Lay said earlier this month the company was reviewing options for the loss-making broadband operations, which could include selling it or finding a partner. The broadband unit, which owns an 18,000-mile network, posted a loss of $800 million in the third quarter of the year. Enron launched its broadband business last year, predicting that network capacity would one day be traded like natural gas or electricity, but has recently admitted it overestimated the market’s early potential.

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