UBS Warburg, a subsidiary of Switzerland-based UBS AG, beat out Citigroup as high bidder for Enron Corp.’s once mighty wholesale energy trading unit, according to an announcement Friday by the U.S. Bankruptcy Court of New York, which also ruled against moving the case to Houston. No details of the bid were released. Bankruptcy Judge Arthur Gonzalez has scheduled a hearing at 2 p.m. EST on Thursday (Jan. 17) to consider final approval for the transaction.
The judge’s refusal of the motion by Dynegy Inc. to change the venue to Houston, the home base of both Enron and Dynegy, had been expected. Meanwhile, there were new revelations Friday on more conversations between Enron and the White House, and the Securities and Exchange Commission (SEC) has expanded its investigation into Arthur Andersen’s missing audit files on the company.
Enron lawyer Martin Bienenstock did not disclose terms of the offer for the trading company at a hearing before Gonzalez Friday, but said those details would be made public Monday morning by Enron. In court, Bienenstock called the decision to sell to New York-based UBS a “very positive development” as Enron attempts to reorganize under Chapter 11. Bienenstock said Enron’s trading unit was the company’s most important business and “was something that was dead that we were trying to bring back to life.” UBS Warburg will assume “none of Enron’s past, current or future liabilities or trading positions,” it said in a statement. The parties will file executed documents with the bankruptcy court by 8:30 am. EST on Monday at www.nysb.uscourts.gov.
Before the announcement, trading in shares of Enron were halted Friday morning on the New York Stock Exchange and over-the-counter, pending news. The stock was trading at 67 cents when trading was halted.
It was unclear how the Enron-UBS joint venture will pan out, but under a proposal by Enron made in December, a 51% joint venture partner would form a new company with Enron to be called New Energy Trading Co., or NETCO. Enron would contribute information technology and back office systems among other things, in exchange for a 49% stake. UBS Warburg said its winning bid called for Enron to “retain a residual interest in the income of the business.”
“With UBS’s AA credit rating and Enron’s proven industry expertise, we believe this will maximize the value of the trading operation going forward,” said Enron CEO Kenneth L. Lay. “This is a key milestone as we build the new Enron and work to establish a platform for restructuring the company and emerging from Chapter 11 bankruptcy protection.”
On Friday, as revelations about communications between White House officials and Lay were further revealed, the SEC announced it would expand its investigation of the collapse of the energy company by also examining Andersen’s news that it has destroyed some of the pertinent auditing records related to Enron (see Daily GPI, Jan. 11).
U.S. Treasury Department Under Secretary Peter Fisher, who handles domestic finance, revealed that he and Enron President Greg Whalley had spoken “six to eight times” in late October and early November as the company’s stock and market confidence plummeted.
“As Enron’s negotiations with its bankers for an extension of credit neared a decision point, the president of Enron asked Under Secretary Fisher to call the banks,” said Michele Davis, a department spokeswoman. “Under Secretary Fisher inferred he was being asked to encourage the banks to extend credit. He made no such calls.”
The calls to Fisher apparently were follow-ups to conversations Lay had with Treasury Secretary Paul O’Neill. The Treasury Department confirmed on Thursday that Lay had called O’Neill on Oct. 28 and Nov. 8, 2001. Following the Oct. 28 conversation, O’Neill asked Fisher to investigate whether Enron’s problems were a threat to securities markets.
“The undersecretary’s job is to monitor capital markets and the effects of any major economic development on the markets,” said Davis. “In that role, he is in contact with people in the market every day to be aware of their concerns.”
Fisher was executive vice president of the New York Federal Reserve Bank and helped broker a 1998 deal for Long-Term Capital Management by 14 of its creditors. The Reserve Bank determined then that financial markets faced some problems if the management fund was forced to unwind its positions, and to avoid that, investors were invited to invest $3.6 billion into the hedge fund to ensure its survival. Apparently, Enron officials were asking to be considered for a similar deal.
And finally, as expected, on Friday, the Senate panel investigating Enron issued 51 subpoenas requesting Enron documents and Andersen documents, as well as subpoenas to 49 current and former officers and board of director members.
“We are going to be looking into the circumstances surrounding the board members’ Enron stock and option trades, the conduct of the board’s audit committee, the conduct of the board with respect to both internal and external audits,” said Sen. Carl Levin (R-MI), chair of the Permanent Subcommittee on Investigations. He said the subcommittee is investigating “offshore entities, special purpose entities and limited partnerships that Enron used.”
The House Energy and Commerce Committee, also investigating Enron, also has requested the personal files of several top Andersen executives following news that Andersen may have destroyed pertinent files. Included in its request are files of Andersen partner David Duncan and five other Andersen executives who worked with Enron. Committee spokesman Ken Johnson said many of the missing files were e-mails between executives at the companies.
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