Enron Could End Up Where It Started

Enron Corp.’s proposed sale of its core energy-trading business to UBS Warburg, raises the question: Without its crown jewel, what is Enron?

Until only a few months ago, the Houston-based company was the world’s largest energy trader and was pushing its vision of deregulated markets into new states and new commodities.

But now, under bankruptcy court protection, Enron is frantically unloading assets, including its once-dominant trading operation, its Oregon utility, its best natural gas pipeline and a variety of international assets.

If all of these deals are completed, Enron could end up much as it began, a smallish operator of scattered pipelines.

The heady days when Enron tried to dominate the energy world and the halls of power are over, and its financial meltdown will haunt for years whatever company survives in the form of lawsuits and investigations.

“Without these assets, Enron is not much,” said utilities analyst Andre Meade of Commerzbank Securities in New York.

“It’s going to be a very small entity. My guess is Enron just gets liquidated and never emerges from bankruptcy ... or they might get acquired,” Meade said.

Enron, recently 21,000 employees strong, has fired 6,200 workers and will jettison even more in the months ahead through asset sales and more expected layoffs. A company spokeswoman Monday could not say how big the resulting company would be and how many people it would employ.

Enron spokeswoman Karen Denne acknowledged the shrinking of Enron but said that “the pipelines are a self-sustaining business.” Enron began in 1985 as a traditional natural gas pipeline operator, so “we’ll be coming full circle,” she said.

The latest unloading of assets is the auction of Enron’s trading business to UBS Warburg, the New York-based investment banking arm of Swiss financial services firm UBS. UBS won a bidding war Friday for Enron’s trading operation, which once handled an estimated 25% of all the wholesale energy trading in the nation.

Enron and UBS were working to complete details of the agreement Monday and delayed filing documents detailing the agreement with the U.S. Bankruptcy Court for the Southern District of New York.

Enron will sell the entire operation to UBS Warburg, rather than the 51% ownership stake it previously was said to be negotiating, according to published reports. UBS Warburg would pay no cash up front for the business but would give Enron 33% of any pretax profit generated by the trading business for at least two years.

Enron has all but closed its trading operation, which employs about 850 people and in 2000 generated 90% of the company’s nearly $101 billion in revenue. The sale does not include any existing contracts for commodities, which are valued at more than $6 billion.

Bankruptcy Judge Arthur Gonzalez will hold a hearing on the proposed sale Friday, one day later than previously planned.

Although Enron’s creditor committee backs the sale to UBS Warburg, some other creditors are objecting because they fear that profits would find their way to Enron and not to creditors, who are owed more than $31 billion.

Enron recently agreed to let Dynegy Inc. buy the 17,000-mile Northern Natural Gas Pipeline, which Enron had pledged as part of the failed $9-billion takeover by its small cross-town rival.

Dynegy pulled out of the agreement Nov. 28, the day Enron fell into junk-bond status, with Dynegy contending it had not realized the depth of Enron’s problems.

Dynegy is getting the pipeline for $23 million on top of the $1.5 billion in capital it had invested in Enron as part of the takeover agreement. But Enron was mired in an all-but-fatal cash crunch as investors and trading partners fled, and it filed for bankruptcy law protection Dec. 2.

Enron still hopes to regain that pipeline as part of a $10-billion lawsuit it filed against Dynegy for pulling out of the merger.

Enron also owns all or part of three smaller pipelines. The largest is Transwestern Pipeline, which operates 2,500 miles of pipe between Texas and the California border. Other Enron businesses include energy marketing and services, which sells electricity, natural gas and energy-management services primarily to business customers who want to bypass the traditional utility.

Enron is selling assets including its Portland-based utility, Portland General, and international power plants and other assets.

Enron’s trading business was well-regarded and if it can be resurrected, it could give Enron a stream of profit “that would be a nice little start of a business,” said Chris Ellinghaus, utility analyst with Williams Capital in New York.

“The trading business has a lot of credibility to win back,” Ellinghaus said. “But that was the part of Enron that actually worked. It was all those other things that they got into that got them into trouble” including investments in water and telecommunications ventures.

“If they had just stuck with the core business, they would have done just fine,” Ellinghaus said.