"We want to be perfectly clear on this point: Enron's lawsuit against Dynegy has no merit whatsoever in law or in fact, and is one more example of Enron's failure to take responsibility for its demise.
"Enron's rapid disintegration is the result of a general loss of public confidence in its credibility, fueled by the startling disclosures on Nov. 19 of new and adverse information," said Watson. "Subsequent to the 10-Q filing, Enron's core trading businesses in North America and Europe collapsed. Adding to the company's problems are investigations by the U.S. Securities and Exchange Commission and the U.S. Congress. Enron's charges against Dynegy are false, and the public should be wary of Enron's efforts to deflect attention from the facts," he added.
"The reality is, Enron invited Dynegy to participate in merger negotiations. Dynegy entered those negotiations in good faith and provided $1.5 billion in cash to Enron. Despite assurances that Enron's liquidity situation had stabilized, the cash was gone in less than three weeks, and Enron has had difficulty providing an accounting as to where it went," said Watson.
"Our $1.5 billion investment was backed by a structure within the merger agreement which provided that, should Dynegy provide notice of termination, Dynegy would have immediate control and ownership of Northern Natural Gas pipeline, a provision that assured our shareholders they would be protected," he said. "Enron has the ability to reclaim Northern Natural simply by repaying Dynegy $1.5 billion, plus accrued and unpaid dividends of $90 million per year. It is a demonstration of sheer desperation that Enron would attempt to keep both Dynegy's $1.5 billion and the pipeline," added Watson.
Under the terms of the merger agreement, which was announced Nov. 9, Dynegy had the right to terminate the merger agreement if there was a material adverse change in Enron's business or financial condition or if Enron breached its representations and warranties.
According to Watson, "Enron had, in fact, recognized that such a change had occurred, and was willing to slash the merger ratio by more than half because its business had materially and adversely deteriorated.
"Enron's 10-Q filing on Nov. 19 revealed rapid cash deterioration and accelerating debt maturities, as well as a sharp reversal in their results in Europe. The filing destroyed whatever remaining credibility Enron had before the 10-Q, and its stock reacted by plummeting an additional 23 percent, from $9.06 per share to $6.99 by market close on the next day, and within a week, to $4 per share. Within days, Enron's core trading business in North America and Europe collapsed as counter-parties began to withdraw or to demand ever-increasing collateral. Dynegy worked diligently over the next week on a two-tiered effort to solve Enron's financial problems. The first was to help Enron gain access to additional cash in order to sustain its near-term business activities. Second, Dynegy was focused on securing a global solution to ensure the long-term viability of the combined entity, without which the merger was futile," he said.
"Simultaneously, Dynegy's management team was pursuing an accelerated plan to integrate the two companies' operations and employees, although Enron's own management refused to cooperate with that process. Unfortunately, it became clear that these many efforts were not enough to overcome Enron's financial and business issues.
"Dynegy will not lose Enron's frivolous case and intends to pursue an action for the damages that Enron has caused Dynegy," Watson said.
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