Dynegy to acquire Enron pipeline

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Posted 10:41AM on Friday, January 4, 2002

HOUSTON - Dynegy Inc. has settled a lawsuit with Enron Corp. subsidiaries and plans to acquire the Northern Natural Gas pipeline that was part of a dispute between the two energy companies. Dynegy had claimed Enron signed away its right to the prized 16,500-mile pipeline system running between Texas and the Midwest in exchange for $1.5 billion invested in Enron before a proposed merger of the two competitors collapsed in late November. Enron claimed its smaller rival illegally terminated the $8.4 billion deal and therefore had no right to the pipeline. Enron had argued that Dynegy's claim should be part of Enron's massive bankruptcy case filed in federal court in New York. Dynegy said in a news release late Thursday night that the companies have agreed to close the deal by the end of the month. Enron would have the option to repurchase the pipeline by June 30. Morgan Stanley Dean Witter analyst Jim McAuliffe said late Thursday that Dynegy suffered for its efforts to save Enron, particularly when Moody's Investors Service downgraded its credit rating to one step above junk status. Dynegy reacted by unveiling a plan to strengthen its balance sheet by gaining cash from asset sales, reductions in capital spending and a stock offering. McAuliffe said the pipeline settlement adds another positive for Dynegy. ``Now it looks like they're getting the pipeline,'' he said. ``That solves a chunk of their problems.'' Dynegy said the settlement doesn't affect the companies' bigger battle over the failed merger agreement. The company said it would pursue its claims that Enron breached that agreement. Enron faces bankruptcy following the energy trader's swift downfall from a Wall Street darling to junk bond rated quagmire because of questionable accounting practices that the Securities and Exchange Commission and others are investigating. Enron filed for bankruptcy in New York Dec. 2 as its stock fell from a high of $90 a share a year ago to less than $1. Dynegy is among many creditors who will ask U.S. Bankruptcy Judge Arthur Gonzalez in New York on Monday to transfer the bankruptcy case to Houston, where Enron and Dynegy are based. Dynegy backed out of a deal to buy the company after Enron said it was in worse financial straits than it had originally disclosed. Enron is to provide transition services related to the pipeline through the end of the repurchase period in June. ``We acquired the pipeline under the terms originally agreed upon by the two companies, with the exception of the date extension,'' said Chuck Watson, chairman and chief executive officer of Dynegy Inc.'' Watson said Dynegy recognizes the value of Northern Natural Gas' operations and the way its employees serve customers. ``We will be committed to maintaining the same high level of service and safe asset operation that has characterized Northern Natural Gas' management of its business.'' The original option agreement calls for the payment of a $23 million exercise price at closing, subject to working capital adjustments. Northern Natural Gas provides transportation and storage services for its customers. It also provides transportation between other interstate and intrastate pipelines in the Permian, Anadarko, Hugoton and Midwest areas. ``This action ensures continuity of quality service to the customers of Northern Natural Gas and stability for the outstanding employees who have run the pipeline carefully and safely over many years,'' said Stan Horton, chairman and chief executive officer of Enron Transportation Services Co. In trading Thursday, shares of Enron were up a penny to close at 64 cents in trading on the New York Stock Exchange. They were up another penny in after-hours trading. Shares of Dynegy were down 83 cents, or 3.1 percent, to close at $25.28.