By the OGJ Online Staff
HOUSTON, Dec. 3 -- Dynegy Inc. Chairman Chuck Watson Monday said Enron Corp. had three problems that doomed the merger deal between the two Houston companies, including a short-term cash crunch, a weak balance sheet, and almost no participation from Enron's management team.
Responding to Enron's filing of a $10 billion lawsuit alleging wrongful termination of the merger agreement, Watson said the lawsuit was "no surprise." He called it another way Enron had "failed to take responsibility for its own demise."
Watson said the merger, originally announced on Nov. 9, was terminated after Dynegy determined the standard clause concerning adverse material conditions had been violated. He said there was rapid deterioration of Enron's cash position. "We expected cash balances to be $3 billion on Nov. 16," he said. "On Nov. 16 it was $1.2 billion. They burned through $1.5 billion in 3 weeks."
Enron's short-term liquidity continued to deteriorate sharply even after the merger was announced. Watson said Enron's chief financial officer and the treasurer couldn't explain where the cash went.
"That destroyed the credibility and that killed the deal," he said.
There was also a startling revelation in information filed with the Securities and Exchange Commission Nov. 19 that $690 million of debt was accelerated because of a ratings downgrade, Watson said on a conference call. By Nov. 23, he said, it was clear Enron's core energy businesses were effectively shut down in North America and Europe and the company needed several billion dollars more in immediate liquidity.
Watson explained Dynegy tried to restructure the merger terms to save the deal. He said Dynegy was willing to come up with one-third of the liquidity in a proposed $3 billion liquidity package.
"The liquidity needed fixing and the long-term balance sheet needed to be restored," he said. "Dynegy's management team pursued plans to integrate the companies. But Enron's team refused to participate. Dynegy management was not allowed to talk to employees or their management team." Dynegy announced it was terminating the agreement Nov. 28.