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Dynegy Inc. fired back at former merger partner Enron Corp. Monday, calling Enron’s lawsuit against the company “frivolous and disingenuous” and filing its own countersuit. Dynegy’s latest salvo portends a nasty battle between the two Houston energy traders, specifically over Dynegy’s claim to the Northern Natural Gas pipeline system. Dynegy picked up an option to acquire Northern Natural Gas when it pumped $1.5 billion into Enron as part of their $9 billion merger agreement, which was announced Nov. 9. San Francisco-based oil giant Chevron Texaco Corp., which owns 27 percent of Dynegy, put up the money in exchange for new preferred stock of Dynegy. Dynegy exercised its option when it walked away from the deal Nov. 28 and on Friday warned that Enron could not put the pipeline into bankruptcy without clearing it with Dynegy first. Northern Natural was not part of Enron’s Chapter 11 filing Sunday, which, at $49.8 billion in assets, is the largest in U.S. history. Enron also filed a $10 billion breach-of-contract suit against Dynegy. Both the bankruptcy and the suit were filed in the Southern District of New York. Enron’s lawsuit claims Dynegy waived the right to back out of the merger agreement even if it discovered more bad news about Enron following its two-week “due diligence” period. Dynegy shot back that that just wasn’t the case. “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 own demise,” an obviously angry Dynegy chairman Chuck Watson said during a conference call with analysts and investors. “Enron’s charges against Dynegy are false, and the public should be wary of Enron’s efforts to deflect attention from the facts.” In Dynegy’s lawsuit, which was filed Monday in Harris County district court in Houston, Dynegy sought an immediate injunction demanding that the Enron subsidiaries that own Northern Natural turn it over. “It’s sheer desperation that Enron would keep the $1.5 billion and the pipeline,” Watson said. Dynegy said Houston-based Baker Botts is representing it in its lawsuit against Enron. New York-based Weil, Gotshal & Manges, led by Martin J. Bienenstock, is representing Enron. Analysts aren’t sure if Dynegy can win Northern Natural Gas and believe there is an outside chance another bidder could emerge. “I don’t know that Dynegy is going to be successful in taking over the pipeline for $1.5 billion,” said Tim O’Brien, manager of the Gabelli Utilities Fund in Rye, N.Y. “If they do, it’s a home run. I don’t think Enron is going to be holding on to it.” Dynegy said another buyer would have to pay it $1.5 billion plus accrued dividends, which, at 6 percent, is about $90 million per year. The next payment is due January 2003. Another bidder would also have to assume $950 million in debt. Northern Natural is considered one of Enron’s few remaining crown jewels. Based in Omaha, Neb., it makes up almost 17,000 miles of Enron’s 30,000 miles of pipeline assets, runs from west Texas into the Midwest delivering natural gas to about 70 utilities and several industrial customers, and carries about 4.2 billion cubic feet of gas a day, about 7 percent of the gas burned each day in the U.S. Last year, the pipeline’s operating income — defined as revenues minus depreciation and operating expenses — came to $304 million, according to Cr�dit Lyonnais. Watson tried to reassure analysts that Dynegy’s investment in the pipeline is safe. “It’s important to emphasize that Dynegy has done everything it can to exercise its rights to the pipe, whether we get the keys or not,” he said. “We have protected the interest of our shareholders, and we will recognize that value when we get the pipe itself.” Meanwhile, Standard Power & Light Inc., a privately held power plant developer in Oak Brook, Ill., said it is preparing a tender offer to acquire Enron for less than $1 per share, according to a filing with the U.S. Securities and Exchange Commission. If successful, the company plans to sell off Enron’s no-energy-related businesses and retire its debt through a long-term reorganization. “We intend on acquiring at least the majority of the shares of Enron, selling off all divisions of the business except for the energy-related companies and putting this company back on its feet,” Standard Power CEO and president Richard Ryan said in a statement. Ryan provided few details on how it would accomplish that feat. But he said the firm was assembling a financing package involving both public and private lenders and had hired law firm O’Rourke, McCloskey & Moody in Chicago to advise it. “Once I know what the exact price of the tender offer will be, then I will know how much additional cash we will need to raise, if any,” Ryan said. “We will be as creative financially as we need to be to make this happen.” Standard Power said it is assembling a management team to finish the tender offer. “We expect to have the management team in place within a week or two at which time we hope to begin making filings to begin and complete the tender offer,” Ryan said. Analysts didn’t put much stock in the bid. They did put stock into Enron continuing its asset sales, however, with billions of dollars worth of properties around the globe expected to be sold, including those in the U.K., Latin America and the Far East. However, some buyers, including those in Brazil and India, said they were taking a wait-and-see attitude to purchasing assets from Enron now that it had filed for bankruptcy. Enron, meanwhile, is hurting. It said Monday it planned to lay off 4,000 of its 21,000 employees worldwide. About 1,100 were cut in London Friday. Portland, Ore., utility Northwest Natural Gas Co. tried to reassure investors about its $1.8 billion proposed acquisition of Enron’s Portland General Electric Co., which was not included in Enron’s bankruptcy filing. Northwest issued a statement saying it had asked the Federal Energy Regulatory Commission for approval. It plans to file a similar request with the U.S. Securities and Exchange Commission soon. It’s already asked Oregon regulators for their blessing. Analysts asked Dynegy executives to gauge the implications of the material adverse effect change clause in the merger agreement and how it will be litigated. Dynegy’s deputy general counsel, Keith Fullenweider, said the inquiry will be fact-specific. “It’s a factual dispute that will be played out before the judge,” he said. “It’s not a lot of complicated law there: Take a look at the state of a merger partner before the agreement and take a look at it now.” But he reiterated that the MAC clause was really no different than in any other merger agreement. “We did have a separate MAC clause related to shareholder claims,” he said. “But if you look at our main MAC clause, it reads like any other MAC clause.” Copyright (c)2001 TDD, LLC. All rights reserved.

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