Enron Faces Bankruptcy After Merger Nixed

Earlier this year, energy giant Enron was No. 10 in the Fortune 500. Today it is a worth less than $1 a share and on the verge of collapse.

In a decision that could spell the end for the Houston-based firm, Dynegy Inc., one of its chief rivals, called off its proposed deal to buy Enron Wednesday. And analysts believe there are no other white knights out there interested in taking over Enron. The company's credit rating was downgraded to junk status by two major ratings firms, Standard & Poor's and Moody's.

Trading in Enron and Dynegy stocks was halted for two hours Wednesday with Enron at $1.20. After reopening at 91 cents it closed the day at 62 cents. Dynegy, also based in Houston, closed at $35.96, down $4.93 for the day.

Today, the stock sank even further, closing at 36 cents, down an additional 25 cents since Wednesday. Trading activity set a second-largest volume record with 164,280,800 shares changing hands.

The stock's poor performance has triggered some talk of delisting. The New York Stock Exchange would decide when and if to pull the stock from trading.

If Enron files for bankruptcy — a highly plausible step now that the proposed merger with Dynergy is off — the NYSE would typically conduct a quick review of the company's equity and decide if there is any left.

The NYSE can also start the review process if either the stock continues to trade below a dollar for 30 days, market capitalization sinks below $50 million, the number of shares outstanding drops below 600,000 or the average monthly trading volume is below 100,000.

Rapid and Near-Fatal Drop

Enron's deflated stock price represents a stunning reversal for a company that reached a high of $84.87 a share a year ago.

Thirty days ago Enron was the leading energy trading company in the United States. Today, its key business — Enron Wholesale Services — is virtually worthless.

Jon Kyle Cartwright, an analyst with Raymond James in St. Petersburg, Fla., said it is likely the company will file for bankruptcy, but added, "It is a complicated company with complicated assets, and it could take a year or more for the case to be resolved."

Enron depended a lot on its Wall Street reputation, but over the past few weeks its credibility declined rapidly. Its core business will shut down, as it deals primarily with "counter-party trading."

In recent years Enron had shifted its focus from operating pipelines and other energy assets, and had emphasized buying and selling power wholesale.

But for most of 2001, and in recent weeks especially, Enron's practices have come under increasing scrutiny. The company revealed last month it had omitted about $500 million in debt from its financial statements, and is the subject of a Securities and Exchange Commission inquiry.

Effect on Markets and, Yes, Employees

The commodity market was affected by the rapid downgrade of one of its major players, and lost a substantial amount of liquidity today. However, Enron's competitors have made moves to ensure ongoing liquidity in the market. Many former Enron customers had already moved over to the company's competitors, due to the firm's recent struggles.

Cartwright said it is too early to tell if the collapse of Enron will affect energy prices. "We will be keeping an eye on that over the next few weeks and months," he added.

In addition to the potential ripple effect in markets, Enron's collapse will have a huge effect on its employees, especially those whose 401(k) plans were heavily invested in Enron stock.

Andre Meade, analyst at Commerzbank Securities in New York, said this is likely to be the case.

Still, as Meade noted, "It looks good to have Enron on your resume, and there are a lot of competitors in Houston." Thus employees may be well-positioned to find new positions, even in a tough job market.

Other players that would be hurt by Enron's demise are companies with net receivables from Enron — essentially, those that buy in trade with Enron. These players will face delays, and according to the numbers that Meade has seen so far, they aren't too big.

Meade did stress that Enron has not made a lot of its financial data public and there could be possibly be a lot of key information yet to be revealed.

Chairman Gave Up Compensation Package

Earlier this month, Enron Chairman Kenneth Lay announced he would forgo a $60.6 million compensation package he would have been owed if the company had merged with Dynegy.

Lay made the move after Enron employees complained about the deal — which was part of his contract, which runs through 2005. That contract called for him to get $20.2 million for each year left on the contract.

Lay is a Republican and a close friend of both President Bush and his father, former President George Bush. That didn't stop him from advising the Clinton administration on energy issues, however.

Lay was on Bush's short list for Treasury Secretary for the current administration.

According to the Center for Responsive Politics in Washington, Lay and Enron spent $2.1 million lobbying Congress last year. As recently as Oct. 16, Enron gave $60,000 to the Republican National Committee.

ABCNEWS' Naureen Malik contributed to this report.