Enron (ENE) angst is sweeping other energy companies. In the wake of the recent collapse at the energy trading powerhouse, the disease is hitting hard at Dynegy (DYN), Enron's onetime suitor. With Dynegy's stock plunging and its credit rating downgraded on Dec. 14, CEO Charles Watson has promised investors and rating agencies some strong medicine: a $1.25 billion restructuring plan designed to strengthen his balance sheet and improve liquidity.
Watson's program, similar to those at El Paso Corp. (EPG) and Williams Cos. Inc. (WMB), includes selling "nonstrategic" assets, slashing capital spending, and issuing $500 million worth of new stock next year. It's a "prudent step," says Ron Barone, an analyst at Standard & Poor's. "People are no longer going to underestimate the market psychology." Indeed, when investors and trading partners lost faith in highly leveraged Enron and its convoluted finances, the company spiraled into bankruptcy. Now Watson, once crowing about his $9 billion bid for Enron, is scrambling to satisfy that same unforgiving market. Financial-services firms spent the past few years consolidating to create broker, banking, and insurance giants. Will they spend the next few spinning unwanted pieces off? That's the view of some after Citigroup (C) said on Dec. 19 that it would shed 20% of its insurance arm, Travelers property and casualty group, in an initial public offering in the first quarter of 2002. Citi is expected to make $4 billion to $5 billion from the sale, which was spurred by the unit's lower-than-desired returns. Citigroup took a 10 cents hit to earnings in the third quarter because of losses related to September 11. "Property and casualty will be a consolidating industry, but we at Citigroup do not want a greater percentage of our volume in the business," said Chairman and CEO Sanford Weill. Citigroup said it will spin off the remainder of the unit to shareholders at the end of 2002. Call it a very special delivery. FedEx said on Dec. 19 that earnings soared 26% during its second fiscal quarter. Net income was $245 million, compared with $194 million the year before. Earnings included $116 million from the U.S. bailout of the airline industry. Also helping earnings was a 10% decline in fuel expenses. But it may not last: FedEx management warned that next quarter's earnings may be lower than expected. Stanley O'Neal's former rivals for the president's job at Merrill Lynch (MER) have moved on in style. On Dec. 19, Credit Suisse Group announced that Merrill's former head of asset-management, Jeffrey Peek, will join John Mack in his mission to remake CSFB into one of Wall Street's most prestigious investment banks. Peek will now oversee CSFB's asset management, securities clearing, and high-net-worth individual brokerage businesses as its vice-chairman. And Winthrop Smith Jr., former chairman of Merrill Lynch International, will continue considering his options while skiing at Sugarbush Resort in Warren, Vt. He was part of a group that purchased the resort in October. Disappointing Wall Street is becoming a familiar activity for Motorola (MOT). After posting losses in every quarter this year, the tech giant said on Dec. 18 that the start of 2002 looked even grimmer than anticipated. The company will suffer another loss, thanks to a continuing sales slump. As a result, it will lay off 9,400 workers--bringing the total to 43,000 since August, 2000. CEO Christopher Galvin argues the new round of cuts will save $862 million and make Motorola a "more flexible and profitable company." But impatient investors sent the stock tumbling 5%, to close Dec. 19 at $15.76. They want Galvin "to develop a well-thought-out strategic plan on how to resume growth," says Deutsche Banc Alex. Brown analyst Brian Modoff. GE (GE) is restructuring its finance unit and laying off 3,000 people worldwide. While that's less than 1% of GE's workforce, Chief Executive Jeff Immelt says the changes at GE Capital, which makes up some 40% of the company's total earnings of $13 billion, will help the unit's earnings grow more than 15% next year. That's vital if Immelt is to deliver the 17% to 18% earnings growth--up to $1.67 a share--he projects for GE in 2002. Of course, it helps that he's coming off a lower base, with only 11% growth projected for 2001. -- Toshiba is pulling out of low-end memory chips by selling its U.S. plant to Micron.
-- Carnival is making a hostile bid for smaller rival P&O Princess Cruises.
-- Handheld computer maker Palm (PALM) reported a second-quarter loss of $25.2 million.
-- Hawaii's two main carriers, Hawaiian Airlines and Aloha Air Group, agreed to merge. A $52.5 million loss for the quarter ended Nov. 30 at Solectron (SLR), the world's biggest electronics-manufacturing services company, helped push its shares down 32%, to $11, on Dec. 11. The loss wasn't the only thing that rattled Wall Street. Standard & Poor's bumped Solectron's debt down to junk status.