Rebecca P. Mark relishes a challenge. One of her toughest came in 1995, when Hindu nationalists canceled Enron Corp.'s $1 billion power plant project in India--the country's largest foreign investment ever. Mark, in charge of Enron's international gas and electric power projects, dug in her notorious high heels. She dragged company executives along on endless visits to sip tea with Indian politicians and agreed to dole out cheaper power.
The cajoling paid off. Indian officials not only restored the project but boosted its size by about 20%. "Many people thought it was a hopeless cause," recalls Kenneth L. Lay, Enron's chairman and CEO. "But Rebecca wasn't about to give up on it. She seems to perform her best when conditions are tough."
That's good because Mark, 45, will need to turn in the performance of a lifetime. These are tough times at Azurix Corp., the Enron spin-off that Mark now heads as chairman and CEO. A stream of executives has left the company, including Chief Financial Officer Rodney L. Gray in November and Christopher L. Wasden, who abruptly resigned on Apr. 10 as head of one the company's highly publicized Internet ventures. Meanwhile, its share price is off 60% from an initial public offering last June, to 7 1/2.
Azurix made a big splash last summer with that IPO, which raised $700 million. Created only a year earlier as the first U.S.-based global water company, Azurix looked as if it couldn't lose: Enron, which retains 34% ownership, is a big up-and-comer, known for its innovative trading of electricity, gas, and most recently, telecom bandwidth. Why not water, too? And Mark was a hot commodity, recognized as one of the top women executives in Corporate America, even rumored to be a successor to Lay.
FRUSTRATION. But today, Mark's grand water strategy has vaporized. She has had to sharply scale back expansion plans and call a halt to the spending spree that was supposed to gobble up huge worldwide water-privatization projects and deliver rapid annual earnings growth. And along the way, Azurix has learned that the deregulation process is far more complex for water than it was for gas or electricity, as political snafus delayed or canceled several big international projects it hoped to target. "The folks at Azurix are highly capable and they come from a great pedigree," says Hugh Evans, portfolio manager at T. Rowe Price Associates Inc., which holds about 600,000 Azurix shares. "But they have yet to prove they can create value in the water industry like they did in the power industry."
Now Azurix has dramatically shifted its focus. Instead of targeting contracts to run big municipal water systems for 20 or 30 years, the company says it will focus on smaller projects in areas where it already has operations, such as Brazil and Mexico. It also wants to trade water and water-industry products over the Web, while pushing into the more profitable business of providing water and wastewater services to businesses. Azurix should still be able to boost its net income by 11% this year, to $42 million, on 38% higher sales, or $850 million, estimates Timothy M. Winter, an analyst at A.G. Edwards & Sons Inc.
That's far short of what investors were expecting, though. Mark concedes that she, too, is frustrated with the company's stumbling start. She has watched the value of her 50,100 Azurix shares, purchased at the time of the IPO, sink from nearly $1 million to about $350,000. Mark is confident she can turn things around. "But it won't come easy," she says, then adds: "Nothing I've ever done has come easy."
That has been the case since she was growing up on her parents' farm in Kirksville, Mo. Her childhood chores included mucking stalls and feeding pigs. Mark had greater ambitions, but the family was strapped. So she put herself through college, earning degrees in psychology and international management from Baylor University in Waco, Tex. Mark broke into the male-dominated energy business as a bank loan officer in the late 1970s, dealing with energy companies that needed capital for risky projects. She jumped to a natural-gas company that in 1982 became part of Enron, then just starting to ride the power deregulation wave.
"THE SHARK." A relentless charmer who dons miniskirted suits and stiletto-heeled pumps, Mark has never been accused of being shy. In 1988, recently divorced and toting young twin sons, she set out to earn a Harvard MBA while working part-time developing Enron's first independent power project in Milford, Mass. Her bosses were two hard-charging former West Point classmates and Vietnam vets. Relating to them wasn't easy.
Undaunted, Mark approached Harvard classmate John L. Garrison Jr., also a West Point graduate. "After our first class together, Rebecca came up to me and said, `I'm glad to know that you're formerly from the military,"' recalls Garrison. "`I'm working with all these former military guys, and I would like to know how to interact and operate with them."' Garrison's pointers helped, for sure. But Garrison and Mark also became friends, later working together at Enron. Today, Garrison is Azurix' chief operating officer.
After returning to Enron's Houston headquarters full-time in 1990, Mark quickly rose to prominence. Nicknamed "Mark the Shark" for her ferocious ambition, in 1991 she persuaded Lay to set up Enron Development Corp. to pursue overseas projects under her direction. Later folded into Enron International, the unit amassed some $20 billion worth of projects and in 1998 accounted for 40% of Enron's profits.
Mark then launched a yearlong campaign to convince Lay and other Enron executives that Enron could play a major role in privatizing the $400 billion water industry, just as it did with power. So Enron bought Britain's Wessex Water for $2.4 billion and started a water subsidiary that quickly was spun off into Azurix.
Less than a year later, Azurix went public. Some analysts now say the offering was rushed. "It would have been nice to see them with more of a business in hand," says analyst Debra G. Coy of Charles Schwab & Co.
NET PUSH. Soon after the IPO, many of Azurix' most promising prospects fizzled. Entrenched French water giants Suez Lyonnaise des Eaux and Vivendi's Generale des Eaux outbid Azurix on several big projects, including a concession granted last summer in Berlin. "Azurix, as a newcomer, has a lot to learn," says Gerard Payen, CEO of Suez's water division. Azurix also found it wasn't easy to squeeze profits from the assets it did grab. Its $439 million, 30-year Buenos Aires concession, purchased in June, has significantly underperformed expectations because only 60% of its customers paid their bills last year. Mark says she hopes to get that to 80% in 2000 with a new billing system.
Now Mark is attempting to scale back. Azurix raised $600 million in a February junk-bond offering, just eight months after its IPO, then used all but $18 million of the proceeds to pay down credit lines and an Enron credit agreement. Mark says those funds, plus a revolving credit line of $120 million, should provide enough cash for the next two years. But that's because she doesn't plan to invest in more huge projects for a while. Instead, she says, Azurix will concentrate on water and wastewater services and expanding existing operations.
The other big push is on the Internet. In February, Azurix launched Water2Water.com, an exchange for buying, selling, storing, and transporting water, initially on the West Coast. But fundamental differences between water and power could make water trading difficult. For one, unlike electricity and natural gas, there are no laws requiring pipeline owners to make unused water available to those wishing to move it between states. And water quality varies widely, which could make transfers and pricing tricky. "Azurix has the right idea, but they have totally misjudged the complexity of the water business," says Andy Seidel, president of U.S. Filter's Water & Wastewater Group in Palm Desert, Calif.
Another Azurix venture, WaterDesk.com, is the industry's first procurement site for water equipment, services, and chemicals. But that business-to-business effort may never get off the ground if buyers and suppliers believe it will be dominated by Azurix. Chris Wasden, formerly president of WaterDesk, claims he quit after Azurix management wouldn't cut its ownership in the site below 20%, which he felt was key to ensuring neutrality. "Three things drive value for a dot-com Net marketplace: management, strategic alliances, and speed," Wasden says. "We felt that Azurix management required us to compromise on all three."
EXODUS. Mark says she's lining up other partners "as soon as possible," and that Azurix will eventually hold a minority stake in WaterDesk. Industry sources say American Water Works Co. of Voorhees, N.J., the largest U.S. water utility, is close to taking a share. American Water Works CEO J. James Barr wouldn't confirm those talks. But he said that if WaterDesk could cut his costs, "we would certainly consider [it]."
Wasden isn't the only key player who has split from the Azurix executive suite recently. Others include Chief Accounting Officer Rodney L. Faldyn, who left on Mar. 31, and CFO and Vice-Chairman Gray, who departed back in November after Azurix announced it would take a $34 million charge against fourth-quarter earnings and fire a third of its workers. Mark will have to find a way to reverse the exodus. She's going to need all the hands she can find to bail water if she's going to right this ship.