Headline: Enron's CEO Steps Down After 6 Months

Source: Los Angeles Times, 15 August 2001

URL: http://www.latimes.com/business/la-000066222aug15.story?coll=la%2Dheadlines%2Dbusiness

NEW YORK -- Jeffrey K. Skilling stunned the energy industry by abruptly resigning Tuesday as chief executive of energy-trading giant Enron Corp., barely six months into a job for which he'd been groomed for years.

Skilling's departure follows a series of setbacks for Enron, including seeing its huge investment in the fiber-optic telecommunications sector turn sour and facing accusations of electricity price-gouging in California. The company's stock price has lost half its value this year.

Skilling, 48, called his resignation "a purely personal decision" having "nothing to do with Enron." By leaving voluntarily, Skilling will forfeit a severance package that would have been worth several million dollars. The normally outspoken Skilling declined to offer further explanation, prompting analysts to ask whether another shoe might drop.

Enron Chairman Kenneth Lay told reporters and analysts in a conference call Tuesday evening that he would immediately assume Skilling's duties and extend his own employment contract by two years, through 2005, to provide ample time to craft a succession plan.

Skilling and Lay were the main architects of Enron's spectacular transformation from a natural-gas pipeline firm into a lean, high-tech trader of everything from oil to wood pulp to pollution credits.

Though solidly profitable and much admired for its innovativeness, Enron has stumbled lately and seen its stock price decline from a peak of $90.75 last August.

Shares of Houston-based Enron closed at $42.93 on Tuesday on the New York Stock Exchange, up 78 cents. However, the stock tumbled in after-hours trading on word of Skilling's resignation, which came after the market close.

A major setback has been the near-collapse of the telecommunications sector, where Enron had made a big push into the trading of fiber-optic bandwidth. A promising start for that business quickly turned into losses that reached $102 million before taxes in the quarter just ended.

"It's very clear that they have been struggling with their business model of late," Raymond James analyst Frederick Schultz said Tuesday night.

Enron is one of the independent power suppliers accused by California officials of price-gouging during the state's electricity crisis. In the meantime, however, natural gas and electricity prices have fallen, and Wall Street has grown concerned that federal efforts to push for energy price caps will affect long-term growth.

Skilling's sudden departure may anger some institutional investors, Schultz said, since the executive has spent time in recent months wooing mutual funds and pension funds to invest in Enron stock.

The analysts and reporters for the trade publications that follow Enron most closely seemed flummoxed by Tuesday's developments.

Curt N. Launer of Credit Suisse First Boston asked whether the company anticipated filing "any disclosure to tell us any other items behind this surprising news."

"There's nothing to disclose," Skilling replied. "The company's in great shape."

Prudential Securities analyst M. Carol Coale found Skilling's timing odd, in that he was recently engaged to be married and has just completed construction of a large home in Houston.

"Something's just not sitting right with me," she said. "It seems odd that he would walk away from a severance worth millions."

Lay explained during the conference call that the severance pay called for in Skilling's contract, which expires in 2003, does not take effect if the separation is voluntary.

Skilling last year cashed in stock options for gains of $62 million, according to Enron filings with the Securities and Exchange Commission. Lay's gains were nearly double that, at $123 million in 2000, according to the documents.

Such cash-outs were part of the cause of a volatile exchange between Skilling and Boston-based analyst Richard L. Grubman of Highfields Capital Management during a conference call in April to discuss Enron's first-quarter earnings.

After Grubman criticized Skilling for not having certain financial information available, Skilling fired back, calling the analyst a vulgar name.

"He's got some nerve," Grubman said afterward, according to the Toronto Globe & Mail.

Top Enron executives sold 7 million shares at prices in the $70s and $80s, Grubman said, adding, "Now the stock is in the high $50s, low $60s and I'm an . . . because I ask about the balance sheet?"

Lay, who was Enron chief executive for 15 years before giving way to Skilling in February, has been scrutinized recently for his close political ties to the Bush administration.

Lay acknowledged Tuesday that he has met once this year with Vice President Richard Cheney and had two telephone conversations with President Bush's top political aide, Karl Rove.

However, "most comments about my influence on energy policy or on the administration are grossly exaggerated," Lay said.

Lay insisted that Skilling's decision should not be seen as a sign of a conflict over Enron's strategy.

"There is absolutely no change in our business direction or business strategy," Lay said, noting that he and Skilling had been working together to formulate the strategy since the 1980s, when Skilling was still a consultant at McKinsey & Co.

Analysts said Skilling may have chafed at the length of time it took him to finally be elevated to chief executive. They believe he forced Lay's hand last year by putting out word with analysts that he had been offered another post in London.

Whatever personal issues may have influenced Skilling's resignation, the job was doubtless a pressure cooker.

Skilling spent part of last week in England, offering the company's condolences on the death of three workers killed in an explosion at an Enron-owned power plant there.

The company also has been embroiled in a long dispute with the Indian state of Maharashtra over that government's refusal to buy power from an Enron-backed plant.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Power Shortage

Enron shares have lost half their value over the last year after soaring in the first half of 2000.

Enron shares, monthly closes and latest on the NYSE

Tuesday:$42.93, up $0.78

Source: Bloomberg News

-- Andre Weltman (aweltman@state.pa.us), August 15, 2001

Answers

Herre’s the NY Times version, at

http://www.nytimes.com/2001/08/15/business/15ENRO.html

Headline: Enron's Chief Executive Quits After Only 6 Months in Job

Source: NY Times, 15 August 2001

DALLAS, Aug. 14 — Jeffrey Skilling, the chief executive of the Enron Corporation, stunned Wall Street today by announcing that he would quit after just six months in the job, calling the move a "purely personal decision."

But the abruptness of the departure left many analysts questioning whether a series of setbacks the company has suffered played a part in the decision.

Kenneth Lay, Enron's 59-year-old chairman, will step back into the position he left early this year after 15 years as chief executive.

Mr. Lay, who originally recruited Mr. Skilling to Enron, said tonight that he had agreed to stay on through the end of 2005 to "make sure we've got plenty of time to work out an orderly succession."

Mr. Skilling, 47, had been at the heart of the transformation of Enron from an old- line natural gas pipeline company to the biggest and most aggressive of the new breed of unregulated energy traders that buy and sell billions of dollars of electricity and other commodities daily.

That strategy helped Enron's stock price soar during the last decade. But this year the company's shares have fallen sharply, as Enron has suffered from problems with its new broadband telecommunications trading unit, its investment in a large power plant in India, and criticism from officials in California, who blame Enron and other energy companies for the collapse of the state's electricity market.

A former energy consultant at McKinsey & Company who joined Enron in 1990, Mr. Skilling built its energy-trading operations into the company's most profitable unit, accounting for nearly $1.7 billion — or 85 percent — of operating income last year. He became president and chief operating officer in 1997, and in February of this year became chief executive.

On a conference call, Mr. Skilling said he could not "stress enough that this has nothing to do with Enron." He added that "the reasons for leaving the business are personal, but I'd just as soon keep that private."

Mr. Skilling, who is divorced, has joint custody of three teenage children — a daughter, 17, and two sons, 14 and 11 — with his ex- wife. Mr. Skilling, who will leave the board but will serve as a consultant to the company, will not receive any severance package because his departure is voluntary, Mr. Lay said.

Since May 2000, Mr. Skilling has sold at least 450,000 Enron shares worth at least $33 million, according to Securities and Exchange Commission filings. He still owns about 1.1 million shares, the filings show.

"Absolutely no accounting issue," Mr. Lay told analysts, "no trading issue, no reserve issue, no previously unknown problem issues" are behind the departure. There will be "no change in the performance or outlook of the company going forward," he added.

He also said the company was on track to meet analysts' earnings expectations, which are about $1.80 a share this year and $2.15 next year.

On the call, Mr. Skilling said that "in general there have been a lot of issues" that have buffeted the company this year, but he said that he believed Enron had already surmounted most of them. "Now is the time" to step down, he said, "because I think we've got a lot of these things behind us."

Nonetheless, the move jolted analysts, who, despite the stock's recent slide and the company's other problems, saw Mr. Skilling as the unquestioned leader to follow Mr. Lay.

In after-hours trading, shares of Enron fell about 8 percent, to $39.55. That fall follows a plunge of almost 50 percent since January in the stock, which had closed in regular trading at $42.93, up 78 cents. The news of the executive changes came after the market closed.

"I'm surprised and I'm stunned," said Philip K. Verleger, an energy economist with the Brattle Group, a consulting firm in Cambridge, Mass. "Skilling was the guy who executed the growth in the trading business."

Investors have become increasingly concerned that a surge in new power plant construction will lead to a glut of electricity within a few years and lower the value of Enron's role as a middleman between plant owners and electricity users. In addition, the company's efforts to enter the water business have fared poorly, and its broadband trading operation has become a cash drain.

Mr. Skilling's promotion early this year came after several crucial Enron executives resigned. These included Rebecca Mark, who at one time was considered a rival for the top job.

Ms. Mark became chief executive of the Azurix Corporation in 1999 after Enron spun off the company, its global water business. But its financial performance was disappointing, and Ms. Mark left the company last year. Enron later agreed to buy back Azurix stock for less than half what public shareholders had paid.

-- Andre Weltman (aweltman@state.pa.us), August 15, 2001.