Enron Case Study
Enron Case Study: From Company to Conspiracy
1. What is the History of Enron, and what current situation does it find itself in?
Enron was created by a combination of companies. These companies were Houston Natural Gas and InterNorth. These companies were merged together in July 1985. CEO of Houston Natural Gas, Kenneth Lay became chairman and CEO of the combined company. This happened in February 1986. The company changed its name to Enron on April 10th 1986. The whole purpose of Enron was to take advantage of the deregulation of the energy industry. They wanted to create the largest pipeline in the nation to have leverage in Washington.
Over time Enron made great strides in the Gas and Energy industry. They started a program called Gas Bank, they began construction of the Dabhol Power project in India in 1996. (That project went under due to an overly involved government). They also had a trading business, called Enron Capital & Trade Resources. They also purchases Portland General Electric Co around 1997. In 1998 they purchased Wessex Water. From this they spun off a firm in 1999. In 2000, the Energy Financial Group named the 6th largest energy company in the world.
The current situation the company finds itself in is the fact that all of the illegal business they were doing is now out in the open, and they are on a downward spiral to bankruptcy and possible an end to the company.
2. What is the strategy that Enron is using in order to survive or beat competitors?
Enron was a striving company up until 2001. Enron was one of the fastest growing businesses of its time. Expanding over a few years a great amount of space and business branches. Enron came up with ways of locking in long-term supplies at fixed prices for people. The companies trading strategies created a great profit for them. At one point it was 90% of the firms profit. Also Enron had their own website, EnronOnline. It became on of the larges e-business sites in the world and made it easier to purchase commodities. 3. What is the financial situation that would be important in the Enron Case?
After all that Enron had accomplished, it was a surprise to see what all Enron was hiding. Enron currently finding it self to be losing money. On October 22 Enron found itself to be under scrutiny of the Securities and Exchange Commission(SEC). The SEC was looking to the transactions of the Company and the Partnerships of the company. They suspected illegal activity. If the SEC found what they were looking for Enron would default on billions of dollars of debt if the rating fell to junk status. Unfortunately the SEC set the rating to Junk status causing the company 3.9 billion dollars due immediately. Four days after this Enron field for Chapter 11 Bankruptcy. After all of this Enron was roughly 40 billion dollars in debt.
One of the questionable things that happened to Enron was the announcement of write-offs on October 16th. This drew attention to the fact that Enron was doing some questionable things. These write-offs were a main reason to the downward spiral to Enron’s failure. These write-offs were broke down into three categories. The first was a write-off of 287 million dollars involving Azurix Corp. The company made an announcement that they wanted withdraw a contract they had in Argentina. The second write-off was 180 million dollars related to the companies broadband operations. These write-offs resulted when the “restructuring of broadband services” didn’t pan out the way they expected. The last write-off was 544 million dollar charge related to investments Enron made. This included 35 million dollars towards early termination of partnerships that involved Andrew Fastow. This write-off raised an issue to conflict of interest questions.
Many of the partnerships created were the reason of Enron’s failure. Any debt that the partnerships entailed was kept off Enron’s...