Under the Radar: Enron's Only White Knight Is Itself

There is no suitor-in-waiting for Enron (ENE Quote - Cramer on ENE - Stock Picks).

Despite a speculation-filled week, Warren Buffett's Berkshire Hathaway probably isn't waiting in the wings to gobble up the troubled energy giant. The risk profile doesn't fit Royal Dutch Shell (RD Quote - Cramer on RD - Stock Picks), and it's unlikely General Electric (GE Quote - Cramer on GE - Stock Picks) is ready to jump at the chance to rescue the Houston energy firm from its troubles with the SEC and disgruntled investors.

And while the recent slide in Enron's stock price might seem to make it an attractive target, it's implausible that an Enron competitor would step up to the plate and make an offer to acquire its troubled peer.

"We do not believe there is a high probability of a bailout offer at a price significantly above the current price, as there is too much uncertainty about the capital structure and shareholder lawsuits," says Jeff Dietert, independent power analyst at Simmons & Co., a Houston energy investment firm and a member of the TSC Energy Roundtable.

Many metrics suggest the stock is inexpensive. Merrill Lynch analyst Donato Eassey recently calculated Enron's asset value to be between $16 and $24 per share, which may make Enron's current price of less than $12 look cheap. But in nearly the same breath, Eassey downgraded Enron stock to neutral from "accumulate." Merrill Lynch has provided banking services for Enron.

"While we have not altered our view of Enron's fundamentals or its ability to weather this long-term storm, from a practical standpoint we believe noise surrounding the SEC's move to a formal investigation will outweigh any [earnings] analysis or net asset value calculation," Eassey told clients in a report Thursday.

For Buffett: Intriguing But ...

Reports that famed value investor Warren Buffett is looking at Enron may be correct. He is an opportunistic investor and has an interest in the power business. And, Berkshire's ownership of Mid-American Energy provides a platform for an Enron deal.

However, interest and action are two different things. While Buffett has said he wants additional power holdings, he seems more focused on the traditional, regulated utilities rather than the more aggressive opportunities represented by Enron. Buffett's track record shows he craves certainty and that is something Enron can't provide, especially now.

There are also pragmatic issues. If Enron considered a deal, it would have to be one that was both rich and immediate, something Buffett can't offer. Constrained by the Public Utility Holding Company Act, or PUHCA, Berkshire might not be able to purchase Enron until the sale of Portland General, the Oregon utility, is completed sometime next year.

The Enron culture could also keep Buffett away. Enron is well known for its employee stock option program that made millions of dollars for people like ex-CEO Jeffrey Skilling while creating little value for shareholders. Buffett is a tireless critic of such shenanigans. Buffett also generally looks for companies with a management team committed to remaining in place, and Ken Lay has no desire to remain at the helm of Enron for the long haul, and future leadership is uncertain.

And while Buffett still may take a look, price could be the ultimate stumbling block. "I think he understands the derivative trading business better than most," says Robert Hagstrom, portfolio manager of the Legg Mason Focus Trust and author of The Essential Buffett: Timeless Principles for the New Economy. "I wouldn't be surprised if it's caught his eye, but I don't think he would get his price. He won't pay a premium for Enron."

As for Buffett, he won't comment on anything, let alone rumors like this.

Shell: Burned Out on Gas?

Another rumored suitor is Royal Dutch Shell (RD Quote - Cramer on RD - Stock Picks). Speculation has escalated to the point of suggesting that Shell and Enron have signed a confidentiality agreement to allow for exchange of privileged financial data.

A Shell spokeswoman in London would not comment on the speculation. An Enron spokesman also declined to comment.

Shell wants to expand its gas business and in its bid for Barrett Resources, showed it will pay a premium for the right assets.

But Enron is more an energy trading company than an exploration and production company. Shell's problems growing both its Coral trading subsidiary and its Tejas Gas unit -- a costly acquisition -- probably would make it shy away from going there again, Dietert says.

Shell and Enron are very different companies, he adds. "Culturally, it's a tough deal to imagine."

GE Capital: Enlightened Investor?

The final name bandied about is GE Capital. This one is more difficult to figure, but an investment in Enron by the finance unit of General Electric isn't out of the question. However, sources tell me an outright bid is unlikely.

"They are a potential investor," says Dietert. "If push comes to shove, Enron would be willing to issue 30% to 40% more equity rather than face bankruptcy. And, GE Capital could participate in such a deal."

However, any move is just speculation at this point. And General Electric won't comment on speculation.

Even if an offer for Enron emerged, price would clearly be an issue. Current uncertainty suggests any offer would be well below a price Enron would consider reasonable. Hence, while a bid for Enron isn't out of the question, it's likely Enron will stand to fight its current battles alone.