Enron Corporation Case Study

Before filing for bankruptcy in 2001, Enron Corporation was one of the largest integrated natural gas and electricity companies in the world. It marketed natural gas liquids worldwide and operated one of the largest natural gas transmission systems in the world, totaling more than 36,000 miles. It was also one of the largest independent developers and producers of electricity in the world, serving both industrial and emerging markets.

Timeline

Enron began as Northern Natural Gas Company, organized in Omaha, Nebraska, in 1930. The company's founding came just a few months after the stock market crash of 1929, an unusual time to launch a new venture. Several aspects of the Great Depression actually worked in Northern's favor, however. Consumers initially were not enthusiastic about natural gas as a heating fuel, but its low cost led to its acceptance during tough economic times. High unemployment brought the new company a ready supply of cheap labor to build its pipeline system. The 1940s brought changes in Northern's regulation and ownership. The Federal Power Commission, created as a result of the Natural Gas Act of 1938, regulated the natural gas industry's rates and expansion.

1944: Acquires the gas-gathering and transmission lines of Argus Natural Gas Co.

1945: Argus properties are consolidated into a subsidiary called Peoples Natural Gas Co

As time went on Northern kept expanding through acquisitions. First in 1967 it made an acquisition with Protane Corporation, a distributor of propane gas in the eastern US and the Carribbean. In 1976, Northern formed Northern Arctic Gas Company, a partner in the proposed Alaskan arctic gas pipeline, and Northern Liquid Fuels International Ltd., a supply and marketing company.

1980: Northern changes its name to InterNorth, Inc. Its attempted hostile takeover of Crouse-Hinds Co., an electrical products manufacturer, is thwarted by Cooper Industries. Northern Overthrust Pipeline Co. and Northern Trailblazer Pipeline Co. are set up to participate in the Trailblazer pipeline. Creates two exploration and production companies, Nortex Gas & Oil and Consolidex Gas and Oil Ltd.

1982: Forms Northern Intrastate Pipeline Co. and Northern Coal Pipeline Co. Establishes InterNorth International, Inc. to oversee non-U.S. operations

InterNorth made an acquisition of enormous proportions in 1985, when it bid to purchase Houston Natural Gas Corporation for about $2.26 billion. The offer was received enthusiastically, and the merger created the largest gas pipeline system in the United States--about 37,000 miles at the time.

1985: InterNorth merges with Houston Natural Gas Corp. to form HNG/InterNorth. The new enterprise begins to divest some of its business that did not fit in with its long-term goals, including the Peoples division, which sells for $250 million. Peru's government nationalizes the company's assets there, and HNG/InterNorth begins negotiating for payment, taking a $218 million charge against earnings in the meantime.

1986: Changes its name to Enron Corp. Sells its chemical subsidiary and its 50% stake in Citrus Corp.

Enron built power plants in industrial and developing nations all over the world: Italy, Turkey, Argentina, China, India, Brazil, Guatemala, Bolivia, Colombia, the Dominican Republic, the Philippines, and others. By 1996, earnings from these projects accounted for 25 percent of total company earnings before interest and taxes

1998: Enron puts its Enron Oil & Gas Co. up for sale, but refuses an offer, reportedly from Occidental Petroluem Corp., for 53.5% of the unit. The company secures roughly $800 million worth of new customers each quarter. By the year's end, it is the largest electricity wholesale operation in the U.S.

1999: Acquires Teeside Utilities and Services from Imperial Chemical Industries PLC for $480 million. BP Amoco PLC pays $45 million for Enron's 50% stake in Solarex, a solar energy venture. Begins offering electricity service in Chicago, Illinois.

2000: Enron signs a $750 million agreement with Chase Manhattan Bank in which Enron Energy Services will service 860 Chase buildings for 10 years. Enron Energy Services signs a $610 million, ten-year agreement with IBM, and a $210 million, six-year agreement with Sonoco to supply electricity. Enron acquires WarpSpeed Communications, thereby strengthening broadband service

Goals, Accomplishments & Issues

In the mist of all of these mergers, acquasitions and take overs, Enron had certain core competencies. They believed they had to be the best, so they had to have the best resources and capabilities. They believed they had to have the best staff (human resourses), so they used a recruitment process designed to hire individuals who were smart, hard working and intensively loyal. Enron used a rank and yank strategy to make sure people were doing what they had to do and that they were still the best at doing it every six months. Some other values that Enron had listed in their website, www.enron.com, were communication, respect, integrity and excellence. Enron had great trading capabilities. This allowed many firms, companies and industries to use Enron's networks for different commodities to be transmitted and transferred through the networks. These networks for these different commodities allowed Enron to gain an Integrated cost leadership advantage into different markets within the US and around the world. Like Canada, Africa, Peru, India, etc.

The central figure from Enron's history is or was Kenneth L. Lay. Kenneth L. Lay was the son of a Baptist minister from Missiouri. Lay trained as an economist at the Univ. of Missouri and the Univ. of Houston. In 1974, Lay took the first in a series of executive positions at various energy companies and in 1984 Lay became the CEO of Houston Natural Gas. Lay assumed the top job at Enron in 1986, shortly after the merger

Both the price of gas and the electrical power industry were highly regulated and as a strong proponent of free markets, Lay felt that deregulation presented an opportunity for Enron. But deregulation caused problems for both producers and users of energy, because with the fluctuation of prices sellers did not want to be forced to sell when prices were low and buyers did not want to be forced to buy when prices were high.

To solve this problem, Enron came up with the idea of setting up a gas bank as an intermediary, to reduce market risk. The idea was that Enron would sign contracts