The live auction takes place in the New York offices of Enron Wind's attorneys, Weil, Gotshal & Manges LLP. Judge Arthur Gonzalez, who is handling the cases of both Enron Wind and its parent Enron Corp in the US Bankruptcy Court in New York, has ruled, however, that GE and Enron Wind can proceed with their proposed agreement in the meantime, which is expected close this month.
New bids must be at least $9.375 million higher than GE's, and then any subsequent bid must be in an increment of at least $2 million. Any objections to new bids, from unsecured creditors' of Enron Wind, would be aired in a court hearing on April 4. The court expects the sale to be finalised on April 15.
Such an auction is routine during bankruptcy proceedings, as the wind industry learned after the 1996 bankruptcy of Kenetech Corp, at the time also the largest in the US wind industry. Given America's Byzantine bankruptcy laws and cut-throat business manoeuvring nothing is certain until a final deal is approved by the court and by anti-trust regulators.
It is unclear whether bids from additional suitors are likely. GE's offer was the first in the 30 months since Enron Wind was quietly put up for sale. And it could well be the one that becomes final, say wind insiders. If nothing else, the longer Enron Wind is on the block, the less it is worth. "GE is confident that our bid will stand up," says a GE official. "It's very solid."
Lawyers for Enron Corp have played up the saleability of Enron Wind and are in public portraying GE's offer as a "stalking horse" that will draw out other bids. "Enron is confident that other bidders will come forward," lawyer Brian Rosen, who is representing Enron Wind, told the bankruptcy court on March 1. GE is allowed to bid at the April 2 court hearing, if there are competing offers.
Several companies have inquired about submitting bids but it is not known if they are likely to lead to a serious offer, especially given that the case is so high profile outside the wind industry. Enron Wind is being watched closely by observers of the parent company's demise, if nothing else because it is one of only four desirable assets owned by Enron Corp, which filed for bankruptcy in December. No bids had been submitted as of mid-March.
In the previous auction, after which the GE deal was accepted, 72 bidders initially expressed interest, of which four were eventually invited to bid in the final round, according to court documents. Details of the tentative deal between GE and Enron Wind, announced on February 20, are emerging. GE Power Systems agreed to buy Enron Wind for $225 million and to assume $33 million in debt, according to The Blackstone Group, the financial company that handled the sale along with the bank Credit Suisse First Boston. The purchase covers Enron Wind's US and foreign manufacturing assets, including real estate, intellectual property and contracts.
According to court documents, GE is not buying around 200 MW of wind plant owned by Enron Wind, about 150-160 MW of which is in the US, mostly in California, with the balance largely in Northern Ireland and Greece. Nor is GE assuming warranty, operation and maintenance obligations for the company's American-designed 750 kW turbine, or any "US benefit plans and arrangements, except for certain bonus payments." There are more than 500 of the 750 kW Enron Wind turbine in operation in the US -- including the 193 MW Storm Lake project, Minnesota's 211 MW of projects at Lake Benton, more than 50 MW in California and 40 units at Delaware Mountain in Texas.
Adam Umanoff, Enron Wind's CEO, says the warranties not covered are for the 750 units made in the US, which number more than 600. In Spain Enron Wind has made 130, 750i units. GE will back machines made and installed in Europe, he says. Unveiled in 1998 as America's answer to European inroads in turbine manufacturing, the 750 kW wind turbine was marketed until 1999 before being superseded in the US by Enron's 1.5 MW model.
The baseline purchase price for Enron Wind had been set at $300 million but was cut after a decision was made to back warranties on Enron Wind's 1.5 MW turbines. "It's not smart to void all of the warranties if GE plans to sell wind turbines in the future," says a wind source wryly.
GE largest creditor
The same day the deal was announced, Enron Wind and four of its affiliates filed for bankruptcy -- so that GE could buy a "claim-free" Enron Wind. Combined assets of the four total $563 million and debts $450.3 million. Also according to court documents, Enron Wind's largest unsecured creditor is GE's General Electric Capital Corp unit, which is owed $9 million.
Under the bidding process approved by the bankruptcy court, any new buyer must pay GE a $5.63 million break-up fee in addition to the price-tag for Enron Wind. Companies that showed an interest in Enron Wind first time around include investment institution UBS Warburg, Denmark's Vestas, German Nordex AG, Doughty Hanson & Co -- one of Europe's largest private equity firms, which owns rotor blade manufacturer LM Glasfiber -- and New York investment bank Allen & Co.
The GE purchase -- and any other deal where the other party is already involved in energy -- will have to be approved by various anti-trust bodies as well as the bankruptcy court, says GE lawyer Jim Waterbury. A ruling was expected from the US Anti-Trust Authority by the end of March. Anti-trust approval for the GE purchase must also come from the European Commission, since Enron Wind also has a German base and manufacturing units in Spain and the Netherlands. Waterbury says he expects the sale to be approved because GE is not already involved in the wind industry.