Meet the Men Who Fleeced Enronhttp://www.fool.com/investing/value/2007/05/31/meet-the-men-who-fleeced-enron.aspx Tim Hanson and Brian Richards
May 31, 2007
The facts about Enron's legendary tumble are now well-known, but it wasn't always so. After all, Ken Lay and Jeff Skilling duped hundreds of Wall Street analysts. Enron was dubbed "America's Most Innovative Company" by Fortune. Even our own resident curmudgeon Bill Mann -- perhaps the most skeptical investor we know -- called Enron "revolutionary" back in 2000.
But Lay and Skilling weren't always doing the duping. During their company's fast rise, a few savvy businessmen got the best of them.
A $40 million bargain
But he didn't walk away empty-handed. With business partner Bill Morgan, Kinder bought some pipelines from Enron for $40 million. Pipelines were a part of Enron's old-economy business, and Lay abhorred them.
How can $40 million be a bargain? Well, Kinder Morgan -- the company Kinder and Morgan started from Enron's discard pile -- is today worth more than $14 billion. What's more, Kinder took his entire company private, with some help from Goldman Sachs, AIG, and the Carlyle Group, for $107.50 per share -- likely because he believes it's still undervalued.
More Enron stupidity
Papa ran EOG when it was an Enron subsidiary. Lay and Skilling wanted to continue moving Enron out of the old economy in 1999, which meant getting rid of the oil and gas exploration business. Papa believed that exploration and development was exactly the business to be in, so he bought Enron's stake in EOG -- minus its operations in China and India -- for $600 million in cash.
The exchange has been laughably one-sided: Enron flailed, EOG Resources flourished. Today, the business is worth more than $19 billion. Like Kinder, Papa quietly built a fortune from Enron's castoffs.
One man's trash ...
As stock investors, purchasing a small part of a business, we'd do well to heed these precepts. It's no coincidence that Enron wanted to sell its old-economy pipeline assets for pennies on the dollar to concentrate on e-commerce and energy trading instead. That's what always happens in the market -- investors discount the old in favor of the new.
Don't let that happen to you. Follow the examples set forth by Kinder and Papa: Look for value in discard piles or boring and distasteful businesses, keep your new-economy biases in check, and be a patient, long-term investor. Perhaps, like them, you can make a fortune in the stock market, too.