ANALYSIS: Media Watch - Opinions vary on cause and effect ofWatson's demise at Dynegy

Dynegy is perhaps best known in recent months for having nearly bought Enron, before pulling out of the deal. When Dynegy's respected founder, chairman and CEO Chuck Watson, resigned on May 28, there were differing opinions in the media as to whether the move could have been predicted.

Dynegy is perhaps best known in recent months for having nearly bought Enron, before pulling out of the deal. When Dynegy's respected founder, chairman and CEO Chuck Watson, resigned on May 28, there were differing opinions in the media as to whether the move could have been predicted.

USA Today (May 29) prominently quoted an industry analyst as saying Watson's resignation was "a shock, while stating that Watson was being treated as a "sacrificial lamb to boost investor confidence and restore the company's credibility. However, viewers of CNNfn (May 28) were told, "It shouldn't be any surprise that Watson resigned, since "it seemed only a matter of time because the company has been literally self-destructing."

However, whether or not the resignation should have been foreseen, the media was quick to note that the Federal Energy Regulatory Commission, the SEC, the Commodity Futures Trading Commission, and the US Attorney's Office in Houston are all simultaneously investigating Dynegy.

While the media occasionally framed Watson's departure within the context of the troubled energy trading sector in general, Watson's resignation was most often attributed to a specific series of "round-trip energy deals, or "wash trades, whose sole purpose, critics allege, is to artificially boost trading volume and revenue figures. In particular, it was a series of $1.43 trades in Detroit-based CMS Energy in November 2001 that was cited by CNNfn (May 28) as "the last straw for Chuck Watson's career as chairman and CEO of Dynegy."

Several media outlets positioned Watson's resignation as the latest in a series of senior management shake-ups in the energy trading sector, which claimed the CEO of CMS just the week before Watson bowed out.

Aside from the specifics of what prompted Watson's sudden resignation, the media also devoted considerable attention to the increasingly active role that ChevronTexaco, Dynegy's largest shareholder, is playing in Dynegy's affairs. In reporting that ChevronTexaco's vice chairman will serve as Dynegy's interim chairman, several stories pointed out that ChevronTexaco's 26.5% stake in Dynegy has lost more than $4.6 billion in value over the past year.

Although everyone agreed ChevronTexaco was stepping up its commitment to Dynegy, there were mixed opinions as to whether this was a wise move.

The San Francisco Chronicle (May 29) quoted a financial analyst as saying, "(ChevronTexaco) was ankle deep. Now it is waist deep, and pretty soon it will be neck deep in this."

While Dynegy denied that its management changes were a reaction to any scandals, ChevronTexaco argued that it had played no role in the management shake-up. However, no one seemed to buy either company's explanation.

The Financial Times (May 29) wrote, perhaps a tad scornfully, "For an exercise in rebuilding credibility, (both explanations) stretch credulity."

For now, ChevronTexaco's stepped-up involvement appears to be calming Dynegy investors, and preventing the energy trader from following Enron into bankruptcy. However, Dynegy still faces an uphill battle in restoring its credibility, which The Wall Street Journal (May 29) described as "tarnished badly. Like so many other companies in today's economy, Dynegy needs to adjust its business plan while taking extra care to be open and above board in its communications as it proceeds.

Evaluation and analysis by CARMA International. Media Watch can be found at www.carma.com.

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