US energy giant Enron appears to be heading for one of the world's most spectacular corporate failures as plans for a life-saving merger were scrapped and the company's debt was cut to junk bond status.
The Texas-based company saw its already battered shares collapse in a matter of hours as investors believed the company would be unable to escape from the scandal of risky investments that have recently come to light.
In closing, Enron shares slipped to 61 cents, down 85% for the day and 98% from a year ago.
Enron, which earlier this year was ranked seventh on the Fortune 500 list of US firms and 16th globally, could be the biggest US firm to seek bankruptcy protection.
Dynegy, which just two weeks ago agreed to a life-saving merger for Enron, walked away from the deal yesterday, saying the full extent of Enron's financial woes had not been disclosed.
Standard and Poor's and Moody's cut Enron's credit rating to junk bond status just before the announcement, warning that the deal was unlikely to be completed.
The ratings cut combined with the collapse of the merger is expected to make it impossible for Enron to raise more cash, meaning that bankruptcy is likely for a company that last year posted $100bn in revenues and over £1bn in earnings.
Without bankruptcy protection, Enron may be forced to quickly repay some $7bn in debts that had been off its books up to now as well as $3.9bn linked to troubled partners.
The questionable deals have prompted a probe by the Securities and Exchange Commission. Enron shares had already plunged some 90% since October
16 after disclosing risky investments by the firm's former chief financial officer that forced the company to restate its earnings.
