hanover gkh merger idea jeff following provides background information call mel klein gkh ref gkh memo sent past year number groups individuals assessed merits acquiring gkh interest hanover declined due strategic well financial considerations please give dick call questions regards brian forwarded brian redmond hou ect 04 09 2001 09 51 richard lydecker enron 04 06 2001 01 53 pm brian redmond hou ect ect cc subject hanover gkh merger idea following quick review gkh merger analysis reasons support also important keep mind gkh motivated create short term exit hanover due exigencies investment partnership expiration klein agenda transparent 1 hanover well managed growth company turnaround special opportunity situation application enron business model would promise extraordinary returns required order justify investment 3 billion 2 enron stock price declined attractiveness using currency acquisition decreased pe decline also tends make stock deals dilutive enron 3 gkh analysis asserts 128 million initial year synergies cost savings however benefits largely predicated upon use enron nol asset enron already owns applied earnings acquisition 55 million b speculative economies scale e higher revenues margins significant sg reductions 38 million remaining 36 million cited benefits relates proposed decapitalization hanover proposed transfer assets non recourse trust although credit enhancement operational guarantees would required achieving benefits would require obtaining best possible outcome number accounting financial credit issues however even issues resolved economic result insufficient justify transaction gkh analysis consider transaction transition capital costs 4 taking account capital expenditures required hanover achieve aggressive growth targets company appears best cash flow neutral slightly cash flow negative three years presented gkh analysis even including claimed synergies cost savings 5 enron hanover could achieve share many synergistic benefits claimed merger properly structured joint venture however would still require finding internal enron sponsor assume ownership relationship 6 much hanover growth future predicated upon aggressive expansion expenditure program internationally given enron domestic opportunities international orientation non core business inconsistent present strategy 7 like gkh enron seller hanover position abrupt reversal strategies could create significant uncertainties confusion street enron strategic direction additional background demonstrate magnitude limitations gkh analysis respect increasing enron eps 1 pooling interest accounting available acquisition enron makes company lower pe ratio enron accretive enron eps nothing remarkable simple mathematics 2 purchase accounting required even entire purchase price accounted goodwill never amortized would replicate results pooling interest however actuality significant proportion purchase price would allocated assets tangible intangible contracts would produce additional depreciation amortization expense mentioned gkh analysis 3 largest single synergy far gkh analysis usage enron nol shield hanover taxable earnings enron obtain benefit nol acquiring profitable company gm recorded 3 4 billion income tax expense last year would offer even greater opportunity utilitize enron asset 4 gkh analysis totally silent respect biggest single immediate risk transaction e potential negative impact enron pe dick