Subject: B2B at Enron

Tom,  I am sending you the information about our new B2B unit.
I have talked yesterday with Greg Whalley who is heading the new unit about the E-commerce project at Wharton and recommended that Enron join this program.
I have sent him this morning a copy of the materials you gave me.
The meeting with Jeff Skilling has been pushed till the 2nd half of July.
I talked to him briefly twice that Jeff Shankman and I want to discuss with him building a relationship with Wharton.
Jeff Shankman is, by the way, a  great friend of your institution.
Vince  ****************************************************************************** ***********************    COMPANIES & FINANCE: THE AMERICAS: Enron sees bricks and                        bytes mix reshaping energy market: Purchase of MG only  a start in                        building B2B platforms, writes Hillary Durgin:                         COMPANIES & FINANCE: THE AMERICAS: Enron sees bricks and  bytes                     mix reshaping energy market: Purchase of MG only a start  in building                     B2B platforms, writes Hillary Durgin:                     99% match; Financial Times ; 16-Jun-2000 12:00:00 am ;  604 words                     By HILLARY DURGIN                      If Jeffrey Skilling is right,                       Enron's acquisition of MG is only the tip of the iceberg.
Enron's president and                     chief operating officer is engineering a fundamental  strategy shift at the                     Houston energy company, aimed at making it a dominant  "new economy"                     player across various industrial markets.
The Dollars 446m acquisition last month of MG, the  UK-based metals trader,                     is only the first of more than Dollars 1bn in estimated  new investments the                     company is targeting.
It is seeking vehicles on which to  build                     business-to-business (B2B) platforms in sectors such as  logistics, chemicals,                     agricultural products and pulp & paper.
Mr Skilling wants to take the business model the company  developed in                     natural gas and power and apply it to other wholesale  commodity markets.
He                     argues the electronic platforms it creates will not only  become the principal                     B2B sites for those sectors, but reshape those  industries.
As an example, he points to Enron's new e-commerce  platform, EnronOnline,                     which has changed the way the company does business with  its customers                     while significantly increasing sales.
The company - the largest wholesale merchant of natural  gas and power - saw                     wholesale, physical deliveries of natural gas surge 53  per cent in the first                     quarter.
Critics argue that Enron's move away from its familiar  energy business into                     new industries, where the learning curve is steep and the  competition                     entrenched, is risky.
Yet a number of industry analysts  point out Enron has                     proved it understands markets and how to manage risks  while becoming the                     largest importer of coal in the UK, the largest trader of  gas and power in the                     US and grabbing an advantage in bandwidth.
"It's a prudent strategy, but it's got to be done in an  orderly way," says Ronald                     Barone, analyst with Paine-Webber in New York.
"What  they're doing here is                     what they've been incredibly successful at doing," he  adds, noting that Enron                     posted Dollars 1.3bn in earnings before interest and  taxes (ebit) from its                     wholesale energy and services business in 1999, up 34 per  cent from the                     previous year.
Earnings from that division accounted for two-thirds of  the company's overall                     income before interest and taxes last year, and Mr Barone  sees the unit's ebit                     increasing 15-30 per cent annually over several years.
As with gas and power and now broadband, where Enron is  standardising                     contracts and creating a market in bandwidth, it wants to  create markets by                     entering as a physical player and providing merchant,  risk management and                     financial services over the internet.
"We will provide electronic commerce, but we will provide  liquidity and we will                     provide settlement, or fulfilment of that contract," Mr  Skilling says.
"That is an                     extremely powerful model.
If you look at other B2B sites,  they don't do that."
Mr Skilling argues Enron's e-commerce platform will  triumph over the other,                     bulletin board-type exchanges, where striking a deal  depends on two parties                     hooking up and working through uncertainties over timing,  price, credit and                     fulfilment.
Not everyone shares that view.
Some energy companies, for  example, would                     rather not do business with a competitor.
BP Amoco  recently purchased a 3                     per cent stake in Altra Energy Technologies, a Houston-  based, neutral                     wholesale energy exchange.
With Koch Industries and  American Electric                     Power, it also committed to carry out a fixed volume of  transactions on the                     site to lend it liquidity.
Just as in gas and power and now broadband and metals,  Enron believes it                     needs networks of strategic physical assets.
In acquiring  MG, Enron got a                     stable of warehouses, lending it a strong physical  position.
"It should provide (MG) with a more vibrant, more active  physical spot market                     in more markets in the world," says Greg Whalley, chief  executive officer of                     Enron Net Works, the new division Enron is launching to  identify and enter                     commodity markets.
He argues that in metals and other  markets, Enron will                     deliver better pricing, price risk management services,  cross-commodity                     transactions and flexible transactions for a wider range  of customers.
Mr Skilling says there are significant rewards for  restructuring an industry.
"If you can take that platform, and you use the  capabilities the bricks bring to                     the table, e-commerce the industry and change the  structure, you're selling for                     more than a 50 multiple."
Copyright , The Financial Times Limited