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EXHIBIT 99.2
ENRON LOGO
October 27, 2000
Azurix Corp.
333 Clay Street
Suite 1000
Houston Texas 77002
Attention: Mr. Herbert S. Winokur, Jr.
Chairman of the Board
Mr. John L. Garrison
President
Gentlemen:
As a result of changes in industry conditions, among other things,
Azurix finds itself in a much different position than it did at the time of its
initial public offering. Following Azurix's restructuring announcement in the
fourth quarter of 1999, Azurix has seen a substantial decrease in its common
stock price. Azurix's access to capital has been adversely affected, and it has
lost employees. We believe that continued uncertainty about the status of
Azurix's future will only serve to further damage Azurix and its stockholders
and employees.
As you know, in an attempt to resolve this uncertainty, Azurix retained
two internationally recognized investment banking firms early this year for the
purpose of evaluating strategic alternatives. These alternatives included a
potential sale of Azurix to unrelated third parties. In this connection, you and
your investment bankers contacted a significant number of third parties to
determine if they would be interested in acquiring Azurix.
In addition, Enron itself has been contacted by certain third parties
to determine if Enron would be interested in selling its indirect interest in
Azurix. Between these contacts and the process that you and your investment
bankers conducted, we have been able to gain a very clear understanding of the
M&A market's perception of Azurix's value. In fact, after discussions with
potential buyers, we understand that four indications of interest have been
obtained. Three of the four indicated that they were unlikely to be willing to
pay more than the then current market price of approximately $4.00 per share.
The fourth interested party initially indicated that it would consider
offering $7.00 per share. However, this price was before giving effect to any
dilution for stock options, and was subject to significant due diligence and
other conditions. As you know, both Enron and Azurix devoted a significant
number of resources for the purpose of accommodating this bidder's due diligence
requests. In support of this effort, an extensive amount of legal documentation
was
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prepared in anticipation of finalizing a transaction. However, this bidder has
recently informed us that it is not interested in pursuing the transaction any
further. The reasons given by the bidder included pro forma cash flows, the
complexity of the capital structure, tax considerations and the currently
pending securities litigation.
We are obviously quite disappointed by this most recent turn of events.
However, we strongly believe that there is no other buyer willing to pay the
$7.00 per share initially proposed (but later withdrawn) by the fourth bidder.
In light of the foregoing, we believe that it is in Azurix's best
interest, as well as the best interest of its stockholders and employees, if
Azurix were no longer a publicly traded company. In this regard, Enron hereby
proposes on behalf of itself and its designees to provide cash of approximately
$275 million for the sole purpose of funding a transaction that would take
Azurix private for a buy-out price of $7.00 per share.
We strongly believe that our proposal is fair to Azurix's public
stockholders. Our proposed transaction would permit Azurix's stockholders to
receive, on a timely basis, a cash payment for their shares that is
significantly above the price at which those shares have traded for several
months. In addition, the cash payment to stockholders would also be greater than
any indications of interest received by Enron or Azurix during our search for
strategic alternatives over the past nine months. Our proposal would also permit
Azurix's employees to have more certainty about their future.
Furthermore, we are also familiar with Azurix's analysis of various
partial and full liquidation alternatives. Although we agree that such plans may
result in greater value to Azurix's stockholders than the maintenance of the
status quo, we believe that these options almost certainly will not result on a
present value basis in a greater return to Azurix's stockholders than $7.00 per
share. In this regard our proposal is conditioned upon Azurix not selling any
significant assets prior to the buy-out.
Finally, we are cognizant of the potential conflicts of interest
inherent in our proposal and understand the need for appropriate process.
However, please note that we have not included any "break-up" fees or other deal
protection devices, so that moving forward with our proposal would not preclude
any third party from pursuing an acquisition that might provide greater value to
Azurix's stockholders.
We are not setting a specific deadline on our proposal. However, we
believe Azurix's position, especially with prospective customers and employees,
may deteriorate further. We must therefore reserve the right to withdraw our
proposal at any time.
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We would like to discuss with you as soon as practicable a precise
transaction structure for achieving the proposed going private transaction. We
hope that, once the mechanics have been finalized, the Board of Directors of
Azurix will give due consideration to any actions required in connection with
our proposal.
Very truly yours,
ENRON CORP.
By_/S/ J. MARK METTS
J. Mark Metts
Executive Vice President,
Corporate Development
