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Dissident Shareholder Takes on El Paso Board

June 16, 2003|Kristen Hays | Associated Press

HOUSTON -- El Paso Corp. has been busy trying to convince investors it's not another Enron.

But one dissident shareholder has said the nation's largest natural gas pipeline company ought to be worried about becoming another Edsel.

Selim K. Zilkha, a 76-year-old former banker, clothier and energy executive, wants shareholders to oust El Paso's 12 incumbent directors and replace them with his proposed slate of nine, including himself, at their annual meeting Tuesday.

Anything less, Zilkha says, and the Houston-based company risks the fate of Ford Motor Co.'s infamous dud car of the late 1950s. His bruising proxy contest has pointed up El Paso's recent troubles that include fallen stock and at least $25 billion in debt, prompting the company to plead with shareholders to have faith.

"I believe El Paso shareholders will see it for what it is -- an act of desperation by a regime struggling to maintain its lucrative position," Zilkha said.

Shareholders must choose between El Paso's detailed recovery plan or Zilkha's more vague pledge to increase earnings and cash flow through asset optimization.

A Zilkha victory could signal a trend in shareholder activism because proposals short on details usually have little resonance, said Bruce Goldfarb, senior managing director of George- son Shareholder Communications, a New York shareholder analysis firm.

"What's happening is that investors, since they aren't seeing their money work for them as well as they'd like, are now starting to put their mouth where their money is," Goldfarb said.

Interim Chief Executive Ronald Kuehn rejects Zilkha's notion. "The idea of turning this company upside down with a new board and new management would be just terribly disruptive and destructive of shareholder value," he said.

In 2002, El Paso endured a weak energy market, skittish investors, investigations and lawsuits after copying Enron Corp.'s forays into energy trading.

Zilkha, whose 8.9 million shares have lost $586 million in value since January 2001, blamed then-CEO William Wise for the 90% drop in shareholder value even though Zilkha approved some of the money-losing ventures while he was a director or advisory director.

El Paso offered to let Zilkha choose a couple of directors. In January, Zilkha issued an ultimatum -- fire Wise or face a proxy contest to oust the board.

In March, Zilkha notified the Securities and Exchange Commission of the proxy contest. Two days later Wise was fired.

Zilkha, whose dissident slate includes eight former energy executives and a retired federal judge, also had complained about the lack of oil and gas industry experience among El Paso's directors. This year El Paso brought on four new directors who fit that category.

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