Major El Paso Corp. investors Selim K. Zilkha and Oscar S. Wyatt Jr. will have to win the support of three major institutional stockholders in California if they are to succeed in taking control of the board of directors from the financially weakened company at the annual El Paso shareholder meeting this year, a veteran energy analyst said.

The three California institutional investors own approximately 27% of the common stock in the Houston-based energy company, said analyst John Olson of Sanders Morris Harris Inc., but he declined to identify them.

Two California investment management firms, Pacific Financial Research Inc. and Capital Research & Management Co., own approximately 20% of El Paso common stock. Pacific Financial, a wholly owned subsidiary of Old Mutual (US) Holdings, holds just over 60 million voting shares and 5.547 million non-voting shares for a total of 10.9% of El Paso common stock, according to a Feb. 14 filing.

Capital Research, which is part of the Capital Group Cos., holds 55.47 million shares, or about 9.3% of the outstanding El Paso common stock, according to a Dec. 31, 2002 filing at the Securities and Exchange Commission.

“Our policy is we do not discuss our holdings,” said Capital Research spokesman Chuck Freadhoff, when asked if the firm had been approached by either or both of the El Paso investors. As for monitoring the situation, he noted, “obviously, we pay attention to all of our holdings.” Pacific Financial did not return Daily GPI’s telephone calls.

Winning the support of institutional investors would give Zilkha, a wealthy Los Angeles businessman and former El Paso board member, and Wyatt, a prominent and hard-charging energy figure, added leverage in their campaign to unseat the current 12-member El Paso board. While the two men are among the largest individual stockholders in El Paso, their combined holdings amount to only about 2.27% of the 598.9 million common shares that were outstanding as of last November.

Zilkha, 75, owns 8.9 million shares of common stock in El Paso; he acquired his holdings when he sold his company, Zilkha Energy Co., in 1998 to Sonat Inc., which then was gobbled up by El Paso the following year. Wyatt, 74, owns 4.678 million shares of El Paso common stock. He sold Coastal Corp., the company he founded, to El Paso for $24 billion in 2001.

Olson refused to speculate on Zilkha’s and Wyatt’s chances for success, but he said “they have a lot of marbles in this game.” With both men “collectively financing this proxy fight” with El Paso, “you have the makings of an interesting evolution here.”

He believes Zilkha and Wyatt have several factors in their favor. They have nominated a “very strong” proposed board to replace the El Paso board, whose current members include a mix from the original El Paso board, Coastal and Sonat. The proposed board, which would include Zilkha but not Wyatt, is “one of the strongest I’ve ever seen in the energy industry…It’s knee deep in experience.”

Olson noted the current El Paso board “certainly has good people” on it, but he doesn’t believe the members have the “requisite experience” in energy. The terms of all of El Paso’s board members expire this year, which could work to the benefit of Zilkha and Wyatt.

In addition, the two investors have caught El Paso at a “very weakened time” — the company’s stock is hovering at the $4 level, its credit rating has been cut “well down to junk,” the company has had to make “numerous write-offs,” and its Chairman and CEO William Wise is in the process of retiring.

Olson seriously questions whether there is any “great collective urge” on the part of El Paso to fend off a proxy fight by the two stockholders at this year’s shareholder meeting. El Paso said it has not scheduled a date for the annual meeting yet. Last year’s meeting was held in mid-May.

While Wyatt is something of a lengend in the energy industry, Zilkha isn’t as well known. Zilkha, a native of Iraq, currently jointly owns Houston-based Zilkha Renewable Energy, an independent power producer and developer of wind energy, with his son, Michael. He also founded a retail clothing chain for children and pregnant women, which he sold in the 1980s, and has been involved in banking.

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