Rumor Spikes El Paso, Sonat Trading

Trading in El Paso Energy stock was nearly triple normal activity Friday, thanks to a rumor the company was acquiring Sonat Inc. Sonat share trading was more than five times the usual volume as well. Friday El Paso closed down 2 15/16 at 35 _. Sonat closed up 3 1/16 at 30 3/16. El Paso's 52-week range is 24 11/16 to 39 3/8, and Sonat's 52-week range is 23 9/16 to 45.

Spokespersons for both companies declined to comment on a rumor circulating that El Paso was about to acquire Sonat. A Friday Bloomberg story headlined "El Paso Energy is in discussions to acquire Sonat, people familiar say," appears to have caused the fuss. Bloomberg said an agreement could be announced today.

John Olson, senior vice president with Sanders, Morris and Mundy, said, "As an analyst, it seems to me like a long shot. Sonat is a very expensive company in terms of stock price." He noted Sonat's exploration and production unit, which lost $936 million last year on revenues of $535 million with ceiling test write-downs of more than $1 billion.

"El Paso Energy to date has had a very aggressive but sensible acquisition strategy as dictated by the CEO, which was all predicated on one thing, no earnings per share dilution," Olson said. "The other issue that makes me wonder is that the Zilkha family owns about 22% of Sonat at an average cost of $42 a share. I don't think any transaction happens without their full agreement. So it will be interesting to see which way the worm turns here."

Olson said the trading activity Friday was a surprise. "This is nature taking its course, perhaps a little riskier and a littler earlier because there is no deal announced. The [arbitrageurs] may have been shorting El Paso and buying Sonat with the idea of creating El Paso common stock later through an exchange of shares through the merger process."

Joe Fisher, Houston

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