Trading in El Paso Energy stock was nearly triple normalactivity Friday, thanks to a rumor the company was acquiring SonatInc. Sonat share trading was more than five times the usual volumeas well. Friday El Paso closed down 2 15/16 at 35 _. Sonat closedup 3 1/16 at 30 3/16. El Paso’s 52-week range is 24 11/16 to 393/8, and Sonat’s 52-week range is 23 9/16 to 45.

Spokespersons for both companies declined to comment on a rumorcirculating that El Paso was about to acquire Sonat. A FridayBloomberg story headlined “El Paso Energy is in discussions toacquire Sonat, people familiar say,” appears to have caused thefuss. Bloomberg said an agreement could be announced today.

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

“El Paso Energy to date has had a very aggressive but sensibleacquisition strategy as dictated by the CEO, which was allpredicated on one thing, no earnings per share dilution,” Olsonsaid. “The other issue that makes me wonder is that the Zilkhafamily owns about 22% of Sonat at an average cost of $42 a share. Idon’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 isnature taking its course, perhaps a little riskier and a littlerearlier because there is no deal announced. The [arbitrageurs] mayhave been shorting El Paso and buying Sonat with the idea ofcreating El Paso common stock later through an exchange of sharesthrough the merger process.”

Joe Fisher, Houston

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