Slight FavoritesAs a rule, incumbents ride into proxy wars as heavy favorites. But many experts have declared this particular race too close to call. Only in recent weeks, as El Paso's share price has more than doubled, have some people started to hint that the incumbents will probably win. Prudential analyst Carol Coale, who has stuck by El Paso even as others grew bearish, cautiously predicted a victory for the incumbents in a research note this week. "Positive sentiment toward El Paso appears to be gaining momentum," Coale wrote on Thursday. "We are assuming, although not necessarily advocating, that the existing board is retained." But El Paso isn't taking any chances. Instead, the company continues to insist that it has adopted a strong recovery plan that the dissidents will only disrupt. It has promised to simplify its business strategy and reduce its onerous debt load over the next two years. It has also pledged to cut unnecessary costs and has already trimmed its executive staff by nearly half. In addition, it has worked to strengthen its board ahead of the proxy fight by replacing three veteran directors with four new ones who possess better energy backgrounds. The company's board, blasted by critics for lax oversight, now portrays itself as a model for others. "We have adopted corporate governance standards that we believe place us in the vanguard of corporate governance best practices," the company stated in a letter to shareholders this week. But the dissidents continue to attack El Paso's claims and, in many cases, use the company's own touts against it.
Heavyweight UnderdogsIn a presentation to ISS last week, Zilkha's group tore apart El Paso's "progress" sheet. First, Zilkha began by arguing that El Paso shares at one point had tumbled 90% from their year-ago highs -- rising only after he launched a proxy battle -- because the company never really had a clear business strategy. He pointed to expensive forays into telecommunications and energy trading and insisted that, even today, El Paso continues to be unsure about what its "core" businesses are. This year alone, he said, El Paso has announced plans to exit at least two divisions that it had previously described as important to its future. In the meantime, he said, El Paso continues to sell far more core assets than noncore assets in an effort to stay afloat.