The El Paso Corporation

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The El Paso Corporation

• Founded in 1928 as a small regional Natural Gas
  Pipeline
• Expanded through mergers and acquisitions and
  Energy deregulation in the early 1990s
• Now the largest pipeline company Over
  58,000 miles of pipes, 1 in the industry
• 17 on Fortune 500 list in 2002

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The El Paso Corporation
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The El Paso Corporation

• Main Business Segments

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The El Paso Corporation
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The El Paso Corporation
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The El Paso Corporation
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The El Paso Corporation

• Ke (FCFF/Shares)/p g
• Ke (-3,135/1,500)/9.33 .32
• Ke 9.69
• Ke Rf ß(Rm Rf)
• Ke 4.5 2.53(6)
• Ke 19.68
• Stock is overpriced since K(CAPM) gtK(DFC)
• Weakness-Beta is 2.53, twice Industry Avg.

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The El Paso Corporation
Announcement Date 5/13/2003
CEO terminated
Unable to determine the Market Efficiency
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The El Paso Corporation
Announcement Date 02/03/2003
Non-Specific News- War in Iraq Weak Form Market
Efficiency
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The El Paso Corporation
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The El Paso Corporation

• 2000 2001
  2002
• WACC 4.03 6.31 10.75

Graph does not resemble M M models Unable to
determine the optimal Capital Structure with only
3 years of analysis
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The El Paso Corporation
2000 Market Cap 35.1B
2001 Market Cap 24.1 B
2002 Market Cap 5.6B
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The El Paso Corporation

• Conclusion
• Strengths
• High Value Irreplaceable Assets
• Solid reorganization plan in place
• Returning to core businesses

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The El Paso Corporation

• Weaknesses
• High Debt Load and High Cost of Capital
• Poor Financial Condition
• Reduced Earnings
• Negative Net Income
• Internal and External Uncertainties

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The El Paso Corporation

• Rating
• Neutral or Hold for average investor
• Buy for the investor who feels the Company has
  survived its low and will regain market dominance