Feb 29 (Reuters) - Kinder Morgan Inc cleared a legal
hurdle in its $21 billion acquisition of El Paso Corp, combining
the two largest natural gas pipeline operators in North America,
after a Delaware judge refused to block the sale.
But the judge admonished some of the participants in the
deal, which included Goldman Sachs Group Inc, whom disgruntled
El Paso shareholders accused of a conflict of interest that they
said resulted in undervaluing El Paso's shares.
"I reluctantly deny the plaintiffs' motion for a preliminary
injunction," Delaware Chancery Court Judge Leo Strine wrote on
"El Paso stockholders should not be deprived of the chance
to decide for themselves about the merger, despite the
disturbing nature of some of the behavior leading to its terms."
The deal is expected to close in the second quarter, the
companies have said. El Paso shareholders are scheduled to vote
on the proposed acquisition on March 6.
Kinder Morgan has already reached an agreement to sell El
Paso's exploration and production assets for $7.15 billion to a
private consortium led by Apollo Global Management LLC.
Shareholders had sued to stop the Kinder-El Paso deal,
arguing that Goldman Sachs Group, El Paso's adviser, and El Paso
Chief Executive Douglas Foshee both had interests in holding
down the price for El Paso shares.
Goldman Sachs owns 19.1 percent of Kinder Morgan and the
shareholders said that, for every dollar shaved off the
acquisition price of El Paso's shares, Goldman Sachs' private
equity business saved $150 million.
Goldman argued that it managed the appearance of conflicts
by having its directors recuse themselves from Kinder Morgan
board meetings addressing the deal. It also brought in Morgan
Stanley to advise El Paso's board once Kinder Morgan made its
Goldman and the companies said they were pleased with the
judge's decision to let the acquisition proceed, although some
took issue with his critical comments.
"We respect the judge's opinion but want to be clear that we
stood by our client through this process, encouraging them to
get independent views from another adviser," Goldman spokesman
David Wells said in a statement.
"We were also transparent with El Paso about our
relationship with Kinder Morgan and the related issues."
El Paso spokeswoman Gretchen Krueger said in a statement the
company believed the court made the right decision.
"El Paso respectfully disagrees, however, with certain of
the preliminary findings contained in the court's opinion, and
expects to have the opportunity to more fully respond to those
findings in future proceedings," he said.
Kinder spokesman Larry Pierce said: "We're gratified that
the judge denied the injunction and that we can proceed with the
vote of the shareholders."
Judge Strine said the plaintiffs were free to pursue damages
later but that since they were not able to prove irreparable
injury in the case, a damages award was not in play at this
The case is In re El Paso Corporation Shareholder
Litigation, In the Court of Chancery of the State of Delaware,
For plaintiffs: Stuart Grant of Grant & Eisenhofer,
Christine Azar of Labaton Sucharow, and Mark Lebovitch of
Berstein Litowitz Berger & Grossman.
For Juan Carlos Braniff and others: Donald Wolfe of Potter
Anderson & Corroon and Paul Rowe of Wachtell, Lipton, Rosen &
For Kinder Morgan: Collins Seitz of Seitz Ross Aronstam and
Moritz and Joseph Allerhand of Weil, Gotshal & Manges.
For Goldman Sachs: Gregory Varallo of Richards, Layton &
Finger, John Hardiman of Sullivan & Cromwell and Bruce Oakley of
Hogan Lovells US.
(Reporting by Basil Katz)
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