Conflict allegations by El Paso Corp. shareholders attempting to block the pipeline company’s takeover by Kinder Morgan are “serious,” a Delaware judge declared Thursday. But he may not do anything about it.
Chancery Court Judge Leo Stine said he didn’t want to issue an injunction in the case because shareholders can still vote it down, the Wall Street Journal reported.
The allegations center on the role that Goldman Sachs played as an adviser to El Paso. Goldman was advising Houston-based El Paso on a plan to spin off its exploration business last year when crosstown rival Kinder Morgan offered to buy the entire company for $21.1 billion. Goldman private equity funds own a big chunk of Kinder Morgan and have two representatives on the board.
In the Delaware lawsuit, a Louisiana pension fund claims Goldman used its influence to steer El Paso into accepting a lower price than it was worth while scooping up bigger advisory fees than it would have from the exploration unit’s spinoff.
The first sign that Goldman might be pulling strings in the deal came even before it was announced, when Goldman’s equity analysts upgraded their rating on Kinder Morgan, but the conflicts in the transaction apparently went much deeper.
In its lawsuit, the pension fund claims chief executive Doug Foshee privately discussed a management buyout of the exploration business with Kinder Morgan chief Rich Kinder. Foshee never revealed that conversation to El Paso’s board, shareholders claim. However, El Paso shareholders, who believe Kinder should have paid a higher price, argue that Foshee was willing to sell the company on the cheap if he got to walk away with the exploration business.
Foshee, by the way, is set to receive a severance package worth about $91 million, much of it in stock he accumulated during his tenure as El Paso’s CEO.
Kinder, Goldman and El Paso all have said they took appropriate steps to mitigate any potential conflicts in the deal.
Shareholders are asking the Chancery court for a temporary injunction. Stine said he will make a ruling by March 6, the day shareholders are supposed to vote on the deal. He raised the possibility that damages might be awarded after the deal closes.