Goldman Sachs sued over role in El Paso’s $21 billion buyout

Goldman Sachs Group was sued by a pension fund that alleges the New York-based investment bank had a conflict of interest in its role as adviser in the planned $21 billion purchase of El Paso Corp. by Kinder Morgan Inc.

Goldman Sachs, which owns about 20 percent of Kinder Morgan, steered El Paso directors to sell at a price below its full value, earning larger advisory fees than if the company had completed a planned spinoff, lawyers for the Louisiana Municipal Police Employees Retirement System said in the complaint. Goldman Sachs also stands to see its Kinder Morgan investment increase in value, according to the complaint.

“The El Paso board impermissibly heeded the advice of its conflicted financial adviser Goldman Sachs and abandoned a previously announced spinoff of its exploration and production business in favor of a low premium sale to competitor Kinder Morgan,” lawyers for the retirement system, an investor in El Paso, said in the complaint filed yesterday in Delaware Chancery Court in Wilmington.

In addition to Goldman Sachs, the complaint also names individual El Paso directors and Kinder Morgan.

While Morgan Stanley served as financial adviser on the sale, Goldman’s presence “tainted the entire process,” lawyers for the retirement fund said in the complaint. Goldman continued to act as financial adviser on “related matters” in connection with the transaction, the pension fund said in the complaint, citing the companies’ joint press statement.

Goldman Sachs is accused of aiding and abetting a breach of fiduciary duty by El Paso directors. In addition to seeking unspecified damages, the pension fund is asking a judge to order the directors to give “full and fair consideration” to any alternative offers for the company.

Andrea Rachman, a spokeswoman for Goldman Sachs, declined to comment except to say that the bank’s representatives on El Paso’s board recused themselves from the deal process.

Larry Pierce, a spokesman for Houston-based Kinder Morgan, said in an e-mail that the company doesn’t comment on pending litigation.

El Paso, based in Houston, said Oct. 16 it would be bought for cash and stock to create the largest natural-gas pipeline network in the U.S. The company was sued earlier this week by a shareholder over claims the deal undervalues it shares.

Goldman Sachs’s private-equity arm was one of Richard Kinder’s co-investors when he took his company private in 2007. The firm remains one of the largest Kinder Morgan shareholders and has two representatives on the board.

Richard Kinder kicked off the takeover talks in late August when he approached El Paso’s Douglas Foshee, said Joe Hollier, a Kinder Morgan spokesman.

That disrupted a previous plan by El Paso, announced in May, to spin off its exploration and production assets to shareholders.

Goldman Sachs’s Steve Daniel had been advising El Paso on the spinoff. For the talks with Kinder Morgan, El Paso instead turned to a Morgan Stanley team including Brian McCabe, Stephen Munger and Jonathan Cox.

The case is Louisiana Municipal Police Employees Retirement System v. Braniff, CA6960, Delaware Chancery Court (Wilmington).