UPDATE 3-Proxy adviser opposes El Paso-Kinder Morgan deal

Tue Mar 6, 2012 7:55pm EST

WILMINGTON, Del., March 6 (Reuters) - The third-largest U.S. proxy adviser recommended that El Paso Corp shareholders vote against a proposed $23 billion sale of the company to Kinder Morgan Inc, switching its position after comments made by a Delaware judge.

Egan-Jones Proxy Services said in a report that it was withdrawing its endorsement of the deal because of "the conflicts of interest cited by (Delaware Chancery Court judge Leo Strine) and the attendant doubts cast on the deal."

A shareholder group sued in January to stop the deal, arguing that El Paso adviser Goldman Sachs Group Inc and El Paso Chief Executive Douglas Foshee had vested interests in holding down the price for the company.

Goldman Sachs advised El Paso on the deal but also owns a sizable stake in acquirer Kinder Morgan through its private equity arm.

Judge Strine called the negotiating process "disturbing" in a ruling last week, but refused to block the acquisition, saying shareholders should decide for themselves if they want to accept the deal.

The two largest proxy advisers in the U.S., Institutional Shareholder Services Inc and Glass, Lewis & Co LLC, have recommended that El Paso shareholders support the deal.

An ISS spokesman said on Monday that its recommendation was unchanged, and didn't return calls on Tuesday.

Glass Lewis said it had not changed its recommendation.

"Our recommendation was arrived (at) after taking into consideration all aspects of the deal, including the process," Glass Lewis Managing Director Warren Chen said in an emailed statement. "While we were apprehensive about some aspects of the process, ultimately, we believe the overall merits of the transaction outweighed our concerns."

And w hile Strine's opinion has swayed some to vote their proxies against the deal, El Paso said on Monday 70 percent of the company's shares have been voted, with 98.5 percent supporting the deal. Those votes can be changed up until the Friday deadline.

Egan-Jones is the smallest of the three main proxy advisory firms.

El Paso shares closed down 1.5 percent at $28.07 and Kinder Morgan shares were down 2.4 percent at $35.35 on the New York Stock Exchange.

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