| WILMINGTON, Del
WILMINGTON, Del Feb 9 El Paso Corp's
chief executive tainted the company's proposed $21
billion sale to rival oil pipeline company Kinder Morgan Inc
by not disclosing his personal interest in acquiring
certain El Paso assets, El Paso shareholders argued on Thursday.
They told a Delaware chancery court that these alleged
conflicts of interest, plus those of deal adviser Goldman Sachs
Group Inc, so badly marred the merger that the court
should block a shareholder vote scheduled for next month.
Chancery Court Judge Leo Strine described the alleged
conflicts as "disturbing" but appeared to reject the idea of
enjoining a shareholder vote. Instead he said he could let
shareholders decide if they wanted to approve the deal and allow
them to sue for damages caused by the conflicts.
Strine, who said he would soon decide whether to enjoin the
vote, also pointed out the damage that shareholders would suffer
if he blocked the deal, since that could prompt Kinder Morgan to
walk away and El Paso's stock might tank.
"You want me to enjoin the stink, but only until June 30 and
then you still get the stink," said Strine.
El Paso agreed in October to be acquired for $26.87 per
share in cash, stock and warrants, combining the two largest
natural gas pipeline operators in North America.
As part of the Kinder Morgan deal, El Paso also abandoned a
previously announced plan to spin off its exploration and
production business to shareholders.
Mark Lebovitch, a lawyer for El Paso shareholders, told
Strine an injunction against the deal would give El Paso's
management a chance to consider the breakup and sale of the
company's assets, which could bring more money stockholders.
Strine, the court's chief judge, did most of the talking
during the six-hour hearing, pressing lawyers for El Paso,
Kinder Morgan and Goldman Sachs to explain the motives of key
players in the deal.
Lebovitch said that El Paso's chief executive and the main
negotiator for the company, Douglas Foshee, might have had an
interest in depressing the price of his company because he hoped
to cut a side deal to buy unwanted assets from Kinder Morgan.
"The principle negotiator has a conflict that's not
disclosed," said Strine. "This is a very unusual pattern of
El Paso's attorney said shareholders were basing their
accusations against Foshee on little more than his musings.
Goldman Sachs also appeared to have conflicting motives, the
shareholders said: It collected a $20 million fee as a financial
adviser to El Paso, while also holding a 19 percent stake in
For every dollar shaved off the price Kinder Morgan agreed
to pay for El Paso's stock, the shareholders said, Goldman made
$150 million on its investment in Kinder Morgan.
In addition, although Goldman did only minimal work on the
deal, the bank still expected to collect its fee, El Paso's
attorney said. Strine suggested Goldman surrender its
compensation. That suggestion was swiftly rejected by Goldman's
attorney, who also denied there was any conflict.
Shares of El Paso closed up 0.8 percent at $27.32 while
shares of Kinder Morgan climbed 1.8 percent to $32.64.