The Delaware Court of Chancery refused to enjoin a proposed merger between El Paso Corporation and Kinder Morgan, Inc., two of North America's largest independent natural gas exploration and production companies, despite conflict of interest claims related to Goldman Sachs' involvement on both sides of the transaction and conflicting interests of El Paso's CEO. Subsequent to the decision, the merger was overwhelmingly approved by El Paso's shareholders.
Plaintiff-shareholders in the case sued to enjoin the merger, in part, because Goldman Sachs was advising El Paso on a potential spinoff of its exploration and production business while also serving as an adviser to Kinder Morgan. Goldman also owned 19% of Kinder Morgan's shares. Additionally, plaintiffs claimed El Paso's CEO and a group of El Paso managers planned to acquire El Paso's former natural gas exploration and production business from Kinder Morgan post-closing without disclosing their intentions to El Paso's board of directors.
The court agreed that El Paso's fiduciaries and advisors had financial motives adverse to the best interests of El Paso's stockholders, and that El Paso's less-than-aggressive negotiating strategy gave plaintiffs a reasonable likelihood of success in proving the merger was tainted by disloyalty. Rather than enjoin the merger, however, the court found that El Paso's stockholders would be better served by having an opportunity to either approve or disapprove of the merger themselves because there was no other buyer waiting in the wings. Justifying the court's decision, the preliminary results of the shareholder vote indicate a 79% voting rate, with more than 95% of those voting in favor of the merger.
In Re El Paso Corporation Shareholder Litigation, Consol. C. A. No. 6949-CS (Del. Ch. Feb. 29, 2012).