In Re El Paso Corp. Shareholder Litigation

41 A.3d 432 (2012)

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Nature of the Case

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Facts

P seeks to enjoin a vote on a proposed Merger with Kinder Morgan that offers El Paso a combination of cash, stock, and warrants now valued at $30.37 per share, or a 47.8% premium over El Paso's stock price thirty days before Kinder Morgan made its first bid. The Merger resulted from a non-public overture that Kinder Morgan made in the wake of El Paso's public announcement that it would spin off its E&P business. Kinder Morgan offered El Paso $25.50 per share in cash and stock. The Board entered into negotiations with Kinder Morgan. The Board looked to its longtime advisor Goldman Sachs (which as noted owns 19% of Kinder Morgan, fills two seats on the Kinder Morgan board under a voting agreement with Kinder Morgan's CEO and controlling stockholder, Rich Kinder, and is part of the control group which collectively holds 78.4% of the voting power of Kinder Morgan stock) and a new advisor, Morgan Stanley & Co., LLC. El Paso asked Kinder Morgan for a bid of $28 per share in cash and stock, deploying the company's CEO, Doug Foshee, as its sole negotiator. Foshee reached an agreement in principle with Rich Kinder two days later on a deal at $27.55 per share in cash and stock, subject to due diligence by Kinder Morgan. Kinder then claimed it made a mistake. It nulled the bid. El Paso ended up taking a package that was valued at $26.87 as of signing on October 16, 2011, comprised of $25.91 in cash and stock, and a warrant with a strike price of $40 - some $13 above Kinder Morgan's then-current stock price of $26.89 per share. The deal was at a substantial premium to market, and the Board approved the Merger. On October 16, 2011, the parties entered into the 'Merger Agreement.' The Merger Agreement contains a commitment from El Paso to assist Kinder Morgan in the sale of the E&P business, which Kinder Morgan hoped could be accomplished before the closing of the Merger. Since the signing of the Merger Agreement, the price of Kinder Morgan's shares has risen, increasing the value of the Merger consideration. Ps contend that the Merger is tainted by the selfish motivations of both Doug Foshee and Goldman Sachs. Foshee was found to be totally disloyal to El Paso negotiating with Kinder to buy the E&P business for himself as part of the deal. (Nothing need to be said about the integrity of Goldman Sachs).