Document: In re El Paso Corp. S’holder Litig., C.A. No. 6949-CS (Del. Ch. Feb. 29, 2012)
The Delaware Court of Chancery found that plaintiffs were reasonably likely to succeed on the merits of their claims that the CEO of El Paso corporation (“El Paso”) and El Paso’s directors breached their fiduciary duties under Revlon in approving an acquisition of the company by Kinder Morgan, Inc. (“Kinder Morgan”) where El Paso’s two principal negotiators had interests inimical to the interests of El Paso’s stockholders. Specifically, El Paso’s CEO had secretly made a bid to acquire a part of El Paso’s business from Kinder Morgan if Kinder Morgan acquired the entire company as planned. In addition, El Paso’s investment banker, Goldman Sachs, owned 19% of Kinder Morgan. Furthermore, the lead Goldman Sachs banker advising El Paso owned approximately $340,000 in Kinder Morgan stock, a fact which he failed to disclose during negotiations. While Goldman Sachs brought in Morgan Stanley to issue the fairness opinion, if appropriate, Morgan Stanley would not be paid unless it found the transaction to be fair.
The Court found that it was difficult to conclude that the board’s less than aggressive negotiating tactics, failure to conduct a pre-signing market check and agreement to aggressive deal protection measures were not related to the conflicts of El Paso’s key negotiators described above. However, the Court declined plaintiffs’ request for injunctive relief because no alternative bidder had emerged, and El Paso’s stockholders were well-positioned to vote against the merger should they decide that the merger price was inadequate.