WILMINGTON, Del. - A judge approved a $110 million settlement on Monday between the El Paso Corporation and its shareholders, who sought last year to block the sale of the company's pipeline business to Kinder Morgan for $21.1 billion citing potential conflicts of interest.
In a one-hour hearing before 18 lawyers and a handful of observers, Chancellor Leo E. Strine Jr. of the Delaware Chancery Court also approved using $26 million of the $110 million settlement to pay legal expenses and costs of the shareholders' lawyers.
On Feb. 29, Chancellor Strine declined to block the sale but agreed with shareholders about the conflicts.
Shareholders questioned the involvement of Goldman Sachs, which had advised El Paso and also owned a 19 percent stake in Kinder Morgan. They contended that Goldman's position on both sides of the deal most likely suppressed the price. In addition, the chief executive of El Paso, Douglas L. Foshee, did not tell his directors that he was interested in buying the exploration and production units that Kinder Morgan planned to spin off to help pay for the El Paso sale, the court found.
“When El Paso's C.E.O. was supposed to be getting the maximum price from Kinder Morgan, he actually had an interest in not doing that,†Chancellor Strine wrote at the time.
“This undisclosed conflict of interest,†Judge Strine also noted, “compounded the reality that the board and management of El Paso relied in part on advice given by a financial advisor, Goldman Sachs & Company, which owned 19 percent of Kinder Morgan (a $4 billion investment) and controlled two Kinder Morgan board seats.â€
Judge Strine acknowledged that the plaintiffs could likely prove that the merger was tainted by disloyalty, but he believed it was in the best interest of shareholders to be able to vote the deal up or down. In March, 79 percent of the shareholders voted and 95 percent of those voting approved the deal.
According to the 60-page settlement agreement, El Paso, Goldman and Kinder Morgan denied that they had committed any unlawful or wrongful act and that they had “diligently and scrupulously complied with all of their legal duties and obligations.†But the companies agreed to settle to eliminate the distraction and cost of further litigation.As part of the settlement, Goldman Sachs gave up its $20 million advisory fee.
Shareholders of record from Aug. 30, 2011, to May 25, 2012, are eligible for a share of the settlement. Four shareholder objections were filed against the settlement, and shareholders with claims of $10 or less will not be included in the dis tribution, according to one of the lead shareholder lawyers, Stuart M. Grant.
Mr. Grant said the cost of paying out such small claims would drain money better applied to larger claims.
The settlement is among the five largest in the Chancery Court, which hears many shareholder lawsuits, Mr. Grant said.
