Скачать или смотреть In re El Paso Corp. Shareholder LitigationCase Brief Summary | Law Case Explained

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In re El Paso Corp. Shareholder Litigation | 41 A.3d 432 (2012)

Corporate fiduciaries owe their company a duty of loyalty. This duty imposes an obligation to act solely in the interest of their company. In the case In re El Paso Corporation Shareholder Litigation, a Delaware court explored the consequences of self-dealing and failure to avoid conflicts of interest.

El Paso Corporation was an energy company comprising two business segments—a pipeline business and an exploration and production business. El Paso announced plans to spin off its exploration and production segment. After the announcement, competitor Kinder Morgan, Incorporated, sought to buy El Paso. However, there were several red flags throughout the merger process.

Doug Foshee, chief executive officer of El Paso, was solely responsible for negotiating the sale. To finance the purchase, Kinder intended to keep El Paso’s pipeline business and sell off the exploration and production segment. Foshee was interested in purchasing that portion of El Paso’s business back from Kinder. However, Foshee didn’t disclose this interest to El Paso’s board of directors.

Goldman, Sachs and Company acted as El Paso’s financial advisor for the transaction. Goldman owned about four billion dollars of Kinder stock and controlled two seats on Kinder’s board. And Goldman’s lead banker on the deal personally owned over three hundred thousand dollars of Kinder stock. El Paso knew of Goldman’s conflict and hired another investment bank, Morgan Stanley, in an effort to avoid these conflicts. However, Goldman continued to advise El Paso on the merger and played a key role in ensuring that Morgan Stanley’s advising fee was paid only if El Paso sold to Kinder.

During bid negotiations, El Paso didn’t seek any other bids. El Paso’s board also allowed Kinder to back out of an agreement to pay a higher price and later agreed to a deal at a lower price. Under the parties’ merger agreement, El Paso couldn’t solicit higher bids and was required to pay a six-hundred-fifty-million-dollar termination fee if El Paso accepted a superior proposal.

El Paso stockholders brought an action in the Delaware Court of Chancery seeking a preliminary injunction to enjoin the merger, arguing that El Paso’s board and Goldman breached their fiduciary duties.

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