In Re El Paso Corporation Shareholder Litigation
2012 Del. Ch. LEXIS 46
| Del. Ch. | 2012Background
- El Paso Corporation sought a preliminary injunction to stop a merger with Kinder Morgan, Inc.
- El Paso CEO negotiated the sale largely without board disclosure of his competing interest in E&P assets and worked with Kinder Morgan to shape terms favorable to the pipeline unit sale.
- Goldman Sachs, owning 19% of Kinder Morgan and with board representation, advised El Paso, but its conflict was not fully insulated; a second banker Morgan Stanley was later engaged.
- The Merger Agreement included a no-shop with a fiduciary out and a $650 million termination fee, complicating a market check for superior proposals.
- Foshee, El Paso's CEO, secretly discussed a potential management buyout of the E&P assets, a self-interest not disclosed to the board.
- Plaintiffs argued the process was tainted by conflicts and self-dealing, challenging whether the directors pursued the best price for stockholders.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Merger was tainted by fiduciary conflict | Pls argue taint from Foshee and Goldman. | Defendants contend board acted reasonably and conflicts were cabined. | Yes, likelihood of fiduciary taint shown |
| Whether irreparable harm justifies an injunction | Irreparable harm due to potential loss from tainted process. | Damages would be possible; no obvious irreparable injury at stake. | Irreparable injury shown if Merger not enjoined |
| Whether the balance of equities favors or disfavors an injunction | Stockholders should be enjoined to preserve value until resolved. | No rival bid exists; injunction would deny stockholders their choice. | Balance weighs against injunction |
| Whether Revlon duties were violated and market checks warranted | Failure to test market and protect stockholders from self-interested actors breached Revlon. | Board's decisions were reasonable; no compelled market check given facts. | Probable Revlon concerns; but insufficient basis for injunction at this stage |
Key Cases Cited
- Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986) (requires directors to obtain the best value reasonably attainable in a sale of control)
- Toys 'R' Us, Inc. S'holder Litig., 877 A.2d 975 (Del.Ch. 2005) (deference to board decisions in change-of-control context; cautions on mandatory relief)
- Paramount Commc'ns Inc. v. QVC Network Inc., 637 A.2d 34 (Del. 1994) (describes enhanced scrutiny for fiduciaries in change-of-control transactions)
- In re Netsmart Techs., Inc. S'holders Litig., 924 A.2d 171 (Del.Ch. 2007) (market canvassing and fiduciary duties in evaluating bids)