(Reuters) - Kinder Morgan Inc (KMI.N) can proceed with its $21 billion acquisition of El Paso Corp EP.N to combine the two largest natural gas pipeline operators in North America after a Delaware judge refused to block the deal.
"I reluctantly deny the plaintiffs' motion for a preliminary injunction," Delaware Chancery Court Judge Leo Strine wrote on Wednesday. "El Paso stockholders should not be deprived of the chance to decide for themselves about the merger, despite the disturbing nature of some of the behavior leading to its terms."
The deal is expected to close in the second quarter, the companies have said. El Paso shareholders are scheduled to vote on the proposed deal on March 6.
Kinder Morgan has already reached an agreement to sell El Paso's exploration and production assets for $7.15 billion to a private consortium led by Apollo Global Management LLC (APO.N).
Shareholders had sued to stop the Kinder, El Paso deal which they said was riddled with conflicts that undervalued El Paso stock.
They argued that El Paso's advisor, Goldman Sachs Group Inc (GS.N), and El Paso Chief Executive Douglas Foshee, both had interests in holding down the price for El Paso shares.
Goldman Sachs owns 19.1 percent of Kinder Morgan and the shareholders said that for every dollar shaved off the acquisition price of El Paso's shares, Goldman Sachs' private equity business saved $150 million.
Goldman argued it managed the appearance of conflicts by having its directors recuse themselves from Kinder Morgan board meetings addressing the deal. It also brought in Morgan Stanley to advise El Paso's board once Kinder Morgan made its bid.
A spokesman for Goldman Sachs said the bank was pleased shareholders would get to vote on the merger but said the bank had been transparent about its role.
"We respect the judge's opinion but want to be clear that we stood by our client through this process, encouraging them to get independent views from another adviser," Goldman spokesman David Wells said in a statement. "We were also transparent with El Paso about our relationship with Kinder Morgan and the related issues."
Kinder and El Paso both cheered the opinion.
"We're pleased with the judge's decision and look forward to the close of the transaction with Kinder Morgan, Inc.," El Paso spokeswoman Gretchen Krueger said in a statement.
"We're gratified that the judge denied the injunction and that we can proceed with the vote of the shareholders," said Larry Pierce, a Kinder spokesman.
Judge Strine, while noting the "disturbing behavior" that led to the final terms of the transaction, also said any damages award to the plaintiffs would likely not be adequate.
Reporting By Basil Katz; Editing by Phil Berlowitz and Carol Bishopric