* Judge rejects El Paso shareholders’ move to block deal
* But judge cites ‘disturbing behavior’ that led to terms
* $21 bln acquisition expected to close in second quarter
* Deal awaits El Paso shareholder vote on March 6 (Rewrites, adds revised statement by El Paso)
By Basil Katz
Feb 29 (Reuters) - Kinder Morgan Inc cleared a legal hurdle in its $21 billion acquisition of El Paso Corp , combining the two largest natural gas pipeline operators in North America, after a Delaware judge refused to block the sale.
But the judge admonished some of the participants in the deal, which included Goldman Sachs Group Inc, whom disgruntled El Paso shareholders accused of a conflict of interest that they said resulted in undervaluing El Paso’s shares.
“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 acquisition 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.
Shareholders had sued to stop the Kinder-El Paso deal, arguing that Goldman Sachs Group, El Paso’s adviser, 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 that 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.
Goldman and the companies said they were pleased with the judge’s decision to let the acquisition proceed, although some took issue with his critical comments.
“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.”
El Paso spokeswoman Gretchen Krueger said in a statement the company believed the court made the right decision.
“El Paso respectfully disagrees, however, with certain of the preliminary findings contained in the court’s opinion, and expects to have the opportunity to more fully respond to those findings in future proceedings,” he said.
Kinder spokesman Larry Pierce said: “We’re gratified that the judge denied the injunction and that we can proceed with the vote of the shareholders.”
Judge Strine said the plaintiffs were free to pursue damages later but that since they were not able to prove irreparable injury in the case, a damages award was not in play at this time. (Editing by Phil Berlowitz and Edmund Klamann)