## Facts

- El Paso Corporation’s board considered strategic alternatives, including completing a spin-off of its exploration and production (E&P) business, selling the entire company, or selling the company in parts.
- El Paso agreed to sell the company to Kinder Morgan, Inc. in a merger that included a no-solicitation covenant and a $650 million termination fee if El Paso accepted a superior proposal.
- CEO Douglas Foshee took primary responsibility for negotiating the sale but did not disclose to the board his interest in participating in a management-led bid for the E&P business.
- Goldman, Sachs & Co. served as El Paso’s principal financial advisor while owning approximately 19% of Kinder Morgan and controlling two Kinder Morgan board seats; the lead banker also held Kinder Morgan stock personally.
- El Paso retained Morgan Stanley as a purportedly independent advisor, but its compensation was largely contingent on closing the Kinder Morgan transaction.
- Stockholder plaintiffs filed class claims alleging fiduciary breaches by El Paso’s directors and officers and aiding-and-abetting by Kinder Morgan and the bankers, and sought to enjoin the stockholder vote on the merger.

## Issues

1. Whether plaintiffs showed a reasonable likelihood of success that the board and fiduciaries breached duties in a sale-of-control process, given management and advisor conflicts and alleged process deficiencies.
2. Whether allowing the stockholder vote and deal to proceed would cause irreparable harm warranting injunctive relief.
3. Whether the balance of equities supported enjoining the transaction in the absence of a pending superior bid.

## Decision

- The Court of Chancery found plaintiffs demonstrated a reasonable likelihood of success in proving that the merger process was tainted by disloyalty.
- The court nevertheless denied a preliminary injunction to stop the stockholder vote and transaction.
- The court emphasized the absence of a live topping bid and concluded equities favored permitting stockholders to decide whether to accept the deal.
- The court indicated that, if breaches were later proven, post-closing monetary relief remained available.

## Legal Principles

- In a sale of control, directors’ conduct is reviewed under enhanced scrutiny and must be reasonably designed to secure the best value reasonably attainable for stockholders.
- Undisclosed conflicts by senior management participating in deal negotiations can undermine the integrity of the process and support a finding of likely disloyalty.
- Boards must actively manage investment banker conflicts; retaining a second advisor does not mitigate conflicts if the substitute advisor’s compensation is materially contingent on closing the challenged deal.
- Preliminary injunctive relief may be denied despite a strong merits showing when the balance of equities disfavors blocking a transaction, particularly where no superior bid exists and stockholders can reject the deal, leaving damages as a possible remedy.

## Conclusion

The court criticized a conflicted sale process involving management and financial-advisor conflicts and found a reasonable likelihood of fiduciary breaches, but declined to enjoin the merger because the equities favored allowing stockholders to vote in the absence of a competing bid, with damages as the potential post-closing remedy.


In re El Paso Corp. S'holder Litig., 41 A.3d 432 (Del. Ch. 2012)