Andrew Ross Sorkin’s latest DealBook column starts with a cordial phone call between Lloyd Blankfein and the CEO of El Paso. Goldman Sachs was advising El Paso, an energy company, about its sale to Kinder Morgan, a pipeline and energy storage company.Cordial is how it starts, but that’s not how the column ends. Sorkin goes on to detail how Goldman Sachs got on every side of the deal so that El Paso would sell below value. It just so happens that the bank has a 19.1 per cent stake in the buyer, Kinder Morgan, and holds two seats on its board.
Now shareholders are suing Goldman for ignoring their interests to line their pockets with the deal (the NYT reports here).
Go figure. Goldman admitted that there was a conflict at some point, but they didn’t bow out of the deal. Instead, they just urged El Paso to bring Morgan Stanley on to advise as well. Not that that helped — check out this portion of the Judge’s decision:
“When a second investment bank was brought in to address Goldman’s economic incentive for a deal with, and on terms that favoured, Kinder Morgan, Goldman continued to intervene and advise El Paso on strategic alternatives, and with its friends in El Paso management, was able to achieve a remarkable feat: giving the new investment bank an incentive to favour the merger by making sure that this bank only got paid if El Paso adopted the strategic option of selling to Kinder Morgan,” Chancellor Leo E. Strine Jr. of Delaware’s Court of Chancery wrote last week…
One Morgan Stanley banker involved in the deal said it was “Goldman at its most shameless.” And as Chancellor Strine pointed out in his decision, the $20 million dollars in fees El Paso would have paid Goldman are chump change compared to the $4 billion stake the bank has in Kinder Morgan.
OK, it all sounds terrible, but as DealBreaker reports, none of El Paso’s shareholders seem to care:
…El Paso said as of Friday it has received votes from 70% of the outstanding shares, with 98.5% of those shares voting in favour of the deal. That tally is not official and could change. Shareholders that had already cast their ballots now have until Friday’s deadline to change their votes. A simple majority is all that is needed for the vote to be approved.
Point is… outrage(!)… right? Wrong. Goldman may be shady, but nobody cares. Sorry, Sorkin.