I don’t comment very often on the business world, but I thought this Loren Steffy column from Friday about the El Paso/Kinder Morgan deal was noteworthy.
Protesting the El Paso shareholders meeting
Chancellor Leo Strine questioned the role of Goldman Sachs, which advised both El Paso and Kinder Morgan in various aspects of the $21.1 billion deal. Goldman handled Kinder Morgan’s public offering last year, owns a 19 percent stake in the company and has two representatives on its board.
Last week, Strine ruled that the vote should go forward so shareholders can decide for themselves whether the price is fair. But he also decried the conduct of companies involved.
During the negotiations, Kinder Morgan, for example, lowered its offering price for El Paso in September, to $26.87 a share from $27.55, Strine wrote. That should have given El Paso’s board the chance to force Kinder Morgan into a public fight by putting El Paso in play and soliciting bids from other potential suitors. The deal was announced in October.
After all, if Kinder Morgan initially had been willing to pay more, it was a good bet that other companies might also.
Instead, El Paso’s chief executive, Douglas Foshee, and the company’s board accepted the lower price.
“Instead of telling Kinder where to put his drilling equipment, Foshee backed down,” Strine wrote in his ruling.
Yes, that’s the same Goldman Sachs that wrecked the economy in 2008, working and profiting from both sides of the deal. Why El Paso’s shareholders would tolerate this screw job, I couldn’t say. Why this kind of blatant conflict of interest isn’t illegal, I also couldn’t say. Nice work if you can get it, that much I can say.
Not that anyone should feel sorry for El Paso, of course. As a press release from Good Jobs Great Houston noted, “Over the last three years, El Paso Corp and General Electric made $14 billion and got a refund of $4.8 billion in federal subsidies and rebates (2008-2010)”. Even Mitt Romney paid more in taxes than that. They’re far from the only such examples. For plenty more, read this US PIRG/Citizens for Tax Justice report on the highly profitable investment Fortune 500 companies have made in lobbying, which has resulted in a very handsome return for the bottom lines. If you’re not talking about corporate tax reform – and I am perfectly happy to trade a lower base rate for closing the many egregious loopholes – you’re not serious about the country’s long term fiscal health.
Doesn’t Goldman have any sort of ethics policy? How is this not a conflict of interest? How does Foshee and the EP board get away with allowing the conflict?