NEW YORK (
) -- Wall Street's dark side can be seen in the largest merger of 2011 after a judge said negotiations were muddied by "conflicts of interest," "disturbing behavior" and "disloyalty."
Delaware Chancery Court Judge Leo Strine decided not to block a $21.1 billion acquisition of
(KMI - Get Report)
in spite of findings that El Paso management and its banker,
(GS - Get Report)
, led a sale process rife with conflicts and poor disclosure, according to a court statement released late on Wednesday.
The tie-up was cut in October 2011, valuing El Paso shares at a 37% premium, or roughly $26.87 a share. The company sale was a change in direction for El Paso after it previously announced a spin of its oil and gas exploration unit, hiring Goldman Sachs to conduct a sale process. In February, a private equity investor consortium bought the exploration unit for $7.15 billion, in the biggest U.S. deal of 2012.
Shortly after the October sale was announced, a group of pension fund investors in El Paso sued the company on the sale process. Their contention was that El Paso's financial adviser Goldman Sachs had an economic interest to not fetch the highest price possible, an obvious sin in the M&A game.
Through its private equity arm, Goldman Sachs has a 19% stake in Kinder Morgan, holding two board seats.
Judge Leo Strine agreed with shareholders, finding added perverse incentives in the sale. "Although Goldman's conflict was known, inadequate efforts to cabin its role were made," said Strine in a Delaware court. While Strine decided not to block the sale, he added that the deal had additional problems. "The record is filled with debatable negotiating and tactical choices made by El Paso fiduciaries and advisors," said Strine.