HOUSTON – A Delaware state judge said Wednesday investors in Kinder Morgan don’t have a case for stopping a shareholder vote this month on the pipeline giant’s $44 billion deal to fuse all of its companies together.
Investors filed a class action suit against Kinder Morgan claiming the deal would have big tax consequences for them after years of holding securities in the company’s main pipeline-operating partnership. Taxes on those securities, called units, are deferred until an investor’s death or until they are sold, but Kinder Morgan’s transaction would trigger the delayed taxes.
The plaintiffs asked sought a court order temporarily stopping the deal.
The judge ruled, however, that “they do not have a reasonable probability of success” in pressing their claim that a special vote on the deal scheduled for later this month violates shareholder voting rights.
The judge’s order means Kinder Morgan investors will vote on the deal Nov. 20, but it doesn’t stop the litigation. The judge didn’t dismiss the case or make any rulings on its core claims.
“We’re gratified by the court’s decision and look forward to the special meeting and the vote, and we anticipate closing the deal by Thanksgiving,” said Larry Pierce, a spokesman for Kinder Morgan.
Attorneys for the plaintiffs were could not be reached for comment Wednesday.
Kinder Morgan in August announced it would bring its separate units together to create a pipeline and storage terminal operator worth more than $100 billion on the stock market.
The deal, one of the biggest energy transactions in U.S. history, would eliminate large payments that its subordinate partnerships now pay to the parent company, which consumed much of the capital the company says it needs to grow.
“If we put all these together, we can reduce that cost of capital and we can grow faster, and provide a simpler story to our investors,” Kinder had said in an interview with Fuelfix in August. “We’ve got a lot of fertile ground to plow.”
Investors claimed in the lawsuit that unit holders in Kinder Morgan Energy Partners, the main pipeline partnership, would effectively see a 4 percent loss, or negative premium, on the deal after taxes. That firm is a master limited partnership, a corporate structure required to pay investors all of the income it doesn’t need for operations. Quarterly distributions are tax-deferred.
Later, the plaintiffs asked for a preliminary injunction on the vote this month, arguing the deal required higher voting thresholds because it would convert the units into cash or stock. They also said it was unfair because the merger will trigger taxes.
Delaware State Judge J. Travis Laster reasoned the deal only requires the votes of a majority of the partnership units, and not the higher standards the plaintiffs claimed were required. He said the plaintiffs owned a combined 26,000 units worth $2.4 million on Wednesday.
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