STOCK MARKET WATCH -- Wednesday, 7 March 2012

[Demeter]

25. As an Adviser, Goldman Guaranteed Its Payday

http://dealbook.nytimes.com/2012/03/05/advising-deal-goldman-sachs-had-all-angles-for-a-payday/?ref=business

...Goldman had a 19.1 percent stake in Kinder Morgan, the pipeline and energy storage company, and two seats on its board...About a month later, Kinder Morgan announced it had agreed to acquire El Paso for $21.1 billion in cash and stock.

When the deal was announced, buried at the end of the news release was a list of Wall Street banks that had advised on the deal, including Goldman Sachs. Goldman received a $20 million fee for playing matchmaker for El Paso. The fee, of course, was not disclosed, nor was the Kinder Morgan stake owned by Goldman Sachs’s private equity arm, worth some $4 billion. Nor did the release disclose that the Goldman banker who advised El Paso to accept Kinder Morgan’s bid owned $340,000 worth of Kinder Morgan stock.

Now, however, a court ruling in a shareholder lawsuit has laid bare the truth: Goldman was on every conceivable side of the deal. As a result, El Paso may have unwittingly sold itself far too cheaply. Mr. Blankfein may have said he was “very sensitive to the appearance of conflict,” but the judge’s order ruling “reluctantly” against a motion to block the merger made it clear that Goldman’s conflicts went far beyond mere appearances....Goldman’s brazenness in this deal is nothing short of breathtaking. It is just another example of why Goldman’s reputation has been dented as questions have circled about the firm’s loyalty to its clients over itself. Other firms have conflicts, but rarely do you hear about them being so incestuous. A Morgan Stanley banker involved in the deal wrote in an e-mail at the time: “This is GS at its most shameless.”

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