Chimicles & Tikellis LLP is Co-Lead Counsel representing former stockholders of Kinder Morgan, Inc. (KMI) in an action challenging the acquisition of Kinder Morgan by a buyout group lead by KMI’s largest stockholder and Chairman, Richard Kinder. The KMI Buyout is one of the largest management-led buyouts in corporate history. On September 8, 2010, the District Court for Shawnee County entered an order preliminarily approving a proposed settlement of the litigation. The proposed settlement includes, among other things, a settlement fund in the amount of $200 million.
By way of background, Richard Kinder’s group announced a $100 per share merger proposal on May 28, 2006. Chimicles & Tikellis LLP filed Petitions in the District Court of Shawnee County, Kansas (Kinder Morgan’s state of incorporation) on June 9, 2006 seeking to require that the Kinder Morgan board of directors fulfill its fiduciary duties and obligations to the Company’s public shareholders in the face of the “going-private” takeover proposal.
On August 28, 2006, KMI announced that it had agreed with the Buyout Group to be acquired in a going private transaction for $107.50 per share. Plaintiffs filed their Consolidated and Amended Class Action Petition on August 28, 2006 and on October 2, 2006, Plaintiffs filed their Second Consolidated and Amended Class Action Petitions. Both Amended Petitions allege that the value of KMI’s shares is materially in excess of the $107.50 agreed to in connection with the Buyout, that the consideration is inadequate and represents an attempt by the Buyout Group to wield its control to force out the public shareholders in order to reward itself with the profits rightfully belonging to the Plaintiffs and KMI’s public shareholders, and that the proposed offer was timed to take advantage of a slump in the share price of KMI that immediately preceded the initial Buyout offer.
The case was then assigned to former Delaware Supreme Court Justice Joseph T. Walsh as Special Master and expedited discovery commenced. During the course of extensive document and deposition discovery, Plaintiffs filed their Third Consolidated and Amended Class Action Petition under seal of confidentiality on November 21, 2006. Plaintiffs sought a preliminary injunction to halt the Buyout. Although no injunction was issued, the Special Master noted that the Buyout process was flawed from the date that Kinder and other members of the management and Goldman Sachs Investment Banking made plans to take KMI private. Discovery is ongoing.
On January 25, 2008, Plaintiffs filed a Motion for Class Certification. On January 9, 2009 the Special Master submitted his Report and Recommendation to certify this Action as a Class Action. On February 20, 2009, the District Court of Shawnee County Kansas entered an order certifying a Plaintiff class consisting of:
- All holders of Kinder Morgan, Inc. common stock, during the period August 28, 2006 through May 30, 2007 and their transferees, successors and assigns. Excluded from the Class are Defendants, members of their immediate families or trusts for the benefit of Defendants or their immediate family members, and any majority-owned affiliates of any Defendant.
On February 20, 2009, the Parties retained the Honorable William J. Cahill (ret.) (the “Mediator”) to mediate a resolution of this Action. Prior to this time, the Parties had on several occasions engaged in extensive arms’-length negotiations with a view to settling the litigation, which efforts were unsuccessful. A formal mediation session was held in Denver, Colorado on March 31, 2009. Although an agreement was not reached at the session, the Parties agreed to remain open to resuming the mediation efforts at a later time. Thereafter, the Mediator monitored the litigation and from time to time engaged in discussions with certain counsel for the Parties.
On July 16, 2010, Defendants filed five separate motions for summary judgment and memoranda in support of those motions. Specifically, motions for summary judgment were filed by: (a) the Officer Defendants (i.e., Richard Kinder, C. Park Shaper, David Kinder, Kimberly Dang, Joseph Listengart, Steven Kean, and James Street); (b) Fayez Sarofim and Michael Morgan; (c) William Morgan and Knight Holdco; (d) The Goldman Sachs Group, Inc., GS Global Infrastructure Partners I, L.P., GS Capital Partners V Institutional, L.P., and GS Capital Partners V Fund, L.P.; and (e) Carlyle Partners IV, L.P., Carlyle/Riverstone Global Energy and Power Fund III, AIG Knight LLC, and AIG Financial Products Corp. Defendants relied on, among other things, the Special Master’s report recommending the denial of the preliminary injunction and contended that the business judgment rule was applicable. Certain of the Non-Management Buyout Group Defendants also moved for summary judgment on jurisdictional grounds.
During August 2010, the Mediator contacted the Parties and discussed various methods and means for the resolution of the Action. Given the pendency of Defendants’ Motions for Summary Judgment, the Mediator believed an opportunity existed at that juncture to discuss resolution. After consulting with counsel for the Parties, the Mediator submitted to the Parties a proposal to settle the Action for $200,000,000 (the “Proposal”). The Mediator explained that in his opinion the timing for such a proposal was optimal; that the Proposal, if accepted, would be for an amount that provided a significant benefit for the Class; and that he believed that the Parties would not be able to come to a resolution on better terms at some later point. The Mediator further noted that, in his view, the risks associated with Defendants’ Summary Judgment Motions were substantial and that Justice Walsh’s view regarding the business judgment rule could easily be adopted by the Court, resulting in potentially zero recovery for the Class.
On August 12, 2010, Defendants and Geiger, on behalf of himself and the Class and Class counsel formally accepted the Mediator’s proposal and agreed to present the proposed Settlement to the Court for its approval. The Court was informed on August 25, 2010 that there was a resolution of the Action that would be presented to it for its review and approval. On September 7, 2010, the parties executed a settlement agreement that contemplates a payment of $200 million in exchange for final resolution of the Action. On November 12, 2010, the Court held a hearing on the fairness of the settlement and on November 19, 2010 issued its Opinion and Journal Entry granting final approval of the settlement.
Copies of the Petitions, as filed, and Court Orders are linked below.