By Mark Curriden, JD
Senior Writer for The Texas Lawbook
Last August, Tom Roberts was vacationing on Kiawah Island in South Carolina when his cell phone buzzed. Kinder Morgan (KMI) General Counsel Joe Listengart and Roberts’ law partner partner, Jay Tabor, were on the line.
The Houston-based midstream energy company wanted to buy a cross-town competitor, El Paso Corporation. But there were enormous obstacles, including the fact that El Paso wasn’t actually for sale.
Within hours, Roberts, a corporate law partner at Weil, Gotshal & Manges, was stepping off a plane back in Houston.
“We faced incredible challenges regarding the deal structure, pricing, break-up arrangements, and the fact that El Paso was in the process of trying to sell off a bunch of its assets,” said Roberts, who offices in Dallas and New York and is the lead corporate law partner representing American Airlines in its ongoing bankruptcy efforts.
Six months and more than 16,000 billable hours later, Roberts and his Dallas-based legal team watched Thursday morning as numerous wire transfers transmitting billions of dollars in cash were sent and received.
At 10:30 a.m. Thursday, Kinder Morgan officially closed its $23 billion purchase of El Paso Corp., making it the largest midstream oil and gas company and the fourth largest energy corporation in North America.
Energy law experts say that the Kinder Morgan – El Paso deal is one the largest and most complex energy deals in U.S. history. The lawyers say that the legal obstacles involved in this transaction are on level with KKR and TPG Capital’s $45 billion leveraged buyout of TXU Energy in 2007 and even more difficult than Exxon’s 1998 merger with Mobil valued at $80 billion.
“This has been an extremely complicated transaction and it is very satisfying to have it closing,” said Roberts, a corporate partner for Weil, Gotshal & Manges.
Listengart, Kinder Morgan’s general counsel, said Thursday evening that this “was as complicated a closing as I have ever been involved in.”
“The negotiating process (with El Paso) early on was rough and the SEC process wasn’t easy,” said Listengart, who spoke to The Texas Lawbook at the closing party in New York Thursday evening. “We closed three separate deals today and the dominos had to fall in a certain way and in a specific order. Tom, Jay and their team executed brilliantly.”
As a hint at the complexity of the Kinder Morgan – El Paso pact, Roberts and his team separately engineered a $7.15 billion sale of El Paso’s exploration and production assets to Apollo Global Management and Riverstone Holdings – a deal which closed only minutes before the Kinder Morgan transaction was finalized.
“The E&P sale had to close before the bigger deal could close,” says Rodney Moore, a Weil Gotshal partner whose practice focuses on private equity and energy transactions.
Moore points out that the $7.15 billion El Paso – Apollo deal is, on its own, one of the largest global energy acquisitions announced in 2012.
More than 50 Texas lawyers from a half-dozen different law firms, including Bracewell & Giuliani, Vinson & Elkins, Locke, Lord, Akin Gump, and the Houston office of Latham & Watkins, played significant roles in the transactions.
No one disputes that Roberts and Jay Tabor, a Dallas corporate partner at Weil, engineered the deal. And it took some serious navigating from the start, especially because El Paso officials were not interested in selling.
“One of the first questions we had to decide was whether we go hostile or threaten to go hostile,” says Roberts. “We sent a letter to El Paso in September saying that we would go public with our offer if they didn’t agree to negotiate.”
El Paso officials agreed to negotiate.
Tabor, who has worked with Kinder Morgan officials for several years, said they structured the acquisition agreement to be “three separate mergers, because we were worried about triggering debt documents.”
Roberts said the three separate deals were required to “minimize the consents we needed from lenders. We needed to make sure that all the debt didn’t come due at once.”
The method of structuring saved KMI more than $4 billion, Tabor says.
To convince El Paso officials that Kinder Morgan was serious and would not back away from its acquisition efforts, Weil lawyers got creative.
“El Paso wanted deal certainty, so we agreed to do whatever it would take on the antitrust front, even if it meant selling off assets,” says Roberts.
To obtain FTC approval, KMI agreed to sell all or portions of its interests in various pipeline assets across the country, including those in the Rocky Mountains.
But the “most unusual part of the agreement,” according to Tabor, was the extremely liberal language regarding the break-up arrangements. Normally, these kind of huge deals have set break-up fees to help limit the potential acquirer’s liability. Kinder Morgan agreed to insert no such limits, meaning it would be vulnerable to huge damages if the deal fell apart.
“This was a gut check by KM saying, ‘we are all in,” says Tabor. “That’s when the El Paso board realized we had given them certainty.”
PLEASE NOTE: Content of The Texas Lawbook is controlled and protected by specific licensing agreements with our subscribers and under federal copyright laws. Any distribution of this content without the consent of The Texas Lawbook is prohibited.