Wednesday, March 7, 2012
The El Paso transaction is getting uglier. Now that the vote has been delayed for a couple of days and Goldman has been publicly dragged out for criticism in dealing with the conflicts of interest, the focus has turned to the lawyers.
On that count, according to the WSJ, El Paso's lawyers say, don't look at us! We told El Paso to dump Goldman and they didn't listen to us:
Energy company El Paso Corp.'s decision to maintain Goldman Sachs Group Inc. as an adviser last year amid deal negotiations was made over the objections of El Paso's legal counsel, Wachtell, Lipton, Rosen & Katz, people familiar with the matter said.
Wachtell urged El Paso not to retain Goldman because, among other things, the bank had a 19% stake in Kinder Morgan Inc.
El Paso raises a legitimate question about the role of legal counsel in managing risks and conflicts in these kinds of transactions. Of course, it's ultimately up to the client which risks it wants and is willing to bear. It may well be that legal counsel is limited to simply raising issues. But, one lesson of El Paso might also be that legal counsel need to be more assertive in pointing out and managing investment banker conflicts when those conflicts generate risks for their corporate clients. With respect to El Paso, one might well think that El Paso's legal counsel should have been more aggressive in ensuring that when El Paso brought in a second investment bank to cleanse the Goldman conflict that the terms of that engagement created more freedom for the second banker to reject the preferred Goldman transaction and propose an alternative.
Conflicts will forever be with us, but we need to be better about dealing with them. Nothing new there, I suppose.
BTW: Steven Davidoff at The Deal Prof has a very good post on the problem of CEO narcissism. It's a real risk and one that legal counsel need to keep in mind. Just another headache for legal counsel...a client who believes they are morally entitled...