El Paso shareholders sue Goldman over Kinder deal

(Reuters) - Goldman Sachs Group (GS.N: Quote, Profile, Research, Stock Buzz) was sued by shareholders of El Paso Corp (EP.N: Quote, Profile, Research, Stock Buzz) for advising the company's board to abandon a spin-off and instead sell itself cheaply to Kinder Morgan Inc (KMI.N: Quote, Profile, Research, Stock Buzz), a deal that benefited Goldman Sachs.

Kinder Morgan reached a deal this week to buy El Paso for $21 billion in cash, stock and warrants, combining the two largest natural gas operators in North America.

While El Paso shareholders received a 37 percent premium to its market close prior to the deal, numerous shareholders have sued over the inclusion of warrants to pay for the deal and what they consider a low valuation, among other issues.

Goldman Sachs was sued in Delaware's Chancery Court for its conflict of advising the board to accept a "low-premium" deal with Kinder Morgan, in which Goldman Sachs owns nearly 20 percent.

As part of the Kinder Morgan deal, El Paso also abandoned a previously announced a plan to spin off its exploration and production business to shareholders.

"Goldman Sachs earned larger advisory fees than if El Paso had consummated the spin-off, and Goldman Sachs stands to see its 20 percent investment in Kinder Morgan increase in value," said the complaint.

Goldman Sachs declined to comment.

The lawsuit by a retirement fund for Louisiana police also names as defendants Kinder Morgan and the board of El Paso and seeks an injunction to block the closing of the deal. The two companies have said they expected it to close early next year.

The lawsuit seeks class action status.

A spokesman for El Paso said the lawsuit had no merit. Kinder Morgan declined to comment.

The case is Louisiana Municipal Police Employees' Retirement System v Juan Carlos Braniff et al, Delaware Chancery Court, No. 6960.

(Reporting by Tom Hals; Editing by Gary Hill)