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In re Kinder Morgan, Inc.

Court of Chancery of Delaware

November 5, 2014

IN RE KINDER MORGAN, INC. CORPORATE REORGANIZATION LITIGATION

Submitted: October 31, 2014

Elizabeth M. McGeever, Patrick W. Flavin, PRICKETT, JONES & ELLIOTT, P.A., Wilmington, Delaware; Norman Berman, Nathaniel L. Orenstein, BERMAN DEVALERIO, Boston, Massachusetts; Joseph J. Tabacco, Jr., BERMAN DEVALERIO, San Francisco, California; Jay W. Eng, BERMAN DEVALERIO, Palm Beach Gardens, Florida; Attorneys for Plaintiff The Haynes Family Trust.

Peter B. Andrews, Craig J. Springer, ANDREWS & SPRINGER LLC, Wilmington, Delaware; Jason M. Leviton, Steven P. Harte, Joel A. Fleming, BLOCK & LEVITON LLP, Boston, Massachusetts; Attorneys for Plaintiff William Bryce Arendt.

Collins J. Seitz, Jr., Bradley R. Aronstam, S. Michael Sirkin, Nicholas D. Mozal, SEITZ ROSS ARONSTAM & MORITZ LLP, Wilmington, Delaware; Joseph S. Allerhand, Seth Goodchild, Adam J. Bookman, Amanda K. Pooler; WEIL, GOTSHAL & MANGES, New York, New York; Attorneys for Defendants Kinder Morgan, Inc., Kinder Morgan G.P., Inc., El Paso Pipeline GP Company, L.L.C., E Merger Sub LLC, P Merger Sub LLC, Richard D. Kinder, Thomas A. Martin, and Steven J. Kean.

David J. Teklits, Kevin M. Coen, Daniel C. Homer, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; David D. Sterling, Danny David, BAKER BOTTS L.L.P., Houston, Texas; Attorneys for Defendants Ted A. Gardner, Gary L. Hultquist, Perry M. Waughtal, Kinder Morgan Energy Partners, L.P., and Kinder Morgan Management, LLC.

Srinivas M. Raju, Brock E. Czeschin, Sarah A. Clark, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Michael C. Holmes, Elizabeth C. Brandon, VINSON & ELKINS LLP, Dallas, Texas; Attorneys for Defendants El Paso Pipeline Partners, L.P., Ronald L. Kuehn, Jr., Arthur C. Reichstetter, and William A. Smith.

MEMORANDUM OPINION

LASTER, Vice Chancellor.

Defendant Kinder Morgan Energy Partners, L.P. (the "Partnership") has entered into an agreement and plan of merger (the "Merger Agreement") that calls for the Partnership to merge with a wholly owned subsidiary of defendant Kinder Morgan, Inc. ("Parent"), which is the entity that controls the Partnership (the "Merger"). The parties to the Merger Agreement believe that the Merger only needs approval from holders of a majority of the Partnership's three classes of limited partner units, voting together as a single class. The plaintiffs contend that the Partnership's Third Amended and Restated Agreement of Limited Partnership dated as of May 18, 2001, as amended (the "Partnership Agreement" or "PA"), requires that the Merger receive approval from (i) the holders of two-thirds of the Partnership's three classes of limited partner units, voting together as a single class, (ii) the holders of two-thirds of the Partnership's Common Units, one of the three classes of limited partner units, voting as a separate class, and (iii) the holders of 95% of the Partnership's three classes of limited partner units, voting together as a single class, unless the Partnership obtains an opinion from counsel to the effect that the Partnership will continue to be taxed as a pass-through entity after the Merger.

The plaintiffs have sought a preliminary injunction against the closing of the Merger pending a final decision by this court after trial, unless the defendants earlier take action to amend the Merger Agreement to require the limited partner votes that the plaintiffs contend are required. This decision holds that the plaintiffs are not entitled to a preliminary injunction because they do not have a reasonable probability of success on the merits of their voting rights claim. Under the plain language of the Partnership Agreement, the Merger only requires the affirmative vote of holders of a majority of the outstanding limited partner units, voting together as a single class.

I. FACTUAL BACKGROUND

The facts are drawn from the documents submitted to the court in connection with the preliminary injunction application. For purposes of the voting rights claim, the facts are undisputed.

A. The Partnership

The Partnership is a publicly traded Delaware limited partnership. The Partnership's general partner interest is owned by defendant Kinder Morgan G.P., Inc. (the "General Partner"). The General Partner is a wholly owned subsidiary of Parent. Parent's shares of common stock trade on the New York Stock Exchange under the symbol "KMI."

The General Partner controls Kinder Morgan Management, LLC (the "GP Delegate"), to whom it has delegated authority to manage the Partnership. The GP Delegate has issued two classes of member interests: voting member interests, all of which are owned by the General Partner, and non-voting member interests, which trade publicly on the New York Stock Exchange under the symbol "KMR."

The Partnership's limited partner interest is divided into three classes of units: Common Units, Class B Units, and I-Units. As of August 7, 2014, the Partnership had issued and outstanding 325, 113, 505 Common Units, 5, 313, 400 Class B Units, and 131, 281, 766 I-Units (collectively, the "Outstanding Units"). Generally speaking, all of the Outstanding Units have voting rights and vote together as a single class, subject to specific provisions in the Partnership Agreement that establish supermajority voting requirements and class voting requirements for particular matters.

The Partnership's Common Units trade on the New York Stock Exchange under the symbol "KMP." Parent owns all of the Class B Units. GP Delegate owns all of the I-Units. Through its control over the General Partner and the GP Delegate, Parent controls the Partnership and owns 100% of its general partner interest. Through Parent's direct or indirect ownership of all of the Class B Units, all of the I-Units, and 6.8% of the Common Units, Parent owns 37% of the Partnership's limited partner interest.

B. The Merger

As the previous section outlines, Parent, GP Delegate, and the Partnership are part of a complex entity structure with three levels of public ownership. Parent also controls El Paso Pipelines Products, L.P. ("El Paso"), another publicly traded Delaware limited partnership, which adds a fourth form of public ownership. On July 17, 2014, Parent proposed to simplify its structure by acquiring all of the publicly traded interests in the Partnership, the GP Delegate, and El Paso through a series of mergers. Parent would emerge as the only publicly traded entity with the other entities continuing as its wholly owned subsidiaries. Parent and its publicly traded subsidiaries eventually entered into two merger agreements, one governing the Partnership side of the structure and another governing the El Paso side. Each transaction is cross-conditioned on the other. The current application focuses on the Merger Agreement.

In the Merger, the Partnership will merge with P Merger Sub, LLC, a Delaware limited liability company, in a reverse triangular merger that will leave the Partnership as the surviving entity. Each publicly held Common Unit will be converted into the right to receive, at the election of the holder, (i) $91.72 in cash (the "Cash Consideration"), (ii) 2.4849 shares of Parent common stock (the "Stock Consideration"), or (iii) 2.1931 shares of Parent common stock and $10.77 in cash (the "Mixed Consideration"). The Partnership Agreement will not be amended in the ...


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