ECONOMICS

CalSTRS, Florida State Board in rival camps over Kinder Morgan-El Paso deal

CalSTRS and the Florida State Board of Administration are taking opposite sides in voting on the $38 billion proposed acquisition of El Paso Corp. by Kinder Morgan Inc.

The $149 billion California State Teachers' Retirement System, West Sacramento, is voting against the acquisition; the $155.4 billion Florida board, Tallahassee, is voting for it.

CalSTRS “has decided to vote its approximate 2.8 million shares of El Paso stock against the merger,” Anne Sheehan, CalSTRS director of corporate governance, said in a statement. “We have concerns with the lack of transparency and the apparent conflicts of interest that have surrounded the share appraisal process and we believe that shareholders may not receive full value for their shares should this transaction, as currently structured, be consummated.”

“Should the merger proceed as currently structured, CalSTRS will consider all possible options for ensuring recovery of fair value compensation,” Ms. Sheehan said in the statement.

Jacob Williams, FSBA's corporate governance manager, said in a separate statement: “While the conflicts of interest involved in the El Paso sale to Kinder Morgan are extremely troubling, a combination of circumstances led us to believe the net effect of the merger would be positive for our beneficiaries. A failure to complete the merger would presumably have negative consequences for the SBA's holdings in both companies.”

In addition, Mr. Jacobs said, “There does not appear to be an alternative buyer for El Paso at this time, and both companies have appreciated approximately 40% to 50% since the deal was announced or rumored. This appears to reflect a strong potential for the merged entity, which would combine natural gas production and pipeline infrastructure.”

The FSBA owns 2,301,067 El Paso shares.

Institutional Shareholder Services recommends shareholders vote in favor of the transaction, saying in a report it issued: “Although the lack of a meaningful auction process is a cause for concern, given the merger premium and strategic benefits of the deal, on balance support for this transaction is warranted.”

El Paso shareholders are scheduled to vote Friday on the proposal. Kinder Morgan shareholders voted earlier in favor of the deal, said Emily Mir, Kinder Morgan spokeswoman.