ADAM Houston Energy Network recently awarded Doug Foshee, the former chief executive of El Paso Corp., its annual “Dealmaker of the Year” award for his ability to turn around a deeply troubled and indebted company, transform it and sell it to Kinder Morgan Inc. last year.

The deal was by far one of the biggest in the world last year, forging the largest two pipeline companies in the U.S. into a single entity as it spun off El Paso’s upstream division.

El Paso was a mess when Foshee took over as chief executive in 2003. The incumbent management had narrowly won a bitter proxy battle for control of the company as angry shareholders tried to toss them out. Foshee took over the helm in the aftermath of that fight — and many shareholders and company employees were still unhappy and not shy about voicing their concerns. About 40% of employee shareholders had voted against the incumbent management.

“If you have to hold your shareholders meeting at the George R. Brown convention center, it’s not because 5,000 people are coming to tell you that ‘you are doing a great job’,” he said.

Second to Enron Corp., El Paso was the biggest poster child for corporate excesses of the late 1990s. By 2003, when Foshee took control, the company had a presence in 35 countries and more than 20 industries. It was awash in debt, with more debt than ExxonMobil Corp. (NYSE: XOM) and Royal Dutch Shell Ltd. (NYSE: RDS-A) combined, he said.

Ten of its traders had been indicted (three would ultimately serve time in prison) and the U.S. Department of Justice was chasing the new management for information that could lead to the indictment of the company as a whole. A senior level employee committed suicide and the rest were busy responding to demands for documents, Foshee said. “We would get a request for 3,000 documents at 8 a.m. from the U.S. Attorney Office, who said the deadline was noon. At 12:05 p.m., we got an email stating the company was not in compliance and subject to indictment,” he said. “We lived like this for two years.”

As the management struggled with the extensive legal investigations, they ultimately ended up sending 1.5 million documents over a two-year period. In addition, the company spent about $1 million per week in outside legal fees.

Even as Foshee worked with corporate and outside lawyers, he struggled to get a clear strategic focus for the company. At the time Foshee assumed control, it was hard to determine if El Paso Corp. had an operational focus. The company was in so many industries that it was hard for analysts to keep track of them all.

El Paso was an upstream company with substantial midstream assets. It had operations in basic chemicals and specialty chemicals. It had a telecommunications business, a refining business, a lube oil business and a crude oil terminal division. In addition, it operated domestic and international merchant power divisions. And it had something called an Africa Development Fund.

Foshee took a hard look at all of these operations and began a long, slow process of streamlining the company. “We took all those assets and we asked, ‘are they consistent with our purpose or are they not?’ ” Anything that did not fit with the strategy of upstream and midstream operations was put up for sale.

El Paso sold $15.5 billion worth of assets in 36 months, and had an average of five closings per month for three years, Foshee said.

The process of selling off a diverse group of assets was painful for many El Paso employees, but Foshee said he maintained open communications with them and assured them they would be treated professionally if they were able to stay focused on their jobs.

“We told everyone up front, and that was a very hard conversation to have,” he said.

Gradually, the company was able to clarify its purpose and get control of its debt. It kept two divisions: upstream and midstream, he said. There were analysts who asked on multiple occasions why the company did not spin off its upstream division, Foshee said.

At the time, the company thought there were strategic synergies between the two divisions, so it resisted the temptation to spin off the upstream division. In addition, the amount of debt carried by both divisions made that split dangerous.
“We were not playing from a position of strength,” he said.

Eventually, as El Paso was able to pay down its debt, the company announced it would spin off its upstream division into a pure-play exploration and production company. The remainder would be a simple pipeline company again. On last day of August 2012, Foshee said he got a request for a meeting with Rich Kinder, chief executive of Kinder Morgan. “I assumed he wasn’t coming over to my office to discuss the weather,” he said.

In fact, Kinder Morgan wanted to acquire all of El Paso, a move that surprised Foshee because upstream operations were outside Kinder Morgan’s core business.

Kinder Morgan’s initial offer was “interesting, but inadequate,” although the two continued to negotiate. Foshee called the discussions with Kinder Morgan “a full contact sport,” but the two sides were ultimately able to agree on terms for the sale.

Kinder Morgan brought in Apollo global management to buy the upstream division for about $7.15 billion in equity and an additional amount for the company’s debt. Kinder Morgan, meanwhile, paid around $38 billion for El Paso Corp’s shares and assumed a large portion of its remaining debt.

“Both sets of shareholders got the best deal possible,” he said.