Kinder Morgan Buys El Paso
Essay Preview: Kinder Morgan Buys El Paso
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Kinder Morgan & El Paso
$21.1 billion in cash and stock
Bought to tap into a boom in natural gas drilling and production
Will make Kinder Morgan biggest of North Americas midstream energy companies, which process oil and gas products before transporting them to production facilities
KM will own or operate about 67,000 miles of pipelines stretching across the continent
CEO: “If you believe in the future of natural gas, you believe in putting together the biggest possible network.”
Made Kinder Morgan the dominant pipeline company in the country – “They can deliver gas all over the country.”
Valued at $38 billion, including the assumption of debt owed by El Paso and an affiliated business, El Paso Pipeline Partners
2nd biggest deal announced this year and largest energy deal since Exxon Mobil bought XTO Energy for $40.8 billion in late 2009
Paying a big premium
Per share, $14.65 cash, .4187 of Kinder share, and .640 of a warrant
Values the offer at $26.87
37% premium to Friday closing price and 47% premium to 20-day average closing price
Expects to raise dividends starting next year at average annual rate of 12.5% through 2015
KM received financing from Barclays to pay for cash portion
$11.5 billion cash portion
Plan to sell El Pasos exploration and production business to help pay down debt
El Paso had already announced in May it would spin off those business, which account for 34% of annual revenue
Expected to close by 2Q next year
KM will own 68% of combined company, El Paso shareholders will own the rest
Had talked with El Paso about a deal for years, but needed to wait until IPO in February (one of largest IPO by company owned by PE firms raised $2.9 billion)
Needed currency of public stock to do the deal
Advisors
KM: Evercore, Barclays
El Paso: Morgan Stanley (and had already been receiving advice from Goldman on previous spinoff plan)
The business reported 2010 earnings of $1.1 billion before interest, taxes, depreciation and amortization, said Bruce Connery, a spokesman for El Paso. That would give it a value of about $7.3 billion