Kinder Morgan Inc Analysis
Introduction
In 2006 Kinder Morgan Inc. (KMI) was the largest energy infrastructure company in North America. Founded in 1997 in Houston starting with 175 employees and an enterprise value of $325 million, its companies included: Kinder Morgan Inc, Kinder Morgan Management LLC and Kinder Morgan Energy Partners L.P. KMI was the market leader in transportation and storage of petroleum products, including terminal operations. Its typical costumers were oil companies, energy producers and shippers.
Between February and May of 2006, KMI management, led by Richard Kinder, believing that the company was undervalued, gathered a consortium to place a formal offer to Leveraged Buyout of the company. The offer will be analyzed through different valuation models in order to decide whether the company should accept or reject the offer.
Qualitative analysis
To account for possible effects of the external environment onto KMI, a Political, Economic, Social, Technological, Environmental and Legal (PESTEL) analysis for the industry sector of oil and gas distribution was executed.
The analysis starts with some relevant data from 2006. Corresponding to the political part, government vouched to provide constant energy supplies [1] which makes a decrease in production improbable. From an economic point of view, markets did recover considerably in 2006 after having experienced the downturns following 9/11: This is proved by a stable annual inflation rate [2] and the 10-year interest rates for U.S. treasury bonds [3]. Further adding to this, the unemployment rate in the energy industry recovered to a level before the crisis [4], thus supporting the evidence for a continuing economic stabilization. In conclusion, the outlook was considered average to good.
In the future, technological progress such as solar and wind energy as renewable energies was expected grow. Therefore, it could affect negatively KMI’s line of business. However, considering the U.S. market, this threat would only arise in the very long-term future. Therefore considered to be