Market Overview

Kinder Morgan Offers $38 Billion For El Paso


Kinder Morgan (NYSE: KMI) has offered $38 billion for rival El Paso (NYSE: EP) in a deal that would create the largest U.S. natural gas pipeline operator.

The combined company will represent the largest natural gas pipeline network in the United States, the largest independent transporter of petroleum products in the United States, the largest transporter of CO2 in the United States and the largest independent terminal owner/operator in the United States, according to a statement.

“This once in a lifetime transaction is a win-win opportunity for both companies,” said Kinder Morgan Chairman and CEO Richard D. Kinder in the statement.

Kinder Morgan is offering $26.87 a share for El Paso, a 47% premium to El Paso's 20-day closing average. That's also a 37% premium to where El Paso shares closed on Friday Oct. 14. The offer is comprised of $14.65 in cash, 0.4187 KMI shares (valued at $11.26 per EP share) and 0.640 KMI warrants (valued at $0.96 per EP share) based on KMI's closing price on Oct. 14, 2011.

Kinder Morgan said it plans to sell El Paso's exploration and production following the closing of the deal. The transaction is expected to be finalized by the second quarter of 2012.

The transaction is expected to be immediately accretive to dividends per share at KMI, distributions per unit at Kinder Morgan Energy Partners (NYSE: KMP) dividends per share at Kinder Morgan Management (NYSE: KMR), Kinder Morgan said in the statement.

Kinder Morgan said if the transaction closes in early 2012, it would expect to pay a dividend of $1.45 per share, well above the current level of $1.20. The company said it will be assuming a “significant” amount of debt to pay for El Paso, but the sale of exploration and production business and excess cash flow should allow for that debt to be swiftly pared.

Posted-In: Long Ideas News Short Ideas Dividends Dividends Commodities Asset Sales M&A


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