NEW YORK ( TheStreet) -- Private equity firms Blackstone (BX) and TPG Capital are circling El Paso's (EP) upstream oil and gas exploration and production assets, which are up for sale after the company's $21 billion merger with Kinder Morgan (KMI) in October.
Buyers are reviewing pitch books of Kinder Morgan's bankers Barclays Capital (BCS) and Evercore Partners in a potential sale that may fetch as much as $10 billion, the Wall Street Journal reports. Kinder Morgan also has a loan commitment from Barclays Capital to raise nearly $15 billion for its El Paso acquisition.
The Kinder Morgan takeover represented a change of strategy for El Paso, who in March, said it would spin its exploration and production businesses to shareholders, which operate oil & gas fields in Egypt and Brazil. At the time, the company's upstream operations accounted for 66% of its $4 billion in overall revenue. By changing strategy and agreeing to a Kinder Morgan takeover, the combination of both pipeline operations are set to create the nation's largest natural gas pipeline and fourth largest overall energy company in the U.S.
Aside from financing from Barclays, sale of El Paso's exploration business was a crucial piece for Kinder Morgan's blockbuster takeover bid. Kinder will first sell El Paso's exploration and production businesses for cash proceeds to Kinder Morgan that will lower debt levels needed to make the acquisition. In addition, it will sell El Paso's gas pipeline business to Kinder Morgan Energy Partners (KMP) and El Paso Pipeline Partners (EPB) over the next few years.When announcing the takeover, Kinder Morgan said that by the end of 2015 its combined assets will consist exclusively of its general partner interests in Kinder Morgan Energy Partners and El Paso Pipeline. The merger recently came under scrutiny when Louisiana Municipal Police Employees Retirement System filed a shareholder lawsuit against El Paso's advisor Goldman Sachs (GS) for its role in steering El Paso toward a takeover at what they say is a price below the company's previous spin strategy. Goldman is also Kinder Morgan's second largest shareholder with a 20% percent stake, which the suit says creates a conflict of interest. The takeover valued El Paso at $38 billion including El Paso's outstanding debt -- or $26.87 a share, a 37% premium to their closing price prior to the announcement.
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