HOUSTON (The Deal) -- Kinder Morgan (KMI) said Sunday it's bringing all of its publicly traded master limited partnerships back under one roof in a cash and stock deal valued at $70 billion, creating North America's largest energy infrastructure company.
KMP unitholders will get 2.1931 KMI shares and $10.77 in cash for each KMP unit they own, or $89.98 per unit, a 12% premium based on the Aug. 8 closing price and 11.4% based on the July 16 closing price reference date the parties used during negotiations.
KMR shareholders will get 2.4849 KMI shares for each share of KMR they hold, or $89.75 per unit, a 16.5% premium based on the Aug. 8, closing price and a 16% premium over the July 16 closing price.EPB unitholders will get .9451 KMI shares and $4.65 in cash for each EPB unit they own, or $38.79 per unit, a 15.4% premium based on the Aug. 8 closing price and a 11.2% over the July 16 closing price. KMP and EPB unitholders will be able to choose cash or KMI stock subject to proration, which is 12% cash and 88% stock. Simmons & Co. International wrote in a report Monday that aside from the quest for growth, there are plenty of significant questions raised by the transaction, including expectations for interest rates and the ability to continue capturing a generous valuation arbitration via the master limited partnership, or MLP, structure. Bond research firm CreditSights said it expects the deal to be "very well received by the Street" as it kills two birds with one stone. "We can't help but point out Kinder Morgan is probably the only $10+ billion LBO [leveraged buyout] of the 2005-2008 LBO boom where legacy bondholders will now have their pre-deal investment grade ratings restored." On a conference call with analysts and investors, chairman and CEO Rich Kinder said he was personally taking all stock in the transaction. Kinder said in a statement that all shareholders and unitholders will benefit as a result of the combination, holding a single, publicly traded security with a projected dividend of $2 per share next year, up 16% over this year's expected dividend of $1.72. He said the company expects to boost the dividend by 10% each year from 2015 through 2020, with excess coverage expected to be more than $2 billion over the same period. "This transaction dramatically simplifies the Kinder Morgan story, by transitioning from four separately traded equity securities today to one security going forward and by eliminating the incentive distribution rights and structural subordination of debt," Kinder said. "Further, we believe that KMI will be a valuable acquisition currency and have a significantly lower hurdle for accretive investments in new energy infrastructure. In the opportunity-rich environment of today's energy infrastructure sector, we believe this transaction gives us the ability to grow KMI for years to come." Kinder said the combined entity will be the third largest energy company overall with an estimated enterprise value of $140 billion. "We will have a leading position in each of our business segments and operate in the rapidly growing North American energy infrastructure sector," he said. On the call, Kinder said his goal is for Kinder Morgan to be the "biggest company in America" with the fastest growth rate and the largest dividend. If the combination goes through, it would be supreme vindication for Kinder, who was passed over for the top job at now non-existent Enron Corp. and later bought assets from it to build Kinder Morgan into the colossal energy infrastructure complex it is today. Still, KMP and KMI have been suffering recently from a high cost of capital, despite $40 billion worth of deals since 2012 meant to revitalize their growth rate. Rumors have circulated in the market that Kinder was considering taking the company private, as he did in 2006 (he took it public again in 2011).
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV