Updated from 9:57 a.m. ET to include closing share prices and additional information throughout.
NEW YORK (TheStreet) -- Kinder Morgan (KMI) is consolidating its master limited partner interests with the $71 billion acquisition of Kinder Morgan Energy Partners (KMP), Kinder Morgan Management (KMR) and El Paso Pipeline Partners (EPB), in a deal founder Rich Kinder said could pave the way for acquisitions. Kinder may be able to push the nation’s largest pipeline company into the market for oil, gas and coal reserves.
Sunday’s consolidation dramatically simplifies Richard Kinder’s pipeline empire, removing incentive distribution rights (IDRs) that Kinder Morgan's MLP interests paid to the general partner, Kinder Morgan. That simplification may provide a significant tailwind to Kinder Morgan’s stock, removing some investor scrutiny of distribution rights, while also creating significant tax savings and financing benefits.
Ultimately, however, the deal may allow Richard Kinder to expand his focus in the U.S. energy industry from pipeline infrastructure and into actual reserves in oil, coal and natural gas, one source familiar with the deal told TheStreet. Kinder may also be able to increase the company’s presence in energy infrastructure, possibly within crude oil and refined products logistics and tankers.
"They are trying to capture the entire energy value chain," that source said, who wasn’t authorized to speak on record. Richard Kinder similarly indicated that new direction on a call with analysts announcing Sunday’s deal.
Consolidating MLPs will allow Kinder Morgan to convert to a so-called "c-corporation" that is expected to lower the company’s overall cost of capital as a result of the elimination of IDRs. It will also transform Kinder Morgan’s various businesses into one single company with a market capitalization of about $140 billion, meaning the company’s stock may be a more acceptable currency for acquisitions.