Kinder Morgan To Consolidate Partnerships In $71 Bln Deal; Boosts Dividend 16%

(RTTNews) - Energy company Kinder Morgan, Inc. (KMI) announced Sunday that it will consolidate its partner interests in Kinder Morgan Energy Partners, L.P. (KMP), El Paso Pipeline Partners, L.P. (EPB) and Kinder Morgan Management, LLC (KMR) in a deal valued at about $71 billion, including assumed debt.

KMI revealed in a related presentation that the deal is comprised of $40 billion in parent company equity, $4 billion in cash and $27 billion in assumed debt.

The deal will combine all the oil and gas pipeline partnerships of Billionaire Richard Kinder under one roof as it restructures Kinder Morgan as one corporation from a master limited partnership structure.

The combined entity, KMI, will be the largest energy infrastructure company in North America and the third largest energy company with an estimated enterprise value of about $140 billion. "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," KMI Chairman and CEO Richard Kinder said in a statement.

The combined entity will own an interest in or operate about 80,000 miles of pipelines and 180 terminals. Its pipeline will transport natural gas, gasoline, crude oil, CO2 and other products, and its terminals will store petroleum products and chemicals.

KMI owns the general partner interests of KMP and EPB as well as limited partner interests in KMP and EPB and shares in KMR.

The deal will see KMP unitholders receiving 2.1931 KMI shares and $10.77 in cash for each KMP unit, representing a price of $89.98 per unit, a 12 percent premium over its closing price of $80.34 on Friday.

KMR shareholders will receive only 2.4849 KMI shares for each share of KMR, representing a price of $89.75 per unit, a 16.5 percent premium over its closing price of $77.02 on Friday. Meanwhile, EPB unitholders will receive 0.9451 KMI shares and $4.65 in cash for each EPB unit, representing a price of $38.79 per unit, a 15.4 percent premium over its closing price of $33.60 on Friday.

Houston, Texas-based KMI noted that both KMP and EPB unitholders will be allowed to elect cash or KMI stock consideration subject to proration. KMI said it has secured committed financing to fund the cash portion of the deal.

"All shareholders and unitholders of the Kinder Morgan family of companies will benefit as a result of this combination. Everyone will hold a single, publicly traded security - KMI - which will have a projected dividend of $2.00 in 2015, a 16 percent increase over the anticipated 2014 dividend of $1.72. We expect to grow the dividend by approximately 10 percent each year from 2015 through 2020, with excess coverage anticipated to be greater than $2 billion over that same period," Kinder added.

The deal also provides significant tax benefits for KMI shareholders from depreciation deductions associated with the upfront purchase and future capital expenditures.

KMI said it will put in place cross guarantees among and between the Kinder Morgan entities to maintain investment grade rating by creating a single creditor class that will eliminate the structural subordination.

The closure of the deal, expected by the end of 2014, is primarily subject to closing of the other deals as well as unitholders and shareholder votes. The boards of all the companies have voted to recommend the deal to their respective unitholders and shareholders.

KMI closed Friday's regular trading session at $36.12, up $0.75 or 2.12% on a volume of 3.22 million shares.