Parent company to use shares to fuel acquisitions and growth in pipeline sector
US gas and oil pipeline operator Kinder Morgan (KMI) aims to spend $44 bn to buy out all investors in its three separately listed units to simplify its corporate structure, the company says.
The deal will rank as the second largest in the energy sector, following Exxon’s 1999 purchase of Mobil for $74.5 bn.
KMI has offered investors in Kinder Morgan Energy Partners, Kinder Morgan Management and El Paso Pipeline Partners a premium of between 12 percent and 16.5 percent to the August 8 closing share price in a proposition comprising partly cash and partly shares in the simplified KMI structure. The boards of all three companies have voted to recommend the deals.
‘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,’ says Richard Kinder, chief executive officer and chairman of KMI, in a statement to investors. He adds that the transaction is to close by the end of this year.
Kinder says KMI shareholders will benefit from dividend growth to a projected $2 per share in 2016 from a projected $1.72 per share in 2014 and further annual increases of 10 percent until 2020. They will also receive tax benefits due to depreciation deductions associated with the purchase, he says. The combined entity will have an enterprise value of $140 bn.
The new company, which will be the largest energy infrastructure company in North America, will then launch a wave of acquisitions and growth strategies in the pipeline industry amid expected overall growth in the sector. KMI currently operates 80,000 miles of pipelines and 180 terminals for natural gas, crude oil and other products.
‘We believe KMI will be a valuable acquisition currency and have a significantly lower hurdle for accretive investments in new energy infrastructure,’ Kinder says. ‘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 will set out additional details of the proposed deal in a conference call on Monday morning.
