Kinder Morgan-El Paso Merger a Massive, Savvy Deal
The combination should facilitate more rapid growth of Kinder Morgan Energy Partners as well as provide clear upside for El Paso shareholders.
On Sunday, Kinder Morgan Inc. (KMI) announced the $38 billion acquisition of El Paso (EP) in the largest energy deal of the year. The combined company will be by far the largest midstream energy and pipeline company in the United States, with an enterprise value around $94 billion. It will be the largest transporter of natural gas, petroleum products, and carbon dioxide and the largest independent operator of refined products terminals in the country. This is a massive and, we think, savvy deal that should facilitate more rapid growth of Kinder Morgan Energy Partners (KMP), the master limited partnership controlled by KMI, as well as provide clear upside for El Paso shareholders.
The deal consideration works out to $26.87 per El Paso share, or a 37% premium to Friday's closing price. El Paso shareholders will receive $14.65 in cash, 0.4187 share of KMI, and 0.640 KMI warrant for each EP share. That works out to $11.5 billion in cash, $9.6 billion in KMI equity (including the warrants), and $16.7 billion in assumed debt. The merger will require shareholder approval from both companies and is expected to close in the second quarter of 2012.
Jason Stevens does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.