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Kinder Morgan Does the Midstream Two-Step

The merger with El Paso will create value for almost all stakeholders.

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The merger of  Kinder Morgan Inc. (KMI) and  El Paso (EP) will work out very well for their shareholders as well as those holding  Kinder Morgan Energy Partners (KMP) and  Kinder Morgan Management (KMR), in our view. Prospects are somewhat less rosy for unitholders of  El Paso Pipeline Partners (EPB), as the partnership will no longer be the sole recipient of asset drop-downs from El Paso.

Investing in EP, KMI, and KMR are the best ways to play the deal, in our opinion. Our merger-case valuation for KMI implies a $30 per share value for EP, or 19% upside to current prices. KMI is trading 15% below our merger case currently. We think this deal may help KMR close its discount to KMP, suggesting 7% upside.

Jason Stevens does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.