Kinder Morgan Inc (NYSE:KMI) announced that it will acquire all the outstanding equity securities of Kinder Morgan Energy Partners LP (NYSE:KMP), Kinder Morgan Management, LLC (NYSE:KMR) and El Paso Pipeline Partners, L.P. (NYSE:EPB) in a series of transactions valued about $44 billion.
The deal would facilitate Houston billionaire Richard Kinder to consolidate his pipeline empire and to strengthen it for growth.
Second biggest in energy sector
The deal envisages shareholders in the three separately listed companies to be handed a mix of cash and Kinder Morgan Inc shares for their stakes, at premiums to Friday's closing share prices of between 12% and 16.5%. The boards of all the three companies have voted to recommend the deal.
The deal would involve $44 billion in cash and stock and assumption of $27 billion in debt. The deal announcement will be the second-biggest in the energy sector, since Exxon Mobil Corporation (NYSE:XOM) bought Mobil in 1999.
The Kinder Morgan family of companies includes 80,000 miles of pipeline and 180 storage terminals in North America.
$140 billion enterprise
The latest move by Richard Kinder, who controls the entities through his 24% stake in the parent company, runs counter to the industry trend of spinning off pipelines and oil terminals into tax-advantaged partnerships that funnel cash to investors. The enterprise value of the combined group is approximately $140 billion.
Last year, Kinder Morgan Energy Partners LP took a giant stride towards acquiring Copano Energy, L.L.C. (NASDAQ:CPNO), in a deal worth about $3.2 billion. The deal would give Kinder Energy access to oil and gas-rich territories in Texas, Wyoming and Oklahoma.
The recent deal signifies a new round of deal-making for the pipeline industry, which has witnessed growth rocket in the past five years, as the shale boom has spread across North America, creating demand for more pipes in new locations to ship oil and gas to markets. Kinder Morgan Inc runs 80,000 miles of oil and gas pipelines in North America.
Kinder Morgan enhances dividend growth
In a statement issued Sunday, Mr. Kinder said the latest deal dramatically simplifies the Kinder Morgan Inc story and the combined group would be able to enhance dividends, cut its cost of capital and use its shares as an acquisition currency. Mr. Kinder promised to enhance Kinder Morgan's dividend by 16% next year and by 10% per annum for the rest of the decade.