Kinder Morgan restructuring possible but not easy, Credit Suisse says

Kinder Morgan Partners (KMP) has the motivation to at least consider some kind of restructuring and/or elimination of incentive distribution rights, and such a move is doable but it wouldn't be easy, Credit Suisse analyst John Edwards says.

Chairman Rich Kinder would be the linchpin to a transaction thanks to the ~23% stake he owns in the company, the analyst says as he envisions three scenarios that potentially could play out, including using KMP units and EPB units to eliminate the IDR burden from both entities while allowing KMI to continue as an entity, a move that would be analogous to Linn Energy/LinnCo's structure.

Edwards writes that a restructuring would remove at least one major distraction to investors and allow KMP to trade back toward his target price of $90.

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Comments (17)
  • AirBoss
    , contributor
    Comments (135) | Send Message
    What impact on KMR?
    3 Apr 2014, 07:04 PM Reply Like
  • abreik
    , contributor
    Comments (49) | Send Message
    *IF* this were to happen, KMR likely wouldn't change. It would just keep on doing stock dividends based on KMP distributions.


    But, this isn't going to happen.
    4 Apr 2014, 09:31 AM Reply Like
  • bigbenorr
    , contributor
    Comments (1228) | Send Message
    Rich, don't listen to these clowns. Keep kicking A$$.


    Long KMI, KMP
    3 Apr 2014, 07:12 PM Reply Like
  • dunnhaupt
    , contributor
    Comments (2446) | Send Message
    I don't believe he wants his company to go like Linn. I think he has other plans.
    3 Apr 2014, 07:40 PM Reply Like
  • rrs2205rrs
    , contributor
    Comments (131) | Send Message
    -Long KMP, KMI, and EPB in that order, doubled my KMP position at 74'ish
    3 Apr 2014, 11:06 PM Reply Like
  • Dividend Pro
    , contributor
    Comments (1298) | Send Message
    John Edwards (some unknown analyst) telling Richard Kinder what to do? Really?


    Seriously, who other than me thinks this analyst needs another job, and not in the financial field?


    What credentials does he have? Did he ever run a pipeline company. Is he worth billions $$? Just another talking head? Why listen to anything he says? We are better off listening to what Mr. Kinder says.


    I think everyone would agree?


    Long KMI.
    3 Apr 2014, 07:50 PM Reply Like
  • phildevoyd
    , contributor
    Comments (216) | Send Message

    3 Apr 2014, 07:55 PM Reply Like
  • craig3409
    , contributor
    Comments (51) | Send Message
    Kinder Morgan is the best Mlp on this planet, but with the IDRs structure that they have in place with the GP it puts them at big disadvantage to other MLPs. Unless they come up with a new structure investors will keep fleeing to other MLPs that do not have this disadvantage. Look at what the price of EPD that does not have this heavy burden on them has done lately. The IDRs % were set up to benefit Rich Kinder by Rich Kinder, but now they are a disadvantage to Rich Kinder and all the investors. Hopefully Rich will do something to change this.
    3 Apr 2014, 08:16 PM Reply Like
  • b3player
    , contributor
    Comments (685) | Send Message
    "Unless they come up with a new structure investors will keep fleeing to other MLPs that do not have this disadvantage."


    That will mean that my re investment of units will continue to grow faster. Bring it on!


    I find it out right comical that financial writers or analysts need to tell Mr. Kinder how to provide share holder value to his company. That is pretty narcissistic if you ask me.
    3 Apr 2014, 08:41 PM Reply Like
  • craig3409
    , contributor
    Comments (51) | Send Message
    50% of new projects are funded by issuing new shares. If theses shares are issued at low prices then they have to issue more shares to raise funds which decreases share prices and in the long run will decrease the dividend per share. Nothing but a downward spiral.
    3 Apr 2014, 10:44 PM Reply Like
  • b3player
    , contributor
    Comments (685) | Send Message
    Craig, I can appreciate your point of view. However, I think you might be over looking some information. At some point, the distribution yield will provide a floor to the descending price. It is also my understanding that the Kinders are primarily owned by retail investors. They, by nature, are easily scared away by media manipulation. I think you are already starting to see some stick a toe back into the pond. We are at the beginning of a oil/ nat gas boom in the US thanks to fracking. When I invest, I try to look at macro trends and invest in those themes (REITS healthcare/ senior living is another). While it is true, past share price is not a good predictor of future share price, it is true that past performance of a CEO is a great predictor of future performance of the that CEO. I have faith in the management of this company to do the right thing. I think that 10 to 15% annualized returns (including distributions) for the Kinders over the next several years is not an unreasonable expectation.
    4 Apr 2014, 01:26 AM Reply Like
  • Value Doc
    , contributor
    Comments (854) | Send Message
    I read the report and am impressed by all the mental gymnastics, but at the end of the day, their analysis reminds me of medieval alchemy--I don't believe that shuffling around the corporate structure will boost gross cashflows of all entities combined or otherwise create net value.


    The CS yield-based cost-of-capital analysis is off-base as they simplistically ignore embedded growth expectations (they even admit this).


    At the end of the day, CS is suggesting that KMI should "take one for the team" to help out KMP's growth rate (and/or KMP should lever up with more debt) on the hope/prayer that it will somehow "be worth it" for KMI many years down the line.


    The CS analysis, as it acknowledges up-front, is ultimately pandering to short-term market sentiment ("do something, anything market perception demands, to get the unit price up NOW because we're impatient.") My view is that KM should continue to chug forward and execute on its business, maintain some proportionality between KMP and KMI with regard to sharing upside and disappointments (e.g. IDR waivers, rather than pull an ETP/ETE that screws the LPs). Market sentiment will take care of itself if the businesses perform.


    Those who want faster growth can simply split their investment between KMI/KMP as well as re-invest part of their quarterly distribution in more shares/units. That effectively gives you your own personal EPD/MMP/MWE-type investment structure without Kinder Morgan needing to make any changes.
    3 Apr 2014, 08:33 PM Reply Like
  • Doctorft
    , contributor
    Comments (104) | Send Message
    I was going to comment but why bother. Richard Kinder has been selected CEO of the year more than once, he is a multi-billionaire, and our companies (I am long KMP and KMI) have averaged about 15%/yr. Buying opportunities are a wonderful thing.
    3 Apr 2014, 11:17 PM Reply Like
  • js7781
    , contributor
    Comments (47) | Send Message
    Simply buy both KMP and KMI and receive all the available cash opportunities
    3 Apr 2014, 11:25 PM Reply Like
  • njbother
    , contributor
    Comments (1122) | Send Message
    I'm buying KMR, no k-1, same dividend & at a discount to KMP.
    4 Apr 2014, 12:54 AM Reply Like
    , contributor
    Comments (589) | Send Message
    I dont get it. There are basically two companies KMP and KMI (forget EPB and KMR for the moment) income from KMP is given to KMI. KMP pays out at 7% KMI at 5%. They say EPD is a better stock because, it pays, what 4%, but it grows more. Why are KMs not as good? Because it pays out 7% but yet feeds KMI 50% of its earnings and therefore due to that fact, people have cashed in and so the stock price dropped. There is worry it cant support the dividend (ok distributions) going forward. But based on what? Nothing Ive read supports an imminent collapse of this company. We are on the verge of an oil boom similar to what we saw back during Standard oil days. Finally getting out from under the yoke of those religious fanatics/hypocrites in the mid east and now Europe and the Russians you would think everyone would be putting their money into this sector of the market. Its as if a cat got into a cage filled with a million canaries. How can it possibly starve.


    Ive bought both KMI and KMR over that last 3 months constantly averaging down but seems like things are turning around and so will be adding back in 50% of what I bought when it was sliding down.


    What am I missing?
    4 Apr 2014, 09:17 AM Reply Like
  • IamBill
    , contributor
    Comments (41) | Send Message
    Nothing, I did the same thing and have been buying KMR/KMI, 3 to 1, during the slump and plan to hold for decades. I need the income for retirement in a few years. Personally, I don't care what the financial arrangement is between the two, I am happy with the payout for both.


    Like you, what I really love are the fundamentals of the industry and the past history of ever increasing dividends and solid future guidance. The writing is on the wall, but not everyone is looking.
    5 Apr 2014, 10:28 AM Reply Like
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