Kinder Morgan +20%, KMP +27% premarket on merger news


KInder Morgan (NYSE:KMI) +20.1%, Kinder Morgan Partners (NYSE:KMP) +27.1%, Kinder Morgan Management (NYSE:KMR) +34.6%, El Paso Partners (NYSE:EPB) +30.5% premarket on news of the consolidation of the Kinder companies that will create the largest energy infrastructure company in North America, with an 80K-mile network of pipes that together would be long enough to circle the Earth three times.

Kinder appears to have solved its biggest problem in one stunning swoop: how to maintain growth; to increase  distributions by a projected 5%-6%, Kinder would have to put $3B-$4B to work each year on attractive projects, a daunting task for any firm.

"This is a very simple and elegant solution to a problem of complexity," says Baird analyst Ethan Bellamy; he does not think other MLPs will follow in Kinder's footsteps because other companies still benefit from the financial structure as a way to attract investment.

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Comments (16)
  • addisonsm
    , contributor
    Comments (61) | Send Message
     
    Take a look at the chart for KMI.WTS on Friday. Apparently someone knew something starting at 2pm through the close.

     

    On balance, I don't like the deal because I lose the tax deferred status on some shares (others have had their principal returned already) and I have a capital gains tax exposure on the cash payout. On the plus side, the income stream increases, but it is now taxable for a net of roughly equal. I would have been happier if they had offered a full, pro-rated exchange of KMI for KMP with no cash, but they have their reasons I'm sure.

     

    Clearly those who purchased KMI/KMP/KMR before the announcement are in good shape. I have owned KMP since 1990 and was disappointed to learn that even forever stocks have an expiration date.
    11 Aug 2014, 08:56 AM Reply Like
  • fredjohnson3
    , contributor
    Comments (53) | Send Message
     
    Today you have a chance to get out of the stock and invest elsewhere. Maybe it's not a bad idea.
    11 Aug 2014, 11:12 AM Reply Like
  • Got That Swing
    , contributor
    Comments (292) | Send Message
     
    Sold KMR and KMI pre-market. Maybe they will go up more, but these hefty gains are enough.
    11 Aug 2014, 09:23 AM Reply Like
  • Charles A. Smith
    , contributor
    Comments (1272) | Send Message
     
    With this deal, Rich Kinder is basically saying that the entire legal structure of the midstream/E&P biz is wrong if growth is the object. Why pay out all your cash flow when you just end up raising it again? The tax benefits of the MLP structure are just not great enough if you need capital to grow.
    11 Aug 2014, 09:31 AM Reply Like
  • Captain Pike
    , contributor
    Comments (890) | Send Message
     
    Midstream and E/P are different. Rich Kinder might be saying he's bored.

     

    There is no shortage of projects in the works in the pipeline business, iow no shortage of capital.
    11 Aug 2014, 11:22 AM Reply Like
  • Capt Jack Daniels
    , contributor
    Comments (1466) | Send Message
     
    Richard likes the company so much that he buy out the partners and thus sticks to the kiss method of running things and concentrating on the results and not the various reportings and distributions.

     

    I'm torn between selling or keeping KMP although if it peaks over 102 a share that may make me willing to part with some shares.
    11 Aug 2014, 09:52 AM Reply Like
  • Luke Skywooker
    , contributor
    Comments (415) | Send Message
     
    bot some more KMP today, if KMI holds up above $37.50, there is short term gain. KMI looks like a keeper for the next 3-4 years anyway.
    11 Aug 2014, 09:56 AM Reply Like
  • Capt Jack Daniels
    , contributor
    Comments (1466) | Send Message
     
    The new structure will allow Kinder to get involved in a lot more energy related businesses such as oil fields.
    11 Aug 2014, 09:57 AM Reply Like
  • sarlinsky
    , contributor
    Comments (3) | Send Message
     
    I would like to know what happens if I came in short KMI shares? Am i responsible for KMP dividend of $10.77?
    11 Aug 2014, 12:18 PM Reply Like
  • sarlinsky
    , contributor
    Comments (3) | Send Message
     
    If I came in short 200sh of KMI and covered them on the open today. Am I responsible for anything else tomorrow?
    11 Aug 2014, 12:27 PM Reply Like
  • sophos2
    , contributor
    Comments (156) | Send Message
     
    Just the losses you incurred this morning.
    11 Aug 2014, 12:47 PM Reply Like
  • sarlinsky
    , contributor
    Comments (3) | Send Message
     
    Thanks. Then who pays the dividend to KMP shareholders ? What if someone was short KMP shares , will they be paying the $10.77 dividend out ?
    11 Aug 2014, 01:43 PM Reply Like
  • morefiles
    , contributor
    Comments (9) | Send Message
     
    KMP tax question (as former CPNO holder): I have a negative basis ending capital account of (about -$27 per share) on my last k1 from KMP add (the absolute value) of this to current stock price x capital gains rate? what are the fastest ways to avoid this tax hit that the IRS will accept? can I gift stock to my minor children? make charitable donation? IDEAS? or how bad a hit am I looking at?
    11 Aug 2014, 01:55 PM Reply Like
  • HP-Commenter
    , contributor
    Comments (13) | Send Message
     
    Does anyone know whether the cash distribution for KMP holders is considered a partnership distribution or ordinary income or capital gains?
    11 Aug 2014, 04:19 PM Reply Like
  • Harry Polizzi
    , contributor
    Comments (679) | Send Message
     
    "...what are the fastest ways to avoid this tax hit that the IRS will accept? can I gift stock to my minor children? make charitable donation? IDEAS? or how bad a hit am I looking at?"

     

    I think the answers to these questions need to be made by your accountant/tax preparer. If YOU fill those roles then start hunting for a reputable accountant/tax now.

     

    Harry
    11 Aug 2014, 05:40 PM Reply Like
  • Gentle Ben
    , contributor
    Comments (13) | Send Message
     
    Does anybody know if we sell KMP before the merger takes place, then use the proceeds to buy a similar MLP, will that help us avoid or reduce the taxes due? I'm not sure if such strategies are possible with MLPs...

     

    I know it's a good problem to have, but I'm among those who can't afford any more taxable income this year. If I was in a lower tax bracket and not worried about taxable income, I'd be celebrating this merger. But, as it is, I hate to see almost 40% of the income I work my tail off to make going to taxes... It's excessive.

     

    I will miss the tax advantaged income that KMP provided quarterly. I will miss not being able to save the KMP for my descendants to inherit with no tax consequences to them after I'm gone. This merger puts the nail on the coffin for the plans I had made for my kids to inherit my KMP, sigh.

     

    Yet, I'm happy for all those still working to get to where I've struggled to be at. Kinda makes me wish I was still young and struggling so I could truly celebrate this merger, instead of sighing and groaning over it.
    13 Aug 2014, 12:38 PM Reply Like
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