KMP an after-tax loser in Kinder consolidation deal, Wells Fargo says

|About: Kinder Morgan, Inc. (KMI)|By:, SA News Editor

Kinder Morgan's (KMI +0.1%) three subsidiary entities - Kinder Morgan Partners (KMP +0.9%), Kinder Morgan Management (KMR +0.5%) and El Paso Pipeline Partners (EPB +1.1%) - have all gained in unit price since the consolidation deal announcement, but Wells Fargo calculates that KMP’s unitholders will effectively lose 4% on the deal after taxes, while KMR’s gain 21% and EPB’s gain 7%.

For KMP and EPB, the transaction will be considered as a sale of the units and trigger a taxable event, Wells explains; while some of the tax will be offset by the cash proceeds from the offering, unitholders will still be forced into a taxable event; for KMR unitholders, however, the merger represents a tax-free event.

The premium received by KMP unitholders would be essentially fully offset by tax obligations upon conversion of KMP to KMI shares, Wells says; even after KMP’s strong price performance since the merger, the gain is effectively offset by tax obligations.