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


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.

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Comments (224)
  • phildevoyd
    , contributor
    Comments (204) | Send Message
     
    Richard Kinder has to pay taxes, too. I'll throw my hat in with him.
    13 Aug 2014, 04:00 PM Reply Like
  • jcadams3561A
    , contributor
    Comments (27) | Send Message
     
    Wells Fargo analysis hits the target right in the center, commendations to them for analyzing the issue. I have an article in the edit stage that shows the effective tax rate on the transaction would be 35% using a $90 sales price. The longer one has held the KMP shares, the greater the tax liability.

     

    Remember that the overwhelming portion of Rich Kinder's holdings in the "Kinder corporate family" are in KMI; it is not a taxable event for KMI.

     

    The transaction could have been structured as a tax-free transaction, but "all the king's men" decided to structure it as a taxable transaction. It would have been nice if the analysis focused on a PV discounting of a taxable and non-taxable transaction so that the KMP shareholder could see the benefit. Perhaps the tax-free route makes more sense for KMP shareholders even with the tax burden, but the Kinder analysis relegated this consideration to a footnote.
    13 Aug 2014, 04:15 PM Reply Like
  • Mike Serebrennik
    , contributor
    Comments (1230) | Send Message
     
    That's like a dinghy saying "A dreadnought has to take enemy fire too, I'll go to battle with it."

     

    Richard Kinder has resources available to him that most people cannot even dream about.
    13 Aug 2014, 04:19 PM Reply Like
  • stuyoung
    , contributor
    Comments (266) | Send Message
     
    Maybe you shouldn't be in the market. Or was your point to state the obvious? Although, however, maybe I am not like most people because I can dream about having more resources than Richard Kinder :)
    13 Aug 2014, 04:28 PM Reply Like
  • wgrogers
    , contributor
    Comments (109) | Send Message
     
    Also throwing my hat in with Rich, but understand that he will owe relatively little taxes on this deal, as 99.3% of his KM holdings are in KMI, followed by 0.3% KMP and 0.3% KMR.

     

    So, he'll owe a little tax on 0.3% of his KM wealth, offset by making a good tax-free gain on another 0.3% and a TBD tax-free gain on 99.3%.
    13 Aug 2014, 04:34 PM Reply Like
  • hhmcdon
    , contributor
    Comments (324) | Send Message
     
    The Wells Fargo analysis is overly simplistic and misleading. The tax consequences are completely dependent on the tax situation of the unit holder. It's beyond my comprehension why anyone would pay these clowns to handle their investments. I use the "Kenny Rodgers" method of investing & I sold out at $95.00, believing "a bird in the hand is worth 2 in the bush". The lawyers are going to have a field day with this.
    13 Aug 2014, 04:34 PM Reply Like
  • Rudester
    , contributor
    Comments (3413) | Send Message
     
    For the past day I've been saying that I'll vote no on the proposed KMP deal. Richard Kinder has "no skin" in KMP so if the majority of unit holders of KMP and EP unite and vote NO, we can force Kinder/KMI to come up with a better package. I for one would prefer a structure that produced a tax free exchange.
    13 Aug 2014, 04:37 PM Reply Like
  • Mike Serebrennik
    , contributor
    Comments (1230) | Send Message
     
    It's OK to be in the market, as long as one doesn't imagine he is in the same situation as a billionaire company founder. At least one's view of the transaction should originate from his own perspective - not everything that's good for RK is good for individual investor.
    13 Aug 2014, 04:43 PM Reply Like
  • Pablomike
    , contributor
    Comments (4692) | Send Message
     
    All those voting no should vote with their shares and sell them. If you vote down the deal the share price will drop fast and far.
    13 Aug 2014, 04:45 PM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    I don't believe there is any way in which the exchange of MLP units for C corp shares can be tax free. It would greatly upset the IRS. KMP unit holders in taxable accounts have reaped the tax benefits of the MLP partnership pocketing cash distributions almost tax free. At the same time they have built up a growing tax liability which comes due when the shares are sold. The tax laws could also change requiring the owners pay up. The only way the tax bill would not come due is if the partnership life exceeds the life of the partner. The step up provision kicks in.

     

    One benefit of this proposed transaction for an owner of KMP in a taxable account is the removal of the tax liability on their units going forward.

     

    At this point the best chance for tax relief for the KMP owners would be to vote a majority to defeat the plan. Another less likely option would be to hope the transaction closes in 2015. That would allow KMP owners to sell some units this year and take the conversion next year or sell in the market next year. That would spread the tax liability over two years a permit some possible tax mitigation in the rest of your portfolio.

     

    I would petition KM to see if there is a way to delay the exchange of the limited partner units until 2015.
    13 Aug 2014, 05:21 PM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    I believe the bird in the hand will be the KMI shares received at the close of the transaction.
    13 Aug 2014, 05:23 PM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    The holders of EP and KMP can not unit. Each class of units votes separately, but only one needs to vote no to void the deal.

     

    Please explain how you would combine in a tax free deal. The only way I can see is if KMP buys KMI, and where would the money come from?
    13 Aug 2014, 05:26 PM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    It's good for me, I have invested alongside RK. Richard upset me when he took KMI private the first time and didn't allow me in on the deal. When he took the GP public again about three years ago, I bought back in at $25.10 a share. Since then I have reinvested the KMP distributions in KMI and KMR shares. When the idiots drove the prices down in KM over the last 12 months, I more than tripled my investment in KMI. The bulk of my Kinder holdings are in KMI, next most in KMR and less than 23% in KMP. I have known that I would eventually have to pay the piper (NYSE:IRS) whenever I sold my units, and that was a liability I gleefully accepted those terms because the distributions were coming to me in a nearly tax free manor.
    I am quite glad that the limited partnership seems to be ending now because the growth has become stiffled due to the law of large numbers. This now allows me to free up my capital and move on ride KMI into the future with what I expect to be more than 10% growth going forward.
    13 Aug 2014, 05:40 PM Reply Like
  • hingroyield
    , contributor
    Comments (584) | Send Message
     
    As I"ve said before, I'll vote my KMR yes & my EPB no
    13 Aug 2014, 06:27 PM Reply Like
  • don't know nothing
    , contributor
    Comments (681) | Send Message
     
    Mr. Kinder owns more $KMR than $KMP. But the deal is still a very good one for all unit owners. ALLLL. ALLLL ALLL.
    13 Aug 2014, 06:36 PM Reply Like
  • don't know nothing
    , contributor
    Comments (681) | Send Message
     
    I listened to the conference call and Mr. Kinder said several times tax issue to $KMP unit holders to it was not HIDDDEN in Footnotes.
    13 Aug 2014, 06:37 PM Reply Like
  • don't know nothing
    , contributor
    Comments (681) | Send Message
     
    It is not Misleading at all. I'm a holder of $KMR.
    13 Aug 2014, 06:39 PM Reply Like
  • don't know nothing
    , contributor
    Comments (681) | Send Message
     
    The deal will not be voted down. The tax issue is like complaining about which donut has more sugar on it. Deal is still very good for all unit holders. It is like Best, Better, more better
    13 Aug 2014, 06:40 PM Reply Like
  • don't know nothing
    , contributor
    Comments (681) | Send Message
     
    The is no tax issue with $KMR. Those complaining are like someone who just won a billion dollars at the lottery and are complaining about the tax issue.
    13 Aug 2014, 06:42 PM Reply Like
  • don't know nothing
    , contributor
    Comments (681) | Send Message
     
    YOu don't understand the structure of $KMI and $KMP. The owner of $KMP is $KMI. This will not be voted down. The tax issue with $KMP lies with each year dividends are taxed like they were return of capital and with depreciation the dividend is added back into the taxable value of $KMP. So when one sells $KMP you have to pay the tax. The law is that want to encourage long term holding of these type of stocks.
    13 Aug 2014, 06:46 PM Reply Like
  • Disturber
    , contributor
    Comments (201) | Send Message
     
    Rudester, without any intention of picking a fight, the idea that the KMP and EP holders are going to vote as a block is not going to happen. Every one of those holders made a decision to buy KMP instead of KMR so that theywould receive "sheltered" cash payments as distributions. The shelter was in the form of a deferral and the depreciation was upon an accelerated basis which can trigger recapture upon sale.
    These are inherent characteristics of limited partnership interests.
    They knew that the income taxes on those distributions were deferred, but not eliminated. They knew that at some point in the future, the deferred tax would be payable and that it would be assessed at ordinary income rates. They also knew that there would be depreciation recapture upon sale of the units.
    What they didn't know was how long that limited partnership structure might remain in effect and they took the risk that it might not last as long as they had anticipated. A buyer is presumed to understand the characteristics of the security that they purchase and its inherent risks.

     

    Every one of the persons who owned KMP could just as easily have purchased KMR. KMR had essentially the same payout as KMP, but as everyone knew, the payment was in the "form" of a stock split or stock dividend and was neither taxable upon receipt nor would it be treated as ordinary income when sold because the holding period was tacked to the holding period of the underlying KMR position. There also would be no depreciation recapture because KMR elected to be taxed as a corporate entity and hence it had tax attributes that were separate from those of its shareholders.
    Thus, KMR, which had essentially the same financial attributes as KMP, gave the holder the added benefit of not having to deal with a deferral of taxation, and the ability to control the timing of taxation since tax would only be due in the year of the sale. If the holder needed the cash, he could have sold the dividend/distribution shares and would have received the same gross amount as the KMP holder. However, the KMR holder would have owed tax in the year of the receipt while the KMP owner ends up deferring taxes to the year when either the LP interest is sold or otherwise converted. If you take all the tax deferred distributions over the years that KMP holders enjoyed the deferral, and add that to the amounts that they are receiving for their KMP shares in the reorganization, you will have a much clearer basis for comparison with the tax consequences to the KMR owners.

     

    The characteristics of the three securities (KMI, KMR, and KMP) were extensively discussed on these boards and any one following the discussion would have known the tax attributes of each of the securities. There was also a lot of talk about KMP buying KMI, but anyone understanding the tax and structural aspects of limited partnerships would have seen that not to be a likely scenario.

     

    The manner in which the three entities are being restructured is the only sensible way that I can see to reach the objective of a single corporate entity. Each of the component entities are being treated in exactly the way that they should be treated given the characteristics of their securities. There were independent boards negotiating on behalf of each of the three entities and it is not very likely that Richard Kinder controlled the outcome. However, the bottom line for me, at least, is that holders who bought KMP had full access to the information necessary to understand the tax consequences of ownership at the time they bought the shares and are responsible for the consequences of the purchase decision. Hence, they really don't have much to complain about.
    13 Aug 2014, 07:50 PM Reply Like
  • stvrob_63
    , contributor
    Comments (1133) | Send Message
     
    "Richard Kinder has "no skin" in KMP...."

     

    Actually, KMI owns 10% of the limited partnership units, so he certainly does have skin in the game.

     

    "....if the majority of unit holders of KMP and EP unite and vote NO, we can force Kinder/KMI to come up with a better package."

     

    Be careful what you wish for.
    13 Aug 2014, 08:09 PM Reply Like
  • wgrogers
    , contributor
    Comments (109) | Send Message
     
    Disturber,

     

    Excellent synopsis.

     

    Although "KMR had essentially the same payout as KMP", the KMR yield was ~4-5% higher than that of KMP. That was another reason, in addition to those that you discussed, for choosing KMR rather than KMP.
    13 Aug 2014, 09:35 PM Reply Like
  • peachstealth
    , contributor
    Comments (3) | Send Message
     
    I don't think you'll have the opportunity.
    Unlike stock holders, limited unit holders get no voice in such things. It's all decided by the general ( master) partner.
    If you own KMI you can vote those shares. I'll vote my 1,200 shares "NO" but Rich Kinder has almost 232 million shares to vote 'yes'
    13 Aug 2014, 10:49 PM Reply Like
  • jcadams3561A
    , contributor
    Comments (27) | Send Message
     
    Is it obvious? And was it necessary to be sarcastic? It would be great if you could respond to specific points that I made (the 35% tax rate, the lack of analysis by Kinder of why it was advantageous despite the taxes when compared with a tax-free transaction, etc.), and disagree by using a logical argument.
    13 Aug 2014, 10:55 PM Reply Like
  • jcadams3561A
    , contributor
    Comments (27) | Send Message
     
    If you read the tax consequences of the presentation that is on the Kinder website, you will see that it is in a footnote. I am not saying that the deal might still be good for the KMP shareholder, but it would be nice if the comparison of a tax-free and taxable were available.
    13 Aug 2014, 10:59 PM Reply Like
  • Rudester
    , contributor
    Comments (3413) | Send Message
     
    peachstealth,

     

    This is different. The unit holders have no say on how the General Partner makes investment decisions, etc. This is a different situation and one that needs approval from the limited partners. It's all spelled out in the Form 8K document filed with the SEC. To wit:

     

    "...resolved to recommend that the KMP limited partners approve the KMP Merger Agreement."
    14 Aug 2014, 12:24 AM Reply Like
  • Trongod2000
    , contributor
    Comments (105) | Send Message
     
    You know not what you say. I have not had my shares for very long at all. So, capital gain is not big but if my math is right... I gain in number of shares when I change from KMP to KMI but I will lose dividend on top of paying taxes that I didn't pay before.
    14 Aug 2014, 02:55 PM Reply Like
  • MICHARLIE
    , contributor
    Comments (12) | Send Message
     
    The only complaint is that I am going to be forced to sell when I do not want to sell. That is a complainable offense.
    14 Aug 2014, 03:15 PM Reply Like
  • W.A.Eichler
    , contributor
    Comments (4) | Send Message
     
    I have read that a tax-free route is possible but have not seen any report to that affect. Assuming this "deal" could have been done tax-free for KMP unit holders I will vote: NO.
    14 Aug 2014, 07:14 PM Reply Like
  • Allen J. Frankel
    , contributor
    Comments (104) | Send Message
     
    Richard Kinder does NOT have the slightest bit of difficulty paying his taxes. The overwhelming majority of KMP unit holders are being "Royally Screwed" by this unanticipated and unplanned major tax bill. I will vote a Resounding NO, on this ill conceived proposal. Instead, KMP should have acquired the general partner KMI.
    15 Aug 2014, 01:35 AM Reply Like
  • eternitus141
    , contributor
    Comments (525) | Send Message
     
    I understand the sentiment, but I don't understand your position. No one likes paying taxes. But your no-vote doesn't have a chance (too much institutional ownership after all the merger arbitrage funds purchasing) and would be self defeating if you prevailed anyway. The units would likely plummet in price as this is a tacit admission that KMP doesn't work at this juncture. Then, after Rich Kinder buys enough units in the open market with his GP incentive distributions, he will make an offer again that will likely be at a materially lower price than the one you are getting now. (But hey - less taxes!)

     

    The units are up $15.00 since the merger was announced. That should be enough to pay your taxes, take your $80 that's left over, and buy ETP or another MLP that you like and be left in exactly the same position. Except this way, you don't have to endure the stress and disappointment of some quixotic fight to take on Rich Kinder, who has probably made you a good bit of money anyway.
    15 Aug 2014, 09:22 AM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    Allen,
    I believe your idea of KMP buying KMI would have been financially impossible. I am also sorry you feel royally screwed, but I think that that means if you hold as much of the KMI shares as you will receive in the transaction, you like me will be greatly appreciative of the KMP buy out within about three years.
    Thank this plan for increasing the growth potential of the company dramatically, and thank the General Partner for giving up their IDR's which was strangling the Limited Partners' investment at such a low price to the unit holders.
    15 Aug 2014, 10:01 AM Reply Like
  • eternitus141
    , contributor
    Comments (525) | Send Message
     
    Just following up on this - Assuming 90% of the 60 million units traded since the merger were institutions or other people wanting to lock in a profit by voting yes, that brings institutional + KMI ownership above 50%. That doesn't factor in all the folks who will be buying up KMP ahead of the vote, as well as the merger arb funds who massively borrow shares on the record date to stack the vote (yep - they do).

     

    The only reason I keep beating the drum here is that I hate to see people wasting time and energy worrying about this when there is nothing they can do about it. I've been there and its not worth it. It will eat you alive. Sometimes you don't get everything you want and you just have to accept that you made a ton of money on the investment and move on. Most people could only wish to be so lucky. Just take your very nice profits, roll your success into something else that suits you better, or hold on and probably make a ton more money.
    15 Aug 2014, 10:30 AM Reply Like
  • eternitus141
    , contributor
    Comments (525) | Send Message
     
    In fact, if you do what I suggest, you could even think of it as completely eliminating the deferred tax liability that you built up owning KMP. The $19.00 premium you are enjoying now will pay the max taxes, leaving your original principle, but this time unencumbered by the deferred tax liability previously imbedded therein, which you would have had to pay eventually anyway. It is a truly happy day for you, Allen.
    15 Aug 2014, 10:47 AM Reply Like
  • searcher
    , contributor
    Comments (1681) | Send Message
     
    So many want to be a 'victim' here that they conveniently ignore the deferral vs. elimination of tax liability, as well as the time value of money. It is true that many counting on the step up on inheritance as an estate planning tool are hurt, but their unfortunate position is not a burden that need be assumed by the vast majority of holders without that expectation.
    15 Aug 2014, 03:03 PM Reply Like
  • muletrain
    , contributor
    Comments (28) | Send Message
     
    Morgan knew years ago what a dirty trick he would someday pull on people retired investing for income in KMP - that is why he invested millions in KMI. The little cash he is given will not pay the tax for the long term investor in KMP. Morgan acts like KMI is a CD and he can guarantee a 10% dividend increase per year; this is crazy talk.
    15 Aug 2014, 07:52 PM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    So muletrain,

     

    Do you think Richard Kinder was planning this three years ago when he IPOed the General Partnership shares? Too bad people didn't understand that and buy up KMI. You could have bought them for $25.10 a share when I did. I suppose I could have sold my KMP units at that time to avoid the "dirty trick", but than I would have paid all the taxes due on the KMP. My tax liability had grown so large by then, I really didn't seem to have that option. No I didn't do that, as a result I now have to pay the taxes and more. After paying the taxes on KMP, I will have made 7%+ per year on the KMP, isn't that awful.
    I can stand many more "dirty tricks".
    15 Aug 2014, 08:39 PM Reply Like
  • muletrain
    , contributor
    Comments (28) | Send Message
     
    You are exactly Unit holder are not stock holders, we have no vote for Morgan just screwed us good with KMP, he knew he would it just came sooner rather than later. Only hope is a law suit will increase the pay out.
    15 Aug 2014, 10:01 PM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    You are wrong, muletrain, KMP unit holders get to vote on any matter regarding change of control. If a simple majority of KMP owners reject the deal, it can not go through. Luckily for you and me most of the KMP owners realize they will be better of with the deal and vote for it.
    16 Aug 2014, 08:16 AM Reply Like
  • Ruffdog
    , contributor
    Comments (3547) | Send Message
     
    Rich Kinder owns 10,s of millions of shares of KMI but he also owns millions of shares of KMP and EPB. The only ones complaining are the shorts and WF Advisors who told their clients in the past that KMP and EPB were not good investments. After loosing a lot of money with them, I left them for Schwab 4 years ago and never looked back.
    16 Aug 2014, 10:36 AM Reply Like
  • Ruffdog
    , contributor
    Comments (3547) | Send Message
     
    I do not mind paying taxes, especially on this deal!
    16 Aug 2014, 10:42 AM Reply Like
  • bernief7744
    , contributor
    Comments (68) | Send Message
     
    for short term KMP holders who bought at 72 the deals a homerun if you sell at 98
    16 Aug 2014, 07:21 PM Reply Like
  • hhmcdon
    , contributor
    Comments (324) | Send Message
     
    "This is the gift that keeps on giving" As I previously said, I sold out KMP at $95 and as I suspected the price would continue to fall, it did, and I bought back in at $91.35. Friday's close was $98.90. What's not to like??
    17 Aug 2014, 09:01 AM Reply Like
  • Ruffdog
    , contributor
    Comments (3547) | Send Message
     
    It is a great deal; thank you Richard Kinder!
    17 Aug 2014, 10:40 AM Reply Like
  • grantr01
    , contributor
    Comments (37) | Send Message
     
    I had to take remedial math in Junior Highschool so, unlike the analysts at Wells, I may be lacking in the basic skills needed to understand this entire transaction. But, as I write this comment, KMP is up 16% over the last five days. Let's see, 16% - 4% for taxes leaves, oh I don't know, roughly 12%. Not sure how that constitutes break even. Guess I will never be a high paid analyst.
    13 Aug 2014, 04:16 PM Reply Like
  • Alpha Wolf
    , contributor
    Comments (231) | Send Message
     
    I believe Wells is suggesting that the gain, minus taxes you'll have to pay if you've held KMP for a while, equals -4%. (For some class of KMP holders).

     

    So, to use a made-up tax number of 20% (no idea if that's right), then you have 16% - 20% = -4%.
    13 Aug 2014, 04:34 PM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    The tax hit is much higher for people who have received a significant percent of their original capital investment in distributions over a longer period of time. Some will have to pay capital gains tax on the total value of their position when the transaction closes. Additionally if they have already received distributions in excess of their total cash invested, the may have to pay ordinary income taxes on the difference.
    13 Aug 2014, 05:44 PM Reply Like
  • hingroyield
    , contributor
    Comments (584) | Send Message
     
    They don't give any details on their math, but one has to assume their using the premium figures stated by the press releases of Mon. morning, that even after this is taken into consideration with the tax bite KMP holders will be -4% off. Now my question is how is the same not true for EPB as the exact same principles are in play. Of course their are lots of moving parts here such as length of time owned, capital account etc & closing prices when deal is executed.
    13 Aug 2014, 06:37 PM Reply Like
  • Alpha Wolf
    , contributor
    Comments (231) | Send Message
     
    These points are true, but misleading. Long time KMP holders have already had their taxes deferred so far. At some point the taxes would have to be paid, it's just a question of when. Thus the penalty of paying the taxes now completely depends on what the plans were of each KMP holder. For some it will make little difference, and this deal is just wonderful. For others it will make a larger difference, and the deal is less attractive. But Wells Fargo seems to be comparing a sale now (with taxes) vs. holding forever and never paying taxes. That's not feasible for most people, so the 4% number is misleading.

     

    I'd also add that KMR was an alternative (and a superior one, in my opinion) that people could have purchased to entirely avoid this situation.
    13 Aug 2014, 04:16 PM Reply Like
  • wgrogers
    , contributor
    Comments (109) | Send Message
     
    "I'd also add that KMR was an alternative (and a superior one, in my opinion) that people could have purchased to entirely avoid this situation."

     

    -- couldn't agree more. Never could understand why someone would hold KMP when KMR was available and, I agree, a superior alternative.
    13 Aug 2014, 04:42 PM Reply Like
  • Rudester
    , contributor
    Comments (3413) | Send Message
     
    Alpha Wolf,

     

    Long time KMP unit holders bought based on the existing tax rules governing Master Limited Partnerships. I for one was planning on never selling. When I passed away, my son would inherit my units of KMP and his cost basis on the units would then be the market price on the day of my death, not my cost basis as reflected in the K-1 capital account line item. This is a great wealth transfer tool, approved by the IRS because it helped this nation create a formidable energy infrastructure.

     

    The currently structured deal not only does away with that benefit, but it forces a real after-tax loss on KMP unit holders. Unit holders should vote NO on the coming proxy.
    13 Aug 2014, 04:48 PM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    Alpha, I agree that the purchase of KMP by KMI takes away your ability to transfer the assets to your child. But what if KMP was sold to Exxon or Shell or another buyer. What if the growth of KMP continues to decline due to the high IDRs or what if the distribution began to decline.
    These are risks that you either accepted or ignored when you made you investment.
    Another risk you assumed was the possibility of a change of the MLP tax laws or a significant change in inheritance tax laws.
    I'm in the same boat as you since I own KMP units, but I knew that the IRS while giving you a benefit, could also take it away. I am happy with my investment and will pay the taxes, and support the purchase, I would however hope that somehow the deal closes in 2015 so I can spread the taxes due over two tax years.
    13 Aug 2014, 05:54 PM Reply Like
  • ba37840
    , contributor
    Comments (164) | Send Message
     
    Alpha

     

    I don't see how anyone who has held units for any length of time and received distributions will end up with a real after tax loss. The only way is if you bought, then sold the units for less and never received a distribution. Every distribution lowers your basis constantly.
    13 Aug 2014, 07:20 PM Reply Like
  • stvrob_63
    , contributor
    Comments (1133) | Send Message
     
    @Rudester I don't think its reasonable to assume that your limited partnership units would outlive you. The fact that your heirs can step up their basis is in no way an obligation for the partnership to continue operations in perpetuity. As limited partners we are expected to be aware of this. Technically, since we have been receiving tax free distributions, we should have been tucking a portion of each distribution away (at least on paper) into a "deferred taxes liability" account.

     

    The prospect for the future has never been brighter. No more IDR's! Lower cost of capital! A no vote is just shooting yourself in the foot. I suspect once you give it some thought you will realize that this is a much easier way out than almost any conceivable alternative.
    13 Aug 2014, 08:38 PM Reply Like
  • wgrogers
    , contributor
    Comments (109) | Send Message
     
    "A no vote is just shooting yourself in the foot".

     

    'nuff said.
    13 Aug 2014, 09:38 PM Reply Like
  • whopf@twc.com
    , contributor
    Comments (3) | Send Message
     
    For Rudester; Have you checked with a tax consultant about your theory? I believe your son would receive a K-1 from KMP and it would still be based on your holdings. The deferred taxes would not disappear but be transferred to the new owner.
    14 Aug 2014, 09:30 AM Reply Like
  • Rudester
    , contributor
    Comments (3413) | Send Message
     
    Whopf,

     

    Yes, when you inherit MLP units or stock shares for that matter, the inheritor's cost basis is set to the market price the day of inheritance.
    14 Aug 2014, 11:31 AM Reply Like
  • allday1234
    , contributor
    Comments (899) | Send Message
     
    You are correct and an MLP qualifies as a step-up asset.

     

    In most cases, when an asset is passed on to a beneficiary, its value is more than what it was when the original owner acquired it. The asset therefore receives a step-up in basis so that the beneficiary's capital gains tax is minimized - because it is not based on the increase in value from the original purchase price. For example, say your uncle purchased some shares at $2 in 1968 and he left them to you upon his death, at which time the shares are $15. For tax purposes, the shares would receive a step-up in basis, meaning your cost basis for the shares would become the current market price of $15. So, any capital gains tax you pay in the future will be based on the $15, not on the original purchase price of $2.
    14 Aug 2014, 05:35 PM Reply Like
  • whereismyorange
    , contributor
    Comment (1) | Send Message
     
    Good thing I have KMP in my IRA!
    13 Aug 2014, 04:17 PM Reply Like
  • bh0128
    , contributor
    Comments (90) | Send Message
     
    As I stated earlier today, before Wells Fargo's comments, the net loss/push to KMP unit holders could have been avoided by monetized spin-off with equity swap. Whoever advised KMP (Jefferies) should not receive their advisory fees or should have their fees netted against unit holders absolute tax liabilities.
    13 Aug 2014, 04:17 PM Reply Like
  • Chancer
    , contributor
    Comments (4362) | Send Message
     
    I would imagine that all of the options were known to Kinder's advisors. If they did not handle tax-free as some suggest, there was probably a good reason.

     

    I only own KMR and would have never invested in KMP, as I do not own any MLP's. Owning an investment (like an MLP) where management can surprise you with unexpected tax liability would not be my choice- too many potential unknowns.

     

    You also have that potential exposure to non resident state income taxes, if you own enough MLP's. Every time the MLP buys property in a new state (which happens often), you have a new potential non resident state tax liability. But you may not know this until after the end of the tax year, when you receive your K-1.

     

    Many investors invest in MLPs without considering all their potential future liabilities. If they did, they should have considered this possibility of how to handle if it ends one day. Kinder has not concealed his propensity to go public, go private, create new companies. If Kinder had decided to take KMP only private, tax liability would still be there. KM is paying KMP investor $10.77 as compensation for the tax liability of the "average" investor, which I think is fair.

     

    I considered that KM might end KMR someday, as I thought the deal was too good to last. If that happened, I planned to just sell for cash and report the long term capital gains that I owe, and I know how much that would be.
    13 Aug 2014, 04:38 PM Reply Like
  • ba37840
    , contributor
    Comments (164) | Send Message
     
    Chancer

     

    I own many MLP's and every single one of them always reports losses in all the states they do business in. The probability of ever having to file a State Tax Return in all those States is practically 0. If you are not investing in an MLP because of the chance you may have to file numerous State Tax Returns then fine, more for us.
    13 Aug 2014, 07:26 PM Reply Like
  • odelltrclan
    , contributor
    Comments (34) | Send Message
     
    I made out pretty well. I don't have to pay a cent. It is all in a retirement account. How many of investors like me have you considered Wells Fargo? A lot more than you suspect I bet.
    13 Aug 2014, 04:17 PM Reply Like
  • RWMostow
    , contributor
    Comments (1691) | Send Message
     
    Od-

     

    A retirement account defers taxes. It does not avoid taxes. One BIG advantage however; you control when you wish to pay taxes by a withdrawal, not Mr. Kinder, or someone else.

     

    -rwm
    13 Aug 2014, 04:34 PM Reply Like
  • fredj
    , contributor
    Comments (155) | Send Message
     
    You aren't out of the woods yet. Holding an MLP in a retirement account is dumb because of UBTI. This transaction redeems all your shares. You just might have UBTI to be taxed in 2014 since amounts throughout the whole deal are so large.
    13 Aug 2014, 05:42 PM Reply Like
  • stvrob_63
    , contributor
    Comments (1133) | Send Message
     
    @Odelltrican If your MLP holdings in your IRA are substantial, you could trigger UBTI issues, and your IRA account itself may be required to file a tax return (assuming you are talking about KMP in your IRA)
    13 Aug 2014, 07:26 PM Reply Like
  • odelltrclan
    , contributor
    Comments (34) | Send Message
     
    Of course RWMostow. But the idea in investing is to defer taxes as long as possible. Furthermore, this is not always the case. I have some sizeable Roth IRA accounts that will never be taxed in which I own some MLP interests, albeit the Kinder Morgan holdings are not in those.
    14 Aug 2014, 10:43 AM Reply Like
  • odelltrclan
    , contributor
    Comments (34) | Send Message
     
    No, fredj I would not say it is dumb. Quite the contrary. There are some nice articles in Seeking Alpha on this. I am a CPA by the way. Theory often does not equate to reality. You have to have combined income of $1,000 to have tax issues. In almost every case I have been involved with the MLPs show losses, let alone income. The net of all the K-1s (I get about 8 per year for the account) has never amounted to a hill of beans. The sale of the units themselves will result in capital gain, which is not UBTI. And even if they used the "look-through rules" for sales of partnership assets that could give rise to non capital gain income, I already solved any serious issue of that by selling my units when they shot up and purchased KMI with the proceeds.

     

    I people have been avoiding MLPs in IRAs because of fear of UBTI, they need to reevaluate. The risk is much lower than they think. Even if there were to be a small taxable amount, it would be minimal compared to the amount of income / gains I have earned in the accounts over the years.
    14 Aug 2014, 10:44 AM Reply Like
  • odelltrclan
    , contributor
    Comments (34) | Send Message
     
    Just out of curiosity, I went and checked all my K-1s for 2013 from MLPs. In every single instance the UBTI was negative and the combined amounts were substantially negative. Holding MLP's in IRA accounts has substantially less risk for UBTI than many people may think. And, if per chance I ended up having some taxable UBTI, the tax on it would be minimal for the benefits I have derived from owning these investments over the years in tax deferred or tax exempt accounts.
    14 Aug 2014, 11:11 AM Reply Like
  • VinceLatona
    , contributor
    Comments (187) | Send Message
     
    "...Holding an MLP in a retirement account is dumb because of UBTI...."

     

    Sorry, but the UBTI should not be the reason why you would not hold in an IRA. Unless you have a huge holding the UBTI is non-existent. Holding MLP's in a ROTH IRA, for example, is a good thing.

     

    Look at the K-1's issued for any MLP and see how small or mostly non-existent UBTI is.
    15 Aug 2014, 01:21 AM Reply Like
  • george.sacerdote@gmail.com
    , contributor
    Comments (7) | Send Message
     
    It is important to remember that a sizable portion of the taxes being paid on the conversion come from the deferred taxes on the past distributions. Unless you were planning to die owning KMP, these were going to come due some day.
    13 Aug 2014, 04:18 PM Reply Like
  • naf6858
    , contributor
    Comments (7) | Send Message
     
    KMP holders- take the hit! like i will

     

    enjoy the benefit with a hold of what you receive
    13 Aug 2014, 04:27 PM Reply Like
  • dataman2
    , contributor
    Comments (128) | Send Message
     
    The point is being missed. KMP pays the tax now so that KMI has large future tax breaks. I call that stealing.

     

    Anyway, the press announcement said unit holders will get to vote. So KMP holders may just vote no
    13 Aug 2014, 04:28 PM Reply Like
  • Pablomike
    , contributor
    Comments (4692) | Send Message
     
    Yes. The way the deal is structured they save $135M over maybe the next five years in taxes. KMP holders take a hit now but better for the future.
    13 Aug 2014, 04:49 PM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    I wouldn't count on it dataman2.
    Holders in IRAs, Roths, 401Ks and the like have no tax issue. Many new owners of KMP have huge profits, especially if the they bought post the Barons article. People who remain in low brackets after the transaction really have little reason to vote no. Long term employees of KM and insiders will certainly vote yes.
    Owners of KMP who own large amounts of KMR and KMI as well will in many cases vote yes (count me in there). Another class of KMP unitholders, those who have figured out that if the current structure continues, their distributions will grow more slowly and possibly start to decline could vote yes as well.
    Unit holders who prefer the potentially faster growing new KMI should vote yes also.
    Unit holders who cash in before closing will transfer their shares to new holders who will not have any tax liability and will vote yes.
    I think the best outcome we can expect from the transaction is if it can be delayed until 2015 so we can sell some units this year and the rest next, splitting the tax liability between the two tax years.
    Oh and I forgot, although the great majority of Mr. Kinder's holdings in the company is KMI and KMR, his holdings in KMP are quite a large number of units.
    13 Aug 2014, 06:08 PM Reply Like
  • hingroyield
    , contributor
    Comments (584) | Send Message
     
    Maybe if EPB holders can stick together where Kinder doesn't have holdings[?] & vote no, they can force some modifications. Remember he said all must approve or deal doesn't happen.
    13 Aug 2014, 06:45 PM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    hingroyield,

     

    While Richard Kinder doesn't own significant EPB shares, I believe that KMI owns more than 40% of the EPB units directly, so he only has to corral another 10% of the units voting. KMI should be voting pro. Unless 84% of the remaining units vote no, the deal should go through. The only realistic way of getting a rejection of the offer would be the KMP vote or legal action.

     

    I could be wrong, but I think that Richard Kinder is pretty good at counting votes and the fact that the purchase is being made mostly in shares of KMI at what seem to be a reasonable exchange premium, makes me pretty sure that legal action is unlikely to succeed in anything more than delay.
    13 Aug 2014, 08:24 PM Reply Like
  • stvrob_63
    , contributor
    Comments (1133) | Send Message
     
    But 41% of the EPB limited partnership units are held by KMI already. Good luck with that!
    13 Aug 2014, 08:44 PM Reply Like
  • wgrogers
    , contributor
    Comments (109) | Send Message
     
    "his holdings in KMP are quite a large number of units."

     

    -- As a number of units, maybe so, but as a percentage of the units outstanding, not so much. 326K vs 461.7M = less than a tenth of a percent.
    13 Aug 2014, 08:53 PM Reply Like
  • dgswanson
    , contributor
    Comments (16) | Send Message
     
    "makes me pretty sure that legal action is unlikely to succeed in anything more than delay."

     

    Maybe that's the way to push closing into 2015 then....giving the KMPers the opportunity to spread out the discomfort of coming up with the unexpected taxes.

     

    It's going to be challenging to come up with the monies for the tax bill when one is already retired. Not fun to sell dividend producing holdings, whilst living on the dividends!

     

    Going in for heart cath on first light.....hope to be back reading SA tomorrow evening!
    13 Aug 2014, 11:52 PM Reply Like
  • stvrob_63
    , contributor
    Comments (1133) | Send Message
     
    dgswanson:
    I don't think you are looking at this with the right perspective. You don't have to sell any of your other dividend producing holdings to raise cash. Just take the KMI that you are given, sell as much as it takes to pay the tax bill, and be done with it. Keep the rest, and I believe if you look at the whole picture, you will see that you still come out way ahead.
    Best of luck tomorrow. Get a good nights sleep.
    14 Aug 2014, 12:11 AM Reply Like
  • Chancer
    , contributor
    Comments (4362) | Send Message
     
    KMR holder:

     

    Just to add to your very good comment.

     

    According to Yahoo, 31.7% of KMP shares are insiders (8.3%) and institutions (23.4%), which will certainly vote "yes." KM is providing $10.77 in cash to cover taxes for the "average" KMP investor. Most probably about 1/2 of the remaining 68.3% of retail investors have a lower tax liability and 1/2 have a greater tax liability. That is 34.15% (1/2 of 68.3%) more "yes" votes. 31.7% plus 34.15% is a probable "yes' vote of at least 65-66%. If every single KMP investor with a higher (than $10.77) tax liability votes "no", the most of the "no" votes would probably be 34%. I doubt the "no" votes will even be that high- maybe 1/2 that about 15-20%. And this does not even consider all those with KMP in a IRA that will have zero tax liability who will also vote "yes."
    14 Aug 2014, 02:50 PM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    dgswanson,

     

    Hope all went well with your procedure.

     

    If the exchange goes through I expect that the loss of income on the KMP shares will be made up on the KMI shares within about three years. We will also have greater freedom to sell appreciated shares down the line with much less capital gains liability do to a higher cost basis on the new KMI shares. I also expect management to grow the dividend more quickly than the 10% projected. KM has rarely underperformed expected returns on investment.

     

    I'm in a similar position with KMI but also have KMR shares in my Roth account and could sell some of my gain there to cover a shortfall in cash for the tax if necessary. I would rather take a margin loan against the KMI shares than sell the shares, because in the short run, the KMI dividends will be significantly higher than the margin interest on the loan. The KMI dividends would easily pay the interest and also pay off the loan in a relatively short period of time. I would still have the 10% dividend growth potential of the shares, which is much greater than the KMP units' dividend growth.
    14 Aug 2014, 11:42 PM Reply Like
  • crash9010
    , contributor
    Comments (181) | Send Message
     
    I own KMI and KMP. The KMI side of me is very happy...the KMP side would like to see the pot sweetened a bit. My tax bill won't be too bad especially when you consider future growth and div growth. I can see, however, those that have held KMP for many years being on the hook for quite the bill they weren't yet ready to pay.
    13 Aug 2014, 04:32 PM Reply Like
  • dunnhaupt
    , contributor
    Comments (2236) | Send Message
     
    I have been long KMI ever since I read in "seeking alpha" that Richard Kinder puts all his own money in KMI, not KMP. Sometimes it pays to do what the Buffetts and the Kinders do.
    13 Aug 2014, 04:35 PM Reply Like
  • wgrogers
    , contributor
    Comments (109) | Send Message
     
    99.3% of his KM wealth is in KMI.
    13 Aug 2014, 04:47 PM Reply Like
  • romilar
    , contributor
    Comments (778) | Send Message
     
    dunnhaupt, they didn't get where they are by being stupid. KMP was always a temptation, but 100% of my Kinder is KMI....Rom
    13 Aug 2014, 05:00 PM Reply Like
  • Bobby Fuhrman
    , contributor
    Comments (3) | Send Message
     
    Guess it was a savvy move by me to own KMP in my Roth IRA, but not in my brokerage account. Talk about getting lucky...
    13 Aug 2014, 04:42 PM Reply Like
  • stvrob_63
    , contributor
    Comments (1133) | Send Message
     
    Mr Fuhrman..hopefully the sale of KMP wont trigger UBTI. A bit curious why you chose to place a tax deferred security in ROTH though, as opposed to KMR?
    13 Aug 2014, 08:50 PM Reply Like
  • reddogloose
    , contributor
    Comments (22) | Send Message
     
    I have owned KMP for over 6 years. I'm angry as hell at the tax liability I am now faced with. It will amount to far more that the gains proposed. As far as I'm concerned this is robbery. There is NO THING for me to be celebrating and I'm sure I'm not the only one.
    13 Aug 2014, 04:45 PM Reply Like
  • onepug
    , contributor
    Comments (5) | Send Message
     
    You are NOT the only one,deltatov! I have owned KMP since 2004! I have over 2500 units... to say I am angry would be a huge understatement! This will be devastating for me tax wise! I had an exit strategy, after I retired in a few years....to minimize the tax implications. This was not in the plan!!! I hope Kinder can sleep at night, and I agree with you, this is pure robbery!
    13 Aug 2014, 11:05 PM Reply Like
  • reddogloose
    , contributor
    Comments (22) | Send Message
     
    If the terms are not improved to levels sufficient to compensated KMB and EPB holders for their losses I think a class action suit would be in order.
    14 Aug 2014, 11:09 AM Reply Like
  • Pablomike
    , contributor
    Comments (4692) | Send Message
     
    What losses??? Paying taxes is not a loss. You pay taxes on profits.
    14 Aug 2014, 12:39 PM Reply Like
  • Lkfeinberg
    , contributor
    Comments (37) | Send Message
     
    I am in the same position. It will throw me into a high tax bracket, increase the cost on my Medicare part B and will be an ordinary income tax- not a capital gains tax that most think it will be. It is scary.
    17 Aug 2014, 08:45 AM Reply Like
  • Phil M J
    , contributor
    Comments (2) | Send Message
     
    Can't you just sell your KMP now and avoid all of this ?
    13 Aug 2014, 04:55 PM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    If you are a recent owner of KMP, the tax bite won't be bad. If you sell now, it depends on how much profit you have and what you originally paid and how much in distributions you have received on the KMP. Selling now only changes the price you receive for the units, not the taxes that will be due unless you change from an owner of less than a year to one of more than a year.
    13 Aug 2014, 06:17 PM Reply Like
  • hingroyield
    , contributor
    Comments (584) | Send Message
     
    no, as deal is currently structured, all KMP holders will be forced to relinquish [sell] all units held & replace with # of KMI. This will be reflected on your 2014 K-1 as a sale with all the tax implications of selling a MLP. Same for EPB
    13 Aug 2014, 06:46 PM Reply Like
  • Lkfeinberg
    , contributor
    Comments (37) | Send Message
     
    No. The consequences are the same . The idea is to NEVER sell the units.
    17 Aug 2014, 08:45 AM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    Lkfeinberg,

     

    It sounds like what you thought you bought when you bought KMP was a tax free bond with infinite maturity that would increase the distribution ad infinitum at a measured rate.

     

    When you buy and expect to hold forever to avoid the tax consequence of selling, you are basically abandoning control of your capital. Would you have held on forever if management became incompetent or if contract renewals were coming in at much lower rates and the KMP distributions were cut in half. I would think not, at some point you would sell your units and pay the taxes.

     

    Your specific tax circumstances are a result of your possibly not being aware of the ramifications of your purchase of KMP and holding it till now. Each year that you have benefited from the KMP distributions, they didn't come for free. You were building up tax liabilities. If Exxon had made an unsolicited bid for KMI, KMR and KMP offering to pay $41 for KMI, $103 for KMI and $104 for KMR, you would have the exact same problem.

     

    When you buy this kind of asset, you can't assume you will never be bought out!

     

    Blame the congress and the president for the tax bracket and the Medicare surcharge, not Kinder.
    17 Aug 2014, 11:08 AM Reply Like
  • Phil M J
    , contributor
    Comments (2) | Send Message
     
    can't you just sell your KMP now, pay taxes on your gain, and forget about the merger ?
    13 Aug 2014, 04:58 PM Reply Like
  • hingroyield
    , contributor
    Comments (584) | Send Message
     
    Yes' but you need to track cost of KMI to gain full benefit of premium offered, pretty difficult problem with several moving parts.
    13 Aug 2014, 06:51 PM Reply Like
  • leftcoaster46
    , contributor
    Comments (39) | Send Message
     
    I believe that's what I'm going to do if I can get the October 29 dividend and sell before the merger. I'll take the capital gain and move on.
    13 Aug 2014, 07:01 PM Reply Like
  • Captain Yossarian
    , contributor
    Comments (2) | Send Message
     
    I have 850 KMP units that I have owned since 2009. My tax basis is a negative number. I am going to vote no.
    13 Aug 2014, 05:09 PM Reply Like
  • fredj
    , contributor
    Comments (155) | Send Message
     
    Sounds dumb. If you are that afraid of taxes then sell it all right now. If you vote no and succeed(although I highly doubt a no vote will succeed) your shares will immediately drop 30% or more.
    13 Aug 2014, 05:44 PM Reply Like
  • Rudester
    , contributor
    Comments (3413) | Send Message
     
    @fredj,

     

    "you vote no and succeed(although I highly doubt a no vote will succeed) your shares will immediately drop 30% or more."

     

    Until Kinder comes back with an offer that is fairer to KMP unit holders. It's called a negotiation.
    13 Aug 2014, 06:17 PM Reply Like
  • hingroyield
    , contributor
    Comments (584) | Send Message
     
    Seems to be best possibility is for EPB holders to vote no to effect outcome.
    13 Aug 2014, 06:53 PM Reply Like
  • wgrogers
    , contributor
    Comments (109) | Send Message
     
    The EPB retail unit holders can vote "no", but it will have no effect, as 71% of EPB units are owned by institutions, funds, insiders. Of that, KMI owns 40+%, so the EPB vote, like the KMI and KMR votes, is a foregone conclusion.
    13 Aug 2014, 08:59 PM Reply Like
  • dgswanson
    , contributor
    Comments (16) | Send Message
     
    or arbitrage!
    13 Aug 2014, 11:52 PM Reply Like
  • eternitus141
    , contributor
    Comments (525) | Send Message
     
    Well said. On KMP, KMI owns about 10% of the units and institutions owned about 23% of the units before last week. Those figures are dated, and I'm fairly sure about 90% of the 60 million units traded over the past few days were merger arbitrage funds buying KMP and shorting KMI to capture the undervaluation of KMP compared to the merger consideration. If I'm right, retail investors now own less than 50% of the KMP units.

     

    The deal is a good one for KMP holders. The structure doesn't work any more. It's too big. If you can't raise a constant percentage of capital compared to the base, these things end up falling into a death spiral. Distributions stagnate, prices decline, cost of capital goes up, new capital dries up, depreciation slows to match capex (eliminating tax deferral) and pretty soon, no one ends up owing any taxes because they all lose money on the deal.

     

    As far as negotiating with Rich Kinder - good luck on that. If somehow the merger fails, KMP units will likely decline by 30% or more as this deal is a tacit admission that KMP doesn't work any more. I'm sure he will be happy to give you a 20% premium on that price, which is about $14 lower than where the units are trading right now. But hey, you will owe less in taxes!

     

    If Rich Kinder is reading these comments right now, he is saying "Go ahead, make my day."
    http://bit.ly/1pPwbin
    14 Aug 2014, 11:01 AM Reply Like
  • allday1234
    , contributor
    Comments (899) | Send Message
     
    MY KMP investment came through Copano buyout so I have 1000 shares of KMP in a taxable account held since May of 13 or some day close to that so my hit will not be as bad as some I will get 10+K in cash and that will soothe the pain, while those who vote no in protest will get the satisfaction of voting No it will still go through, the plus side I will get about 1100 shares of KMI. For me complaining will change nothing so regardless why waste my time trying to change it. PAY THE TAXES and get on down the road. Does anyone know if it will happen this year or next year?

     

    Thanks
    13 Aug 2014, 05:22 PM Reply Like
  • wgrogers
    , contributor
    Comments (109) | Send Message
     
    allday,

     

    Your 1,000 KMP units will become 2,193 KMI shares, not 1,100.

     

    KM said that the consolidation would close "in the fourth quarter", so you'll receive the KMP dividend payable this week and another one in November.
    13 Aug 2014, 06:18 PM Reply Like
  • allday1234
    , contributor
    Comments (899) | Send Message
     
    I know that was just a typo on my part, but thanks for correcting me, my 1100 number would have been approx 2100 as I did not take the time to do the math just and approximation.
    In any case I believe I can live with it and if I need to pay the tax than I guess I will. Are nly hope is that in the end all is good.

     

    Take care
    14 Aug 2014, 08:14 AM Reply Like
  • Capt Jack Daniels
    , contributor
    Comments (1466) | Send Message
     
    Captain Y I highly doubt your cost basis is negative. I've owned half of my KMP position since 2010 and I am no where near a negative basis myself. But I do think that perhaps KMP shareholders should get sweetened offers because of the above stated loss of tax shelters and a reduced dividend once the switch is made.

     

    All in all it is a good thing, however perhaps KMP unit holders should receive a more sweetened offer of more than 2.1931 shares for every KMP share or they should have the option of remaining as a partner and having the remaining shares not tendered kept in some MLP format or some preferred KMI share.

     

    Honestly I would rather prefer to have the higher dividend so perhaps down the line KMI might offer some type of preferred share for those less concerned about control but more concerned about distributions.
    13 Aug 2014, 05:29 PM Reply Like
  • Captain Yossarian
    , contributor
    Comments (2) | Send Message
     
    I have 850 KMP units that I have owned since 2009. My tax basis is a negative number. I am going to vote no.
    13 Aug 2014, 05:36 PM Reply Like
  • ba37840
    , contributor
    Comments (164) | Send Message
     
    Captain

     

    If your tax basis is a negative number then you have been paying a Long Term Capital Gains rate on all your distributions since your basis went negative. Are you sure you know what your talking about ?

     

    I don't know how your basis could be 0 if you only have owned KMP since 2009.
    13 Aug 2014, 07:38 PM Reply Like
  • stvrob_63
    , contributor
    Comments (1133) | Send Message
     
    You know, not all of your distribution was reducing your basis.
    13 Aug 2014, 07:40 PM Reply Like
  • stvrob_63
    , contributor
    Comments (1133) | Send Message
     
    Please post some real numbers (I mean if you want) We should go over a real K-1 bit by bit. I'm guessing this is nowheres near as bad as people are making it out to be.
    13 Aug 2014, 08:56 PM Reply Like
  • comeinvestwithme
    , contributor
    Comments (247) | Send Message
     
    A bit off topic, but can someone please explain what happens after the basis drops below zero? I hear that tax at capital gains rates has to be paid on distributions after the basis is zero - but if basis is still reduced to negative numbers, will taxes have to be paid again at time of sale? I assumed that basis will stay at zero and not become negative.
    13 Aug 2014, 11:15 PM Reply Like
  • ba37840
    , contributor
    Comments (164) | Send Message
     
    Stvrob

     

    Wrong, all distributions reduce your basis. Just look at your K-1. Passive income (and other items), increase your basis. Passive losses and other items reduce your basis.
    14 Aug 2014, 12:29 AM Reply Like
  • ba37840
    , contributor
    Comments (164) | Send Message
     
    Actually there is no such thing as a negative basis. Once your basis is 0 in an MLP all distributions are reported as long term capital gains.

     

    When you sell, the MLP will report your ordinary income and long term capital gains for tax purposes, taking into account any accumulated passive losses.
    14 Aug 2014, 12:32 AM Reply Like
  • stvrob_63
    , contributor
    Comments (1133) | Send Message
     
    ba37840 I guess what I meant to say is that not every dollar that was received each quarter reduced the basis by the exact same amount. Or does it?
    14 Aug 2014, 12:40 AM Reply Like
  • ba37840
    , contributor
    Comments (164) | Send Message
     
    It reduces the basis by the exact amount of the distribution and then passive losses or passive income and other deductions or credits my reduce it or increase it. If you never received a K-1 you have no idea what I am talking about. In most cases your basis is constantly decreasing year after year from distributions and ordinary losses.
    14 Aug 2014, 01:57 AM Reply Like
  • comeinvestwithme
    , contributor
    Comments (247) | Send Message
     
    Captain Yossarian above reported negative basis ("my tax basis is a negative number"), ba37840 states basis cannot be negative. Which one is right?
    14 Aug 2014, 04:11 AM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    comeinvest,

     

    I think that the term negative basis is being used imprecisely, the proper term would actually be a "negative capital account".
    On my 2013 K-1 it is item L.
    Cost basis usually means the price you pay for an item. Capital account balance pertains to partnership interests. If KMP purchased my pipeline worth a million dollars. and gave me units, my initial capital account would be one million dollars. If I than bought more units for $10000, that would be added to my capital account. Over time the distributions I receive are considered a return of my investment in most part, so I don't have to pay tax. But that reduces the capital I have invested in the partnership. It doesn't reduce the market value of the units, so I now have a gain which will be taxed when I sell and never is I don't.
    My accountant tells me that when the capital account is negative, the total compensation a unit holder receives for the units is taxable at either long or short term capital gains. In addition any negative amount in the capital account is taxed at ordinary income rates.
    In my case, I will be liable for long term capital gains tax on 100% of the cash and unit proceeds at the closing date or the date I sell the units and ordinary income tax on the negative capital account amount.
    This is exactly the amount of tax liability that I had prior to Sunday's offer. The only difference is that the date of disposition has now changed and the deferral of my liability ended.
    14 Aug 2014, 06:21 AM Reply Like
  • ba37840
    , contributor
    Comments (164) | Send Message
     
    KMR Holder

     

    You are correct, I have an MLP whose basis is now 0, I report all distributions as Long Term Capital Gains on my tax return. When you sell your units the negative amount in your capital account is added to your total gain which is broken down into ordinary income offset by your accumulated passive losses and LTCG.

     

    I think you should ask your Accountant to clarify the fact that no taxes are paid on the negative amount until you sell.

     

    Your projected gain/loss calculator will show the negative amount added to the total gain after you received all your capital back.
    14 Aug 2014, 03:35 PM Reply Like
  • comeinvestwithme
    , contributor
    Comments (247) | Send Message
     
    Thank you KMR Holder and ba37840. However I'm still confused. Per your explanations, it sounds like after the basis reaches zero, all distributions are taxed at LTCG. In addition, per your statement, the capital account keeps being reduced below zero for each distribution. At time of sale, you say the negative amount of the capital account is added to the total gain, which is then split into an LTCG and an ordinary income portion. In summary, if what you say is true, the distributions after the capital account becomes negative would be taxed twice, first at time of distribution, and second at time of sale. This does not make sense to me. Please clarify.
    14 Aug 2014, 09:46 PM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    comeinvest,

     

    There is no double taxation involved. If you really insist on paying double taxes, you are welcome to pay mine.

     

    As I understand it, I will pay 20% capital gains tax on the value of the KMP that I receive either from selling the units prior to the closing of the transaction or at closing when the KMP/KMI exchange occurs. If I receive $10,000, my capital gains tax will be $2000 on the transaction.

     

    Since my capital account is negative, let's say -$1000, I would pay ordinary income tax (assume the 25% bracket) 25% of $1000 or $250.

     

    Using these numbers, you could assume I would have to pay $2250 in total as the result of the exchange (sale) of KMP. There are other factors involved as well, but this is the basic concept.

     

    Just note, the Capital Account info on the 2013 K-1 is not up to date, as you have received additional distributions in 2014, it will likely be more negative.

     

    I am scouring my portfolio to find potential losses to offset the gains, even specific lots of my holdings. To date no luck. I guess I am just too good an investor to register a loss this year.

     

    As I mentioned before, I am even looking at some investments that could yield high returns, that I wouldn't normally consider, because should I be wrong and lose money on the trade, some of the loss would be borne by the IRS as I could reduce my LTCG tax on KMP with the possible loss.

     

    I don't recommend that you go out and lose money, but you might be a smidge more aggressive with your investments during the balance of the year, due to the government subsidy on your potential loss.
    14 Aug 2014, 11:11 PM Reply Like
  • IAK
    , contributor
    Comments (100) | Send Message
     
    Taxes are our legal obligation and moral responsibility to society. Kmp unit partners are only liable for taxes on what they have earned. They may have been deferred, but the liability never ceased to exist. Every investor in the mlp structured organizations should have been well aware. KMR share holders have not been exempted from taxes, rather with the share swap, their tax liability has been further deferred. For everyone complaining about the tax liability from this event, Richard Kinder has made a significant amount of money. I believe he's structured a deal which results in a rare win-win-win-win situation. In the short term, Kmi share holders appear to have "profited" the least from this event. The majority of RK's funds are invested in KMI. In the long term, regardless of which form of the Km family you are invested in, if you stick with the group, you are in a great position to make a lot more money continuing to place your trust in RK. As for me, I'm always happy when I'm obliged to pay more taxes , albeit in a tax efficient manner, just means I'm making more money!
    13 Aug 2014, 05:40 PM Reply Like
  • wgrogers
    , contributor
    Comments (109) | Send Message
     
    "As for me, I'm always happy when I'm obliged to pay more taxes , albeit in a tax efficient manner, just means I'm making more money!"

     

    -- ditto
    13 Aug 2014, 06:21 PM Reply Like
  • fredj
    , contributor
    Comments (155) | Send Message
     
    So many whiners on here. Your going to pay taxes sooner or later on your MLP units. If you somehow thought you were avoiding them forever then you shouldn't be investing.
    13 Aug 2014, 05:46 PM Reply Like
  • Rudester
    , contributor
    Comments (3413) | Send Message
     
    @fredj,

     

    It's not whining about taxes, it's about the offered deal. The premium offered to KMR stock holders is pure profit. The premium offered EP unit holders is more than adequate for taxes owed. The premium offered KMP unit holders of reasonable tenure is less than adequate to cover the taxes with.

     

    Add to that the loss in income (forgetting about taxes due on the income). A KMP unit pays more income per quarter than the corresponding number of KMI shares. Yes, in the future KMI dividend may grow to equal the income produced by a KMP unit, but in the meantime, there is a significant drop in income, again forgetting about any tax paid or deferred.

     

    I plan to vote NO on my units unless a fairer plan is put on the table.
    13 Aug 2014, 06:22 PM Reply Like
  • user1416
    , contributor
    Comments (952) | Send Message
     
    Rudester-

     

    good followup, explains the situation perfectly for long term KMP holders. I have calculated my tax liability at $10-$11/share so I think a reasonable course of action might be to convert the shares, collect the $10.77 to pay the IRS and then sell KMI and reinvest.
    13 Aug 2014, 08:33 PM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    Rudester

     

    I think the deal is fine for all concerned. As an owner of KMP with a negative capital account I will be paying the maximum taxes.

     

    If I make the assumption that KMI will be trading somewhere around $40 at closing. KMP and KMR will be receiving slightly less than $100 in cash value using the exchange terms for the different securities. So if it is not about the taxes why are you complaining about the deal. We are getting dollar for dollar almost the same market value as the KMR owners will receive.

     

    Can you explain why the terms of the deal is unfair or bad? Don't forget you said it is not about taxes.

     

    I think that you are being blinded by the fact that your tax liability is coming due. I am very happy to pay the tax currently and benefit from a much better corporate structure going forward, which should increase my net worth much more than under the old structure.
    13 Aug 2014, 09:02 PM Reply Like
  • stvrob_63
    , contributor
    Comments (1133) | Send Message
     
    Not so fast Mr Rudester. KMP unitholders have been receiving their distribution tax deferred, Cash that they could have spent on anything they wanted. KMR shareholders reinvested and received shares in kind in lieu of distribution. It is no more pure profit than the deal offered to KMP holders. On a valuation basis, KMR was ALWAYS equal on a per share basis to KMP. Are you suggesting that the KMR discount to KMP that existed prior to the merger announcement should remain through the merger? How would that have been fair considering they have claim to the exact same assets?
    13 Aug 2014, 09:10 PM Reply Like
  • wgrogers
    , contributor
    Comments (109) | Send Message
     
    Rudester & user1416,

     

    I suspect, but certainly don't know, that KM had/has access to the pertinent data (number of units, purchase dates, tax basis) for all retail KMP unit holders, used this data to calculate a fair amount for consideration for taxes, and arrived at $10.77 (in conjunction with the 2.1931x conversion factor).

     

    Some will see the $10.77 as more than enough for the tax impact, others (such as user1416) will see it as adequate, and some will see it as insufficient to make them whole. I'd bet that the $10.77 was calculated so that a sufficient number of units will be voted in favor of the consolidation.
    13 Aug 2014, 09:14 PM Reply Like
  • gerald_wilborn
    , contributor
    Comment (1) | Send Message
     
    I bought KMP late in 2013, so only a short time holder. Sifting through the K-1 and using data from the Kinder Morgan Projected Gain/Loss Calculator on their website, I estimate my taxes will be $5.73 per unit, so I will be voting yes. I am disinclined to sell now, as the market value of one share of KMP is nearly $3 less than the post transaction value of KMI+Cash. I've not seen any talk "true" arbitrage of this difference, i.e. short say 2200 shares of KMI and use proceeds to purchase 1000 shares of KMP (have to add a some cash).
    13 Aug 2014, 10:49 PM Reply Like
  • user1416
    , contributor
    Comments (952) | Send Message
     
    wgrogers- agree with your comment, don't think Kinder's intention was to cover the total tax liability. The timing could be better (2015), and it would certainly be better if KMI yielded the same as KMP.

     

    Just think that before KMP holders decide to sell early they should calculate their true tax liability, consider the November dividend, consider that they have locked in a 5.5% yield-on-cost, and also that KMI could reasonably be higher after the transaction closes.
    13 Aug 2014, 10:49 PM Reply Like
  • stvrob_63
    , contributor
    Comments (1133) | Send Message
     
    you are individually entitled to take more or less than the $10.77. Just take as much as you need (ie sell more shares or not) to cover your particular tax bill.
    13 Aug 2014, 11:38 PM Reply Like
  • Rudester
    , contributor
    Comments (3413) | Send Message
     
    KMR holder,

     

    My comment "... it is not about taxes." was in reference to the distributions/dividends. It did not apply to my earlier paragraph which stated that the premium did not adequately cover the taxes on the conversion from KMP units to KMI shares.
    14 Aug 2014, 12:35 AM Reply Like
  • Rudester
    , contributor
    Comments (3413) | Send Message
     
    stvrob_63,

     

    The KMR transaction is tax free. What is the premium for?

     

    The KMP transaction is not tax free. What is the premium for?

     

    Why should there be a different treatment?
    14 Aug 2014, 12:39 AM Reply Like
  • stvrob_63
    , contributor
    Comments (1133) | Send Message
     
    @Rudster The premium is only in relation to the previous trading price. KMR was trading at a discount to KMP, even though the value of each KMR unit was identical to KMP. The merger terms had to make their value identical, which it did.
    14 Aug 2014, 04:03 PM Reply Like
  • searcher
    , contributor
    Comments (1681) | Send Message
     
    Common sense would certainly lead us to expect that 'inducement' was the intent of the calculation of the 'cushion'. Reflection on many of the comments yields recognition of the 'blindness' that overcomes so many of us when taxes are at issue. I have seen investors actually choose to remain in prospectively less favored securities solely to avoid paying a tax. I personally have sold issues much too early at a loss, just to avoid taxes on a gain elsewhere. Foolishness often overcomes us when taxes are in play.
    16 Aug 2014, 11:05 AM Reply Like
  • eternitus141
    , contributor
    Comments (525) | Send Message
     
    Great comment - I tried to time the market to take a tax loss on KMI and sold all of my shares that were currently in a loss position with the intent of buying them back later. I had a large short-term gain that I was trying to cut down. 2 days after the sale, Goldman Sachs came out with a conviction buy and the stock started to rocket. I got back in, but tax blindness cost me a decent amount of money. Every time I make a decision motivated by tax consequences, the same thing seems to happen. I should have just felt fortunate that I had a gain to pay taxes on. Just like our friends who made boatloads of money on KMP.

     

    I swear people would pay $1.00 to save a dime on taxes. I swear people would rather lose money than pay taxes. It makes no sense to me.
    18 Aug 2014, 02:06 PM Reply Like
  • mydogmoe
    , contributor
    Comments (1403) | Send Message
     
    It is a true winner in a tax deferred account. Sell and pay zero taxes until you make a draw and then it is regular income. You know I paid very little taxes in 2008. Lost money too. I don't gripe about it anymore. A famous man once said, "Render to Caesar what is Caesar's"...
    13 Aug 2014, 06:16 PM Reply Like
  • don't know nothing
    , contributor
    Comments (681) | Send Message
     
    hold $KMI and $KMR. Buy $KMR if you want to play. My View Sell $KMP now and buy $KMR, tomorrow. If your own $KMP in an IRA and have for a few years your going to see tax issue with unrelated income issues. Today you still get $KMI in the future below market price today with $KMR purchase.
    13 Aug 2014, 06:35 PM Reply Like
  • schek711
    , contributor
    Comments (12) | Send Message
     
    Ok you get $10.00 + in cash and the tax bite at a minimum is calculated at $12 +

     

    So you pay $2 + net to the tax man. OK

     

    Now you get 2.7 shares of KI for each share of KMP which will pay $2 in dividends and the dividend will increase every year. So you are getting at least something like $87 in KMI shares to compensate for the tax bite.

     

    So tell me why I should sell my KMP. I am holding on and preparing to smile over the next 2-3 years. If I sell I have to pay the tax man with no compensation.

     

    To me selling makes no sense. Anyone disagree tell me
    13 Aug 2014, 06:54 PM Reply Like
  • frankxatill
    , contributor
    Comments (62) | Send Message
     
    I'm with you. Why sell now, pay taxes, and miss the $10.77. You will pay taxes either way. I must be missing something.
    14 Aug 2014, 11:19 AM Reply Like
  • toomuchgas
    , contributor
    Comments (1019) | Send Message
     
    Maybe the IRS will stop worrying about people investing in MLPs not paying enough taxes. It isn't if they pay taxes it is when.
    13 Aug 2014, 07:13 PM Reply Like
  • plschuler
    , contributor
    Comments (113) | Send Message
     
    As a KMP unit holder, if I "vote no" with my feet by selling ahead of the buyout I am still stuck with an unexpected, large tax bill. I bought KMP because I wanted a high yield investment with the ability to defer taxes. I was not seeking growth. I plan to vote "no" and hope a majority of unit holders agree. I would be happy to be back to where I was before the buyout announcement last Sunday.
    13 Aug 2014, 07:47 PM Reply Like
  • jwanebo
    , contributor
    Comments (26) | Send Message
     
    As with the majority of KMP holders' comments within, I will vote no on my 2,000 plus KMP shares, A hell no!
    13 Aug 2014, 09:19 PM Reply Like
  • dakota444
    , contributor
    Comments (98) | Send Message
     
    I had KMI, EPB, and KMP. I sold KMP and EPB on the Monday after the announcement because the prices got too outrageous to ignore. I have a very large gain, and a very large tax bill, but I'm not complaining one bit. If you want to complain about your tax bill why don't you give the money back that you made on the KM companies. I bought more shares of KMI, and I will stick to the coattails of the billionaire(RK) with the golden touch because he's done alright with me.
    13 Aug 2014, 10:17 PM Reply Like
  • shaxmatist1
    , contributor
    Comments (289) | Send Message
     
    "KMP an after-tax loser in Kinder consolidation deal, Wells Fargo says"

     

    Wells is spewing nonsense. Triggering a capital gain tax event is not a "loser", its just paying tomorrows taxes today.
    13 Aug 2014, 10:29 PM Reply Like
  • HughPryor
    , contributor
    Comments (3) | Send Message
     
    What taxes? Mine is all in IRAs.
    13 Aug 2014, 10:49 PM Reply Like
  • bh0128
    , contributor
    Comments (90) | Send Message
     
    Let KMI GROSS UP the fed and state tax liabilities and then it will be an economic deal. BH
    13 Aug 2014, 10:49 PM Reply Like
  • stvrob_63
    , contributor
    Comments (1133) | Send Message
     
    Whose money would they use to "gross up" as you say? Should they skim a little from the KMR? EPB? How would that be fair? KMR and KMP have precisely the same valuation, share for share, the exact same claim on assets. How is it a KMR shareholders responsibility to cough up equity so the KMP unitholders can pay their tax bill? KMP unitholders have been receiving cash, reducing their at-risk position every quarter, While KMR's shareholders are reinvesting and letting it ride. Who is going to cough up money when KMR's shareholders have to pay their tax bill? I presume KMP unitholders knew when they entered the MLP agreement that their taxes were merely deferred.

     

    I really don't understand what all the fuss is about. You received income, in some cases for many years, all tax deferred. Just sell however much KMI it takes to pay your tax bill, keep the rest, and you will still be better off by far than if you were to somehow manage to sink this deal (which won't happen anyway). Richard Kinder is providing you the ideal escape...Price appreciation means you can be over and done with the issue, then its no more IDR's, cheaper capital, a leaner, cleaner management structure, and all sorts of investors who will want to be involved due to the uncomplicated structure.
    13 Aug 2014, 11:51 PM Reply Like
  • ejane11
    , contributor
    Comments (42) | Send Message
     
    So, if you're sitting on 400 shares bought a year ago, in an IRA, is it better to leave it be or sell it? We're retired and drawing on the IRA. I can't seem to get a clear answer. We're up about 20%.
    14 Aug 2014, 01:04 AM Reply Like
  • stvrob_63
    , contributor
    Comments (1133) | Send Message
     
    It depends if you want to be a shareholder of KMI. I would let it ride. What security is it that you own?
    14 Aug 2014, 01:27 AM Reply Like
  • Allen J. Frankel
    , contributor
    Comments (104) | Send Message
     
    If the Wells Fargo analysis is proven to be correct, I would imagine that all holders of KMP Units would be compelled to vote NO. Why would anybody want to vote yes to a situation that initially makes them poorer than the day before ???

     

    This move was done for the exclusive benefit of the billionaire owner, and not the small individual unit holders. From what I have read on the internet, it appears that KMP Unit Holders are about to get badly screwed.

     

    KMP should have bought out the "General Partner" instead, and the tax benefit of the "MLP Structure" would have been preserved.
    14 Aug 2014, 02:01 AM Reply Like
  • Capt Jack Daniels
    , contributor
    Comments (1466) | Send Message
     
    I think perhaps KMI may sweeten the deal just to quiet down some of the complaints by KMP holders. Be that as it may KMP holders will have the option of getting more KMI shares instead of cash I read somewhere. The question should be is 2.1931 shares enough or should that be bumped up a little.
    14 Aug 2014, 10:18 AM Reply Like
  • dakota444
    , contributor
    Comments (98) | Send Message
     
    Why would KMI want to pay your taxes for you??? I think that would be your responsibility, since you had deferred taxes for years.
    14 Aug 2014, 11:47 AM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    Capt Jack,

     

    I think what you are referring to is that KMP owners will have the option of taking more cash or less cash and fewer or more shares. The distribution would be pro-rata among the entire class of KMP owners. It will not change the value of the exchange nor the tax considerations.

     

    As for quieting down the complaints, I consider the complaints only a whisper as he probably already has sufficient support for the offer from the KMP unit holders. He is pretty good with counting votes.

     

    If it is possible, he might be persuaded to delay the transaction close into 2015. That would allow owners of KMP units to mitigate their tax liability by splitting their sales over two tax years.
    14 Aug 2014, 04:32 PM Reply Like
  • ClubFord
    , contributor
    Comments (308) | Send Message
     
    Color me confused. I understand the distaste for paying taxes (which will be substantial for some investors) sooner than would have been preferred. What seems to be missing, in my opinion, is the calculation of the yield that has been generated by having the full amount of the distributions in hand rather than an after tax amount that would be associated with qualified dividends (eg had the KMP/KMR/EPB complex been C Corp's).

     

    Let's assume that someone held KMP for 10 years and their adjusted cost base is now $0. The entire transaction amount (the "payment" of 2.193 KMI shares + the $10.77 in cash) will be taxable when the deal completes (assume Dec).

     

    For the purpose of this exercise, let's assume a dividend tax rate of 20%. Now let's apply that same 20% tax rate to all prior distributions. Therefore the investor had 20% more cash in hand than would have been true had tax been assessed each year on qualified dividends as with a C Corp or other Corporation. Let's call these "excess distributions". If the investor had invested these "excess distributions" at, say 7% (in a Kinder Company or anything else) the compounding effect is substantial. Each $1.20 (20% "excess" vs $1 after tax) received in 2004 is now worth $2.36; each $1.20 received in 2005 is now worth $2.21 etc. Assuming $1.20 was received in each of the last 10 years, the compound cash flow stream from these $10 "excess distributions" are now worth $17.74 (before tax). Had tax been paid in the year received and invested at the same 7%, it would be worth $14.78 today. If the investment used to generate the 7% yield was an MLP, the entire amount of $17.74 is still in the investor's hands. If not, a marginal tax rate for the investment needs to be applied to determine the amount these compounded "excess distributions" are worth. Too many moving parts and individual circumstances to be contemplated in this discussion. In this simple model, there is an additional $2.96 available to pay the deferred tax that will assessed when the deal completes.

     

    Each individual investor will have a different holding period; many will have added to their holdings over time; some will have reduced their positions over time; many will have a combination of these. There are too many moving parts to postulate a definitive formula for all investors, but the concept of reinvesting and compounding these "excess distributions" over the individual's holding period applies to all. That means the investor's portfolio and net worth are greater by this amount of compounded "excess distributions" than would other wise be the case.

     

    Additionally, the investor will be paying tax in December 2014 in inflation reduced $ compared to paying tax in the year received (eg as with qualified dividends).

     

    All-in-all, I believe the benefit of having received 100% of the distributions (vs 80% from a comparable dividend stream) and the income generated from the "excess" portion of these distributions, along with inflation adjusted $'s paying the taxes due on the deal, are being ignored or under appreciated.
    14 Aug 2014, 11:12 AM Reply Like
  • eternitus141
    , contributor
    Comments (525) | Send Message
     
    Well said. By the looks of some of these comments, these people would rather lose money on the deal than pay taxes. If they vote the merger down (which I think is mathematically impossible with all the merger arbitrage funds buying up KMP by the handful, though they're welcome to give it the old college try), they will get their chance to pay less in in taxes when Rich Kinder offers them a slightly larger premium on units that are worth 35% less than they are today - after KMI buys up more units to make sure the merger goes through. Be careful what you wish for. But hey, losing money instead of making it is one way to lessen your tax bill. :)

     

    Wells Fargo's note and some other articles mischaracterize the situation - KMI has been paying taxes currently and have received a lower distribution for years because of it. KMP holders delayed their tax payments and now have to pay what they already owe. KMI isn't stealing benefits from anyone. It's fantasy to think that this MLP can keep going forever (the structures can't work when they get so big, and they need to keep getting bigger to work) and it's probably fantasy to think that the tax laws will never change with all the fiscal issues this country is about to face. Take the gains, pay taxes on all the money you made just like the rest of the human race, and be happy this investment worked out so well.
    14 Aug 2014, 12:09 PM Reply Like
  • user1416
    , contributor
    Comments (952) | Send Message
     
    Club- I don't disagree with your thesis, but for some long term holders who rely on the sheltered income provided by KMP, this is akin to having to cash in your IRA on a date not of your choosing.

     

    The MLP structure offers so many benefits in allowing you to manage your adjusted gross income from a taxable account. For some, the MLP structure allows them to stay in the 15% bracket by not including return of capital on their 1040 until the partnership is sold. Others may wish to liquidate after they leave they workforce and are in a lower bracket. Still others, may have planned to pass the partnership to their estate at the stepped up value.

     

    This really throws a wrench in the works for some shareholders. I felt the same when BNSF was taken private.
    14 Aug 2014, 01:17 PM Reply Like
  • MrL_wAnO
    , contributor
    Comments (3) | Send Message
     
    It is worth researching consequences of any KMP holdings in tax-advantaged (e.g., IRA) accounts, as the tax implications may not be avoided by holding KMP in these accounts. That was the reason - correctly or not - that I sold off KMP several years ago and purchased KMP units in a Roth IRA. Of course, I may find out that I was misinformed or tax implications changed since then.
    14 Aug 2014, 12:42 PM Reply Like
  • MrL_wAnO
    , contributor
    Comments (3) | Send Message
     
    Correction: I purchased KMR units in a Roth IRA, rather than KMP, pointedly to receive the similar-to-KMP yield (dividend-equivalent purchase of KMR units), to avoid KMP's complicated tax implications, to avoid risk of UBTI in a tax-advantaged account, etc.
    14 Aug 2014, 01:22 PM Reply Like
  • badwater bill
    , contributor
    Comments (18) | Send Message
     
    As I look at my K1 for KMP in 2013, under section L. Capital account analysis, I see the ending balance is $15,000 less than the beginning balance, at the same time I only received a $5,000 distribution in 2013, and prior years are the same, the capitol account tax basis, and my broker's cost basis differ by over $40,000, if I in fact have to use the tax basis as reported on the K1 from Kinder M., the math is very cruel, does anyone know? Is this how we are to calculate the cost basis? Is this amount to be taxed as ordinary income, due to the fact that it is recapture?
    14 Aug 2014, 12:44 PM Reply Like
  • Rudester
    , contributor
    Comments (3413) | Send Message
     
    Bill,

     

    Unfortunately you have to use the K-1. The broker's cost basis does not apprehend the nature of an MLP's distribution. It just shows you the cost in the acquisition of the units.
    14 Aug 2014, 01:26 PM Reply Like
  • ba37840
    , contributor
    Comments (164) | Send Message
     
    Bill

     

    This is not rocket science. If you want to get an idea of your tax liability go to the KMP tax package support page.

     

    http://bit.ly/1oxZXtH

     

    Sign in and go to the PROJECTED GAIN/LOSS CALCULATOR. Plug in the merger price, or any price you want, then hit sell all units.

     

    You will see your original cost, subtract the adjustment to basis column, this will give you your current basis as of the end of 2013. Next you will see two columns which will show what your Ordinary Income and LTCG will be after you sell.

     

    The LTCG is easy, this amount will be taxed at a LT Cap Gain Tax Rate. 15% or 20%

     

    Now for the fun part. The Ordinary Income amount has to be offset by all your accumulated passive losses that you have kept track of for all the years that you have owned KMP. After this subtraction you will now have the ordinary income figure that is taxed at your individual tax rate.

     

    Things to remember.

     

    1. The gain loss calculator only shows your adjustment to basis as of Dec. 31, 2013. You would have wait for the end of 2014 to see the new adjustments to basis.

     

    2. The gain/loss calculator does not keep track of passive losses or gains. It is up to you to keep your K-1s and keep track of the passive losses.

     

    3. Accumulated passive losses cannot be used unless you sell all your units, or in this case the MLP is being merged into a C Corp (same as selling all the units as far as I am concerned.)

     

    4. The K-1 determines your tax not whatever your Broker has on file.

     

    5. If I am paying taxes, I'm making money. I vote yes on the merger !

     

    I am not a tax expert but I have been doing my own taxes for a long time, I have no problem with multiple K-1's. I use TaxACT (cheaper then Turbo Tax) It keeps track of accumulated passive losses and is easy to use.
    14 Aug 2014, 04:01 PM Reply Like
  • user1416
    , contributor
    Comments (952) | Send Message
     
    ba37- I think the Long Term Capital Gains rate is 0% for those in the 15% bracket and lower. Short term gains will be due at your marginal rate.
    15 Aug 2014, 12:00 AM Reply Like
  • ba37840
    , contributor
    Comments (164) | Send Message
     
    User1416
    Wrong, if you have Long Term Capital Gains. the lowest rate is 15%, if you are in the 15% bracket you will pay 15%, if you are in a lower rate I am not sure, I have never been there so I can't tell you. You will probably pay less because of your exemptions, etc..
    15 Aug 2014, 12:23 AM Reply Like
  • user1416
    , contributor
    Comments (952) | Send Message
     
    ba37- From the IRS, not me...

     

    "The tax rates that apply to net capital gains will usually depend on your income."

     

    "Although the maximum net capital gain tax rate rose from 15 to 20 percent in 2013, a 0 or 15 percent rate continues to apply to most taxpayers. A 25 or 28 percent tax rate can also apply to special types of net capital gains."
    15 Aug 2014, 01:15 AM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    ba37840, user is correct.
    If your marginal tax bracket is below 25%, LTCG is taxed at the same rate as qualified dividends, zero taxes. This distribution however could easily push many investors into and above that 25% tax bracket.
    15 Aug 2014, 10:09 AM Reply Like
  • onepug
    , contributor
    Comments (5) | Send Message
     
    Thank you, I used the PROJECTED GAIN/LOSS CALCULATOR. My Adjustments to Tax Basis column is a HUGE negative number. (over 2500 units bought since 2004)....just how badly am I getting screw is this deal? I'm still working, already in a high tax bracket, this could be devastating to me! The plan was to sell slowly after I quit working...so much for that plan!
    14 Aug 2014, 10:45 PM Reply Like
  • user1416
    , contributor
    Comments (952) | Send Message
     
    Can you contribute to workplace savings to bring down the tax rate?
    15 Aug 2014, 12:08 AM Reply Like
  • ba37840
    , contributor
    Comments (164) | Send Message
     
    Onepug

     

    I hate to be rude but what are you talking about ? First your long term capital gain amount will be taxed at a 20% rate (lower then ordinary income rates). Second, your ordinary income amount is offset by passive losses (Did you take that into consideration ?), did you keep track of your passive losses ?, KMP almost exclusively reports passive losses instead of ordinary income in the K-1.

     

    I don't care what your ordinary income tax rate is, it can't be as bad as you think.

     

    If your paying taxes, your making money, pay the dam tax and move on !
    15 Aug 2014, 12:17 AM Reply Like
  • stvrob_63
    , contributor
    Comments (1133) | Send Message
     
    @onepug.
    Just how bad is it? You have received roughly $40/unit since 2004, is that about right? So assuming you have had all 2,500 units since then, that is $100,000 you have received in deferred income. Your units were worth roughly $200,000 ($80/share) just prior to the merger announcement, But near the end of the year that will be turned into 5,483 shares of KMI, plus $27,000 in cash. Roughly speaking, how big would your tax bill be, and how many of those 5,483 KMI units will you need to dispose of (say @ $40/share) to pay off all your taxes?
    14 Aug 2014, 11:39 PM Reply Like
  • Anasazi101
    , contributor
    Comments (3384) | Send Message
     
    We all knew (or many) this was coming; I just don't understand how bad yet.?
    Because of holding two(2) different Entities or shares/units, in three(3) different accounts, with 3 "different tax ramifications"..
    So I would think some could see the confusion for us...?

     

    And maybe we should have held onto the 300-400 shares of KMI a couple years back....Then it would probably be a "Circus for us" or something to do with a circle...?

     

    Either way, when this broke, I was pretty sure it would be a "windfall for Rich Kinder" and the upper levels of holders..
    And pretty sure that it will work towards that end..?

     

    I'm pretty sure we will make out also, but when the dust all settles; I am really wondering what this is going to look like...?
    Too much information and dis-information out and about.
    Any guessing at this time.....Is only that, GUESSING.
    long KMP, KMR.
    15 Aug 2014, 01:15 PM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    Anasazi101,

     

    If you want to clear some of the confusion about the transactions, take the time and read the and listen to the presentations on the Kinder Morgan website. Assume that the presentations are correct and the individuals are being honest and working for the best long term interests of the business.
    If after considering the presentations, I think you will be convinced that Sunday's announcement is in your best interest. It might require you to think about the investment differently, but things in business do tend to change. Now if you chose to you will own part of the company again, not just a tax benefited cash flow stream.
    About 50% of my Kinder is in KMI and 27% KMR. My 23% in KMP will be the only holding with tax implications from the exchange.
    Even after paying tax on the KMP, I will be way ahead of the game on the KMP. I haven't done the calculation but I expect that my after tax return on the KMP is going to be somewhere north of 7% per year, and the distributions have been invested in shares of other companies that have grown in value as well.
    15 Aug 2014, 01:36 PM Reply Like
  • Ruffdog
    , contributor
    Comments (3547) | Send Message
     
    And Rich kinder has been giving you more that 5% cash on your investment over the past years so paying taxes now is not a bad think, you already have received the money to pay your taxes.
    16 Aug 2014, 10:49 AM Reply Like
  • Anasazi101
    , contributor
    Comments (3384) | Send Message
     
    Thanks, I will get to that soon; And I haven't listen to any of the recent calls.
    Maybe it will keep me off the Roof...;)

     

    Our mix is 75-80% KMP and about 20-25% KMR, but they are "core holdings".
    That's part of the concern...
    And we also had a large split in another LP/MLP this year...
    15 Aug 2014, 02:46 PM Reply Like
  • alschroed
    , contributor
    Comments (1579) | Send Message
     
    It is a surprise to some that KMI is the surviving entity rather than KMP. Most MLPs buy out their IDR payments from their General partner. If you look at what Richard owned before the announcement; a lot of KMR and tons of KMI with no KMP the deal makes sense to Richard and onlookers.
    15 Aug 2014, 03:45 PM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    alschroed,
    When you calculate the value of the IDRs to KMI and the value of outstanding KMI units, I think it would have been very expensive if not impossible for KMP to buy out KMI. I was thinking it more likely that the General Partner would be taken private. The market has done a really poor job of valuing the IDRs. In order for Kinder to get any distribution growth for KMP recently the GP has had to waive the IDRs thus depriving KMI owners of some of the value of the GP interest, but overall waiving the IDRs allowed the GP to raise its cash flow more than if it hadn't done the deals.
    15 Aug 2014, 08:49 PM Reply Like
  • stockade
    , contributor
    Comments (18) | Send Message
     
    I'm thankful I'm a KMR owner, it's had a great jump in value. We as share owners should be happy that one of our stocks, has risen that's why we invest, we all have to pay taxes, so deal with it . Hopefully KMI , will move up after all is settled.
    16 Aug 2014, 09:38 AM Reply Like
  • Ruffdog
    , contributor
    Comments (3547) | Send Message
     
    I do not mind paying taxes, especially on this deal! Never wrong betting with Rich Kinder.

     

    Glad to convert you do not know how long it will be before the IRS closes the MLP loophole.
    16 Aug 2014, 10:44 AM Reply Like
  • Chancer
    , contributor
    Comments (4362) | Send Message
     
    If an investor owns a stock like KMP or any other with potential for tax cost basis to go to zero or negative, there is an easy way to avoid that and keep tax cost basis always positive- just a little.

     

    You can buy a few more shares every year. Even if the dividend is 100% ROC, you can just buy more shares equal to annual dividend to keep tax cost basis above zero.

     

    If you do not want to be out the cash for the purchase, you can also sell an equal amount which will be nearly 100% cap gain. Even if you buy and sell at same price, your only cost is the commission.

     

    Although I have never been in that position (zero or negative cost), I believe when your tax cost basis goes negative, a portion of your taxable income becomes ordinary income instead of cap gain. You can avoid that by buying a little every year to add to your cost.
    16 Aug 2014, 01:05 PM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    Chancer,

     

    Buying a few additional units to keep your capital account positive, isn't going to gain you much. Even if you have a 1% positive balance, you're going to have to pay LTCG tax on the other 99%.

     

    Each year you will have to buy larger and larger numbers of units to stay ahead of the capital drain. I'm not sure it is really worth the effort if the new purchases are just to keep the capital account positive and not because you want to add to your investment position.

     

    You could in fact do it now and buy enough new units to get a positive capital account, but any gain you would now receive on the new units would be short term and taxed the same as ordinary income.
    16 Aug 2014, 04:52 PM Reply Like
  • eternitus141
    , contributor
    Comments (525) | Send Message
     
    What you are describing, if you look through to the underlying assets, is why the MLP model stops working after a while. Think about it.
    18 Aug 2014, 02:09 PM Reply Like
  • stvrob_63
    , contributor
    Comments (1133) | Send Message
     
    @Chancer:
    What you describe sounds a whole lot like KMR.
    16 Aug 2014, 02:08 PM Reply Like
  • VinceLatona
    , contributor
    Comments (187) | Send Message
     
    WOW...!!! The most amazing thing to me is not the Kinder deal....it's some of the comments and questions. They illustrate the total lack of knowledge of some of the investors who bought shares and really didn't know what they were buying and what the structure was.

     

    Comments such as demanding that Kinder 'sweeten' the deal because YOU are going to be hit with a tax bill, investors who are going to vote NO and don't understand the structure of the General Partners, etc...and on and on.

     

    SA is a great place for information exchange and a true learning experience with a lot of really savvy people, but you really need to be aware of just what you are invested in before the fact and not after.
    16 Aug 2014, 02:50 PM Reply Like
  • dataman2
    , contributor
    Comments (128) | Send Message
     
    Your comments are an insult and show your lack of knowledge
    16 Aug 2014, 09:14 PM Reply Like
  • 205427
    , contributor
    Comments (1128) | Send Message
     
    Compared to you, Vince sounds like freakin Einstein. I agree with him 100%, the deal was done with the best interests of the company in mind, not someone's tax situation, especially since no 2 are the same. It is simply amazing that people are griping about a tax bill as if a loss would be preferable.

     

    And as stated above, many people will have 0 capital gains tax if they are in the 10 or 15% brackets and for those complaining about the high tax rates they will pay, consider how much worse it would be if not for the Bush tax cuts.
    24 Aug 2014, 12:53 AM Reply Like
  • eternitus141
    , contributor
    Comments (525) | Send Message
     
    Well said. I have never seen so many people so unhappy to have made so much money (except maybe at bonus time at my old investment bank - lol). I talked to a couple of people who have owned the units for 16 years and have earned 12x - 17x their initial investments from the deal, depending on the date they acquired the units. They groaned and groaned about how this was going to impact their lifestyle and how Rich Kinder was a greedy, wealth pillaging ogre. How about taking a look at what your lifestyle would look like without a multi,multi,multi bagger where all you had to do was sit there and collect the checks while someone else did all the work? I have never had an investment that did so well - aside from starting my own business, of course, and that required me to work 100 hr weeks for the first 6 years to get the darn thing off the ground. Get a grip, people. Most people would kill to be in your situation.

     

    Sorry about the tone, but it's really hard to look at some of these comments
    25 Aug 2014, 10:38 AM Reply Like
  • ba37840
    , contributor
    Comments (164) | Send Message
     
    eternitus
    Well said ! If your paying taxes your making money, pay the tax, get over it, move on.
    25 Aug 2014, 12:11 PM Reply Like
  • allday1234
    , contributor
    Comments (899) | Send Message
     
    Look at it this way. Its all about the TAX THING. People hate to PAY TAXES, and it came as a surprise! But we all knew that the possibility existed. Oh sure we can blame Rick Kinder, but you see Rich is looking out for RICH FIRST and has tried to mediate the damage for the rest of us. For me it will be a plus as I came upon the KMP through the Copano transaction and so have not held so long. But I also know that MLPs are a deferred tax ride, I also know that someday it may come to an end, or I die and others will have that worry. I suppose the Gov't could end it as well but would suggest not soon or at all. So plan for it, pay the tax and look for better things to come from it.
    25 Aug 2014, 02:43 PM Reply Like
  • stvrob_63
    , contributor
    Comments (1133) | Send Message
     
    I would sure like to see someone's actual calculation of their "devastating" tax bill. I'm tempted to assume most of them are trolls for the attorneys.
    16 Aug 2014, 09:20 PM Reply Like
  • searcher
    , contributor
    Comments (1681) | Send Message
     
    A number will be hurt. But, just as dogs howling or cows a mewing, a number of justified complainants encourage a chorus of dubious universality. A crowd swells and a doleful canticle ensues. Misery loves company exemplified. There is a unit holder vote by the limited partners in this change of control. Unit count, of course. Solicitations will follow, when I don't know. It would be interesting to see the 'holder' count as well as the 'unit' count. It's a slam dunk via 'unit' count. That's what counts.
    25 Aug 2014, 04:30 PM Reply Like
  • bernief7744
    , contributor
    Comments (68) | Send Message
     
    Of course if KMI would book the acquired assets of KMP at at KMP booked value instead of at stepped up basis there would be no tax consequence to KMP holders.Thats what a lawsuit should be about.
    17 Aug 2014, 02:17 PM Reply Like
  • eternitus141
    , contributor
    Comments (525) | Send Message
     
    I don't believe that is correct. The tax consequences to KMP holders have nothing to do with how KMI books the acquired assets.
    18 Aug 2014, 02:12 PM Reply Like
  • bernief7744
    , contributor
    Comments (68) | Send Message
     
    yes it does by a side agreement
    26 Aug 2014, 07:17 PM Reply Like
  • eternitus141
    , contributor
    Comments (525) | Send Message
     
    Bernie, do you have a link to this agreement?
    1 Sep 2014, 02:17 PM Reply Like
  • allday1234
    , contributor
    Comments (899) | Send Message
     
    So all the angst is about what the taxes will be, and the anti-yes so called vote will put a stop to the so called foolishness being instituted by Richard Kinder. The only thing that would prevent that decision would be if Kinder changed his mind. I personally believe that he will not. For those who rise up and state a NO vote is in order, let me assure you that it is a waste of time as I am sure that this would not have been pushed out there if the votes were not there. One can not postpone the inevitable, so the plan should be to lessen the impact. While this will not satisfy the complaining of some, there will many things in life that they will not agree with that you cannot change. In fact if complaining was a plan that would change the outcome, maybe I would complain as well. So where does that lead me? Well I will vote if given the choice YES, although based upon this information copied and posted below because it is an MLP no vote is required:

     

    To dig a bit deeper, as noted above, MLPs have two separate partners, a General Partner and a Limited Partner. The General Partner runs the company’s operations and holds all the voting power and the Limited partner provides the capital and reaps the benefits of the distribution payments. The entity is geared toward the distribution of profits and, legally, must pass along the vast majority of its earnings to the partners. The General Partner is paid for its efforts via a management fee; however, it is normally paid an additional incentive fee for increasing the distribution to the Limited Partners. The MLPs “shares”, which are called units, are publicly traded and make up the vast majority of the partnership. These units comprise the limited partners’ stake in the entity.

     

    While I am always not correct this came directly through an internet search. In any case I would as stated vote yes if given that choice. I suppose praying for an increase in the Payout to KMP holders is and option ( I am only a KMP holder) the chance is highly unlikely and the lawyers presence is solely to make money for them and not us.

     

    I hope that everyone will make plans regarding the changing of the guard about their investments, and I would hope that while not being necessarily happy with the end result you can overcome this bump in the road and move forward.
    If anything we should be thankful it is that KMP has not suffered the same collapse that BWP suffered earlier this year. This was also a bigger unexpected surprise, and terminally hurt many unit holders of BWP.

     

    Have a good day all!
    18 Aug 2014, 07:10 AM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    Allday,

     

    Richard Kinder specifically stated in the conference call and it is repeated in all the Kinder Morgan filings that a yes vote of each class of security owners (KMI, KMP, KMR and EPB), is required for the transaction to proceed. That means each of the four share classes must approve separately. The only group of unit holders that is at all in question is KMP. That is the only class of securities that either insiders or KMI doesn't control a majority.

     

    There is almost no chance the transaction doesn't go through IMO. The only no votes should be a relatively small percentage of KMP holders that have held their units in a taxable account for a long time and don't realize how good a deal this is as the proposed exchange removes the burden of the IDRs on growth in income and removes the tax liabilities inherent in their holdings. The transaction proves them with an immediate higher market value for their units. At the same time their capital freed up if they choose to sell. If hold their new KMI shares they can move forward with a high yielding ownership interest in the company and not just a restricted interest in the cash flow with a stepped up cost basis.
    18 Aug 2014, 07:30 AM Reply Like
  • allday1234
    , contributor
    Comments (899) | Send Message
     
    While this is not an argument, I am only quoting from the rules set forth by the MLPs.
    http://bit.ly/1BteV8A

     

    I would imagine that he can change the rules and he may have been more specifically discussing KMI where the STOCK HOLDERS as opposed to the UNIT HOLDERS have the right to vote. Just commenting as I do not know if he can arbitrarily change the rules. That being the case he could change any rule and it would make MLPs a real mess as everyone could have different rules.
    I do know that Unitholders will have the options stated to have either KMI share in lieu of the cash and that may have been what he was referring to.
    18 Aug 2014, 08:24 AM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    allday,

     

    Richard Kinder is not changing the rules. I believe that your ValueLine reference, is only correct regarding general business matters such as buying or building an asset for the partnership or if to lever up the balance sheet or how much of distribution will be paid.
    When it comes to change of control, forcing the unit holder to sell at any price without a say in the matter is absurd. What would stop the General Partner from determining it is going to buy the Limited Partnership units for $0.01 each? Under MLP rules, the General Partner does not have the right to confiscate the KMP units, not only must the KMP unit owners be allowed to vote they have the right to reject the deal through a majority vote.
    Read the KMP partnership agreement. If you didn't when you bought your units, you should have. Read the offering prospectus. Listen to last Monday's conference call, you can access it on the investors tab of the Kinder Morgan website. Here is a link http://bit.ly/1mCyLnZ
    18 Aug 2014, 09:17 AM Reply Like
  • allday1234
    , contributor
    Comments (899) | Send Message
     
    Like I said this is not an argument.
    I would vote yes if given the chance.
    I am only posting what I have read
    The link you give me is theregistration for the conference call which has passed and nothing else.
    I went to the KM web site but found no conference call transcripts. Under the investor tab
    I also went to SA and found nothing.
    have not been able to locate the reference that you mentioned. But am still interested if you can provide it I would like to see it.

     

    Thank You

     

    This does not mean in my view that it does not exist. It just means I could not find it.
    18 Aug 2014, 09:50 AM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    If you register you can here the replay
    18 Aug 2014, 10:37 AM Reply Like
  • allday1234
    , contributor
    Comments (899) | Send Message
     
    Thanks for the information, that being said they can vote No, but with KMI holding 40% of the KMP shares and several insiders holding a large number of shares, meeting the majority should not be a problem, while not 100% certain according to the analysts that my broker was referencing they believe that it will pass and with the recent run-up of the share price they do not see an issue. The indication was that except for the very long term holders or those who want to invest in nothing except MLPs many will vote yes including those who have it in an IRA or a ROTH.
    18 Aug 2014, 10:55 AM Reply Like
  • KMR holder
    , contributor
    Comments (768) | Send Message
     
    I understand that you aren't arguing, neither am I. I strongly recommend you listen to the presentation.
    You will also find it in the 8/10 press release. Richard Kinder stated that a majority positive vote of each group of share holders and unit holders would be necessary for the transaction to go forward.

     

    From the Q&A of the analyst presentation an analyst named Becca asked:

     

    Richard Kinder:
    How are you Becca?

     

    I’m good thank you. First question is what unit holder or shareholder approvals are acquired? (probably mis-transcribed "required")

     

    Richard Kinder:
    Majority of both of each separate entity.
    18 Aug 2014, 11:06 AM Reply Like
  • eternitus141
    , contributor
    Comments (525) | Send Message
     
    There's simply too much money to be made in arbitrage if this deal goes through for it not to happen. If there's one thing I've learned in my years, it is to follow the money. Constant as the northern star.
    18 Aug 2014, 02:16 PM Reply Like
  • FleetUSA3226
    , contributor
    Comments (875) | Send Message
     
    @Allday. Spot on (especially comment about the lawyers). Be happy you have a gain, pay the tax man, and move on. If you like KM keep the shares, I will. If not there are other fish in the sea.
    18 Aug 2014, 07:43 AM Reply