Kinder Morgan (KMI) will acquire El Paso Corporation (EP), both corporations, not MLPs, for $38 billion to create the largest midstream and the fourth largest energy company in North America with 80,000 miles of pipelines. The new business, including the MLPs, Kinder Morgan Energy Partners (KMP) and El Paso Pipeline Partners (EPB), will be the largest natural gas pipeline network, transporter of petroleum products and CO2, and the largest terminal owner/operator in the U.S. It is expected to produce shareholder value through strong cash flow and future growth opportunities. EP shareholders will receive cash, KMI shares and KMI warrants worth $26.87 (based on the October 14 KMI closing). EP will become a subsidiary of KMI. EP's net operating loss carryforwards will offset taxes when the exploration and production assets from EP are sold for $7-9 billion to reduce the debt borrowed for financing much of the cash portion of the purchase.
The transaction is expected to be accretive for dividends and distributions at KMI, KMP and KMR driven by $350 million in annual cost savings (5% of the combined EBITDA). With increased cash flow, KMI expects its dividend to grow at an average annual rate of 12.5% from the 2011 forecast of $1.16 (currently $1.20) through 2015 (higher than the previously projected 10% annual growth rate). The dividend would double by 2015 if KMI delivers that growth rate. For 2012, the KMP distribution and KMR (stock) dividends are expected to be nearly $5.00. In the coming years, the average growth rates for KMP and KMR are expected to be around 7%, higher than the previous estimate of 5%. Such growth would imply a distribution of $6 by 2015 and would be used to buy shares from stock dividends at KMR.
The business structure of Kinder Morgan needs to be explained ... it
