Sell-recommended Kinder Morgan Inc. (NYSE:KMI), Kinder Morgan Energy Partners (NYSE:KMP), and Kinder Morgan Management LLC (NYSE:KMR) have completed the acquisition of $5.5 billion of Canadian utility assets for $1.0 billion in stock and $4.5 billion in debt. Cosmetically, the acquisition is shown to be part of KMI and there are no changes for KMP and KMR. Practically, the entities are all part of the same financial pyramid we call KMx that appears richly valued at near 14 times cash flow when stronger energy companies are valued at a third to a half as much.
It was a public relations coup for management to persuade Canadian regulators to approve sale of assets to a buyer that overstates earnings and understates debt by the normal standards we apply. It remains to be seen if Canadians keep the stock exchanged in the deal. We continue to estimate potential stock price depreciation of 50% or more:
KMI 1-yr Chart:
Original publication: 11/4/05
Kurt Wulff's McDep Associates offers realtime, independent research services for investors in the energy and utilities sectors. For more information, go to www.mcdep.com or email Mr. Wulff at email@example.com.