Kinder Morgan to Acquire El Paso for $21 Billion

Arjun Dave
16 Oct, 2011
New York City

Kinder Morgan, Inc agreed to acquire El Paso Pipeline Partners, LP in a deal that valued the company at $20.7 billion and including debt at $37 billion. The combined company is going to be one of the largest transporters of crude oil, natural gas and CO2.

[R]4:00 PM New York – Kinder Morgan, Inc agreed to acquire El Paso Pipeline Partners, LP in a deal that valued the company for $20.7 billion and including debt at $37 billion. The deal is expected to close by the second quarter next year. The combined company is going to be one of the largest transporters of crude oil, natural gas and CO2.[/R]

Kinder Morgan, Inc and El Paso Corporation agreed to merge in a deal that is one of the largest transactions in recent years.

With the acquisition, Kinder Morgan will purchase all of the outstanding shares of El Paso that will create the largest energy logistics company in North America with 80,000 miles of pipe network with distribution terminals in several important shale gas regions and oil tar sand fields.

The combined companies will be leading the transporter of natural gas, crude oil, gasoline and CO2 use in the energy exploration.

El Paso shareholders will receive $26.87 per share, 37% premium over the closing price of El Paso common share on Friday. The offer consists of $14.65 in cash, 0.4187 of Kinder Morgan shares (valued at $11.26) and 0.64 warrants with purchase price of $40 and a 5-year term.

After the merger, Kinder Morgan shareholders will control 68% of the company and El Paso shareholders will own 32%. The merger deal has been approved by the boards of both companies.

The purchase price of El Paso is estimated at $20.7 billion and including the assumed debt the deal is valued at $38 billion.

Barclays will provide financing for the cash portion of the deal and the deal is expected to close in the second quarter of 2012.

The merger between the companies is expected to save $350 million a year and will allow Kinder Morgan to increase its annual dividend to $1.45 a share from the current $1.20.

Kinder Morgan debt to equity is expected to surge above five times the from its current debt of 2.5 times and the company plans to sell the exploration business of El Paso as announced earlier.

The combined company is expected to own and operate 67,000 miles of natural gas transportation pipelines that include several shale fields like Barnett, Marcellus, Utica and Fayetteville.

The company will also own 8,000 miles of pipe network with a capacity to transport 1.9 million barrels a day of gasoline and other fuels and largest transporter of CO2 with 1.3 billion cubic feet a day.

Investment bankers at Evercore Partners and Barclays Capital acted financial advice and Weil Gotshal & Manges LLP and Bracewell & Guiliani, LLP provided legal counsel.

Morgan Stanley acted as financial advisor to El Paso and Wachtell, Lipton, Rosen & Katz provided legal advice.

In Friday’s trading, El Paso Pipeline Partners, LP ((EPB)) increased 2.4% to $38.01 and Kinder Morgan Inc ((KMI)) closed down 3 cents to $26.89.