Boston, MA 08/11/2014 (wallstreetpr) – Kinder Morgan Inc (NYSE:KMI) now consolidates to a single company to improve the future growth prospects. So, the Company will change the master limited partnership (MLP) structure, which was popular in booming days.
MLP typically provides a tax advantage for companies involve in natural-resource businesses. The associated partners do not give corporate tax to the federal government, but distribute the cash flow to their shareholders as a dividend.
Richard Kinder, Founder and CEO of Kinder Morgan said that the MLP structure limits growth opportunity due to increasing size of the Company. So, the consolidation will allow expanding while targeting the areas of opportunity.
Payment structure
Kinder Morgan Inc (NYSE:KMI) expects the total value of the transaction will be ~$71 billion. It includes $27 billion of debt and payout of $40 billion in stock and $4 billion in cash to its investors. The owners of three subsidiaries will receive cash and shares at a premium of 12% to 16.5% on the closing price of August 8, 2014.
The investors, on the other end, will receive an initial cash payment of $4.65 or $10.77 a unit depending upon their holding shares and then the new Company will offer $2 as an annual dividend that grow 10% per year till 2020.
After the consolidation, the merged entity will have total capital of $140 billion. Mr. Kinder will own only 11% of the stake instead of current holding of 23% in Kinder Morgan Energy Partners (KMP).
Issues that bother
Investors worried that how the Kinder Morgan Inc (NYSE:KMI) will maintain the growth as the different partners has a different structure. For instance, KMI’s flagship partner KMP, which has a market value of $37 billion, may witness revenue pressure due to its bigger size.
Similarly, El Paso Pipeline Partners LP (EPB) and Kinder Morgan Management LLC (KMR) have different financial structure to attract institutional investors.
Even, Morningstar analyst Jason Stevens said that it becomes a difficult task for the consolidated entity as it needs to invest $3 – $4 billion to maintain 5% to 6% growth in each year.
Conclusion
Mr. Kinder said the new structure will provide an opportunity to grow rapidly and take the advantage of energy infrastructure. Kinder Morgan Inc (NYSE:KMI) expects to close the deal by the end 2014, which is subject to the approval of regulatory and shareholders.
