Boston, MA 08/14/2014 (wallstreetpr) – Even though Kinder Morgan Inc (NYSE:KMI) has considerably popularized whopping tax savings from the $44 billion deal of consolidating four entities under a common umbrella, but the dream of “whooping savings” will have to wait. Kinder Morgan believes that the consolidation deal will help in generation of approximately $20 billion in the form of tax savings in coming 14 years.
Understanding Kinder Morgan’s Tax Saving Mechanism
At present, the entire umbrella encompasses four diverse companies that have overlapping management along with interlocking-ownership interests. Two of these companies are the MLPs or Master Limited partnerships, which have gained popularity in energy sector and are also publically traded. Also, these two MLPs do not pay any corporate income tax and also distribute maximum amount of their cash among investors.
Apart from these two, yet another existing entity, Kinder Morgan Inc (NYSE:KMI) is into acquisition of other few entities by creating a mix and match of cash and stock. Kinder Morgan’s consolidation deal will help in setting up of new values for the terminals as well as pipelines that KMI is interested in, and this will be dependent on the price paid during the transaction, rather than the depreciated historical amount.
All this, in turn, will help in enhancing the assets’ value; thereby allowing Kinder Morgan to slash more from the taxes due to depreciation.
Higher Capital Expenditure for Kinder Morgan also a Tax-Slashing Mechanism
Also, it must be noted that the deal involving consolidation will amount to higher capital expenditure for the company, rather than the division among various partnerships, again, which will help in slashing the tax bills.
Tax Advantage and Increased Dividend Connection
The huge tax advantage that Kinder Morgan Inc (NYSE:KMI) is dreaming of by way of acquiring its own partnerships is also one of the biggest reasons why it is promising an increase of dividend to $2 per share next year. Also, it expects that the payouts shall augment by 10% per year through 2020.
