Kinder Morgan may acquire El Paso for $21.1 bn, create $94-bn business

Pipeline transportater Kinder Morgan Inc. today said that it will buy pipeline operator El Paso Corp in a $21.1 billion cash and stock deal, creating the largest natural-gas pipeline network and the largest independent transporter of petroleum products in the US.

The total purchase price, including the assumption of debt at El Paso is approximately $38 billion.

The proposed deal is also the biggest acquisition of a pipeline company after Kinder Morgan itself was bought out in a 2007 leveraged buyout by a group including Richard Kinder and Goldman Sachs Group.

With El Paso's pipeline network, Houston-based Kinder Morgan would become a $94-billion company and have 80,000 miles (107,000 kms) of natural-gas pipeline, bigger than Enterprise Products Partners' 50,200 miles of natural-gas pipeline.

Kinder Morgan is offering $26.87 per El Paso share, or 37 per cent more than their 14 October closing price. The offer comprises $14.65 in cash, 0.4187 shares of Kinder Morgan, and 0.64 Kinder Morgan warrants.

"This once in a lifetime transaction is a win-win opportunity for both companies," said Kinder Morgan chairman and CEO Richard Kinder. "The El Paso assets are primarily regulated interstate natural gas pipelines that produce substantial, stable cash flow and have access to key supply regions and major consuming markets.''

''The natural gas pipeline systems of the two companies are very complementary, as they primarily serve different supply sources and markets in the US,'' he added.

Post closing, El Paso will become a subsidiary of Kinder Morgan and Kinder Morgan shareholders are expected to own approximately 68 per cent of the combined company and El Paso shareholders are expected to own the remaining 32 per cent.

Following the closing of the transaction, Kinder Morgan intends to sell the exploration and production assets of El Paso and the cash raised will help reduce the acquisition debt.

The transaction has been approved by the boards of both company's and Kinder Morgan said that it has a commitment letter from Barclays Capital underwriting the entire cash required for the transaction.

The combined company will be the:

• Largest owner and operator of natural gas pipelines and storage assets in North America. Pipelines are connected to many important natural gas shale plays including Eagle Ford, Marcellus, Utica, Haynesville, Fayetteville and Barnett.
  
• Largest independent transporter of petroleum products in the US, transporting approximately 1.9 million barrels per day of gasoline, jet fuel, diesel, natural gas liquids and crude oil through more than 8,000 miles of pipelines.
  
• Largest transporter of CO2 in the US, transporting 1.3 billion cubic feet per day. CO2 is used in enhanced oil recovery projects.
  
• Second largest oil producer in Texas, producing over 50,000 barrels per day.
  
• Largest independent terminal owner/operator in the US. Liquids terminals have capacity of 107 million barrels and store refined petroleum products, ethanol and more. Dry bulk terminals are expected to handle over 100 million tons of materials in 2011, including products like coal.
  
• Only oilsands pipeline serving the West Coast. The Trans Mountain pipeline system transports 300,000 barrels of crude oil per day to Vancouver, British Columbia and Washington state.

Houston-based El Paso provides natural gas and related energy products. The company owns North America's largest interstate natural gas pipeline system, one of North America's largest independent exploration and production companies and an emerging midstream business.

El Paso owns a 42 per cent limited partner interest and the 2 percent general partner interest in El Paso Pipeline Partners, L.P.

Kinder Morgan is a leading pipeline transportation and energy storage company in North America. It owns an interest in or operates more than 37,000 miles of pipelines and 180 terminals. Its pipelines transport natural gas, gasoline, crude oil, CO(2) and other products, and its terminals store petroleum products and chemicals and handle products like ethanol, coal, petroleum coke and steel.

Kinder Morgan owns the general partner interest of Kinder Morgan Energy Partners, L.P. one of the largest publicly traded pipeline limited partnerships in America. Combined, Kinder Morgan and Kinder Morgan Energy Partners have an enterprise value of approximately $55 billion.