Mega-Deal With Kinder Morgan Likely Ends El Paso Spin

ASME type flange on a gas pipeline

Image via Wikipedia

The big news this morning is Kinder Morgan Inc’s (KMI) $20+b cash and stock deal to acquire El Paso Corp (EP) in a bid to become the largest natural gas pipeline operator in the US. The price represents a hefty ~37% premium to El Paso’s recent close. As a refresher, Kinder Morgan was taken private in a mega management-led buyout in the recent PE ‘heyday’ of 2006-2007 and was one of the successful IPOs this year. A copy of the investor presentation detailing the deal can be found here.

The deal is expected to close in Q2 2012. As part of the deal, Kinder Morgan plans on selling El Paso’s oil & gas operations in order to raise cash and pay down debt. As a result, EP’s planned spin of EP Energy is unlikely to move forward. While the merger is likely to draw some regulatory scrutiny, I wouldn’t count on it, so it is time to look elsewhere for spinoff related investments

Disclosure: Author holds no position in any stock named.

Enhanced by Zemanta