Kinder Morgan Inc Consolidating Business in $70 Billion Deal

Kinder Morgan Inc, the American energy giant, is consolidating all its oil and gas businesses to form a single company in a $70 billion deal, the company announced Sunday, Aug 10.

The company said that it will bring its business under one roof and shed the tax-advantage structure of forma C-corporation that would be worth $92 billion. The new company will absorb Kinder Morgan Energy Partners L.P (KMP), Kinder Morgan Management LLC (KMR) and El Paso Pipeline Partners L.P (EPB) - three subdivisions of Kinder Morgan Inc.

KMP shareholders will receive 2.19 shares of Kinder Morgan Inc and $10.77 in cash for each KMP unit. KMR shareholders will receive 2.48 KMI shares for each share of KMR and EPB unit holders will receive 0.945 shares of KMI and $4.65 in cash for each EPB unit.

The consolidation comes amid rising worries of KMI's struggles. KMI has been experiencing dwindling revenues because it has been operating as four separate units. Sources told Reuters that the market wasn't able to understand KMI's operations, which is why this move was necessary.

At its second quarter earnings call, KMI announced that a consolidation was being evaluated. The deal is expected to close by the end of 2014.

"All shareholders and unitholders of the Kinder Morgan family of companies will benefit as a result of this combination," Chairman and CEO Richard D. Kinder said in a statement.

"Everyone will hold a single, publicly traded security - KMI - which will have a projected dividend of $2.00 in 2015, a 16 percent increase over the anticipated 2014 dividend of $1.72. We expect to grow the dividend by approximately 10 percent each year from 2015 through 2020, with excess coverage anticipated to be greater than $2 billion over that same period," he added in the statement.

Once completed, the combined companies will be the largest energy infrastructure company in North America.

"This transaction dramatically simplifies the Kinder Morgan story, by transitioning from four separately traded equity securities today to one security going forward, and by eliminating the incentive distribution rights and structural subordination of debt," Kinder added.

"The transaction also provides significant tax benefits for KMI shareholders from depreciation deductions associated with the upfront purchase and future capital expenditures," the statement read.

Kinder Morgan Inc has the experts' nod on this decision.

"This is a very simple and elegant solution to a problem of complexity," Robert W. Baird, an analyst at Ethan Bellamy told The Wall Street Journal. "I think ultimately this will prove to be a very good deal."