Kinder bails on MLP's, consolidates everything into KMI. What effect?
You could argue it's a negative. People may say, hey, if Kinder is bailing, there must be something wrong with MLP's. I don't think that's true, it's just Kinder Morgan became too large to be fractured like that, it needed one entity that could accumulate cash and grow its pipelines.
Or, you could argue it means a lot of high yield investors in KMP will not be happy with KMI's lower yield and will be looking for a new home. What say you?
The worst part of this? Kevin Kaiser will be crowing that, see? I was right, MLP's are junk. Even if anyone who went short on KMP based on his advice is going to be slaughtered.
I wonder if this is step 1 of a longer term exit strategy for Mr. Kinder. Selling the separate entities to a large buyer would be awkward. By bundling them all in one package, he increases the total value and creates a very salable entity. Only time will tell. GLTA
I believe the reason for the merger is they could not get the stock price up. Investment Banking cartel talked them into this so the Investment Banking "community" could make money and it would "unlock the value" that no one appreciated, and get the stock price up. (I sold on the short squeeze.)
I doubt LINN/LNCO will be greatly affected. Also remember that LINN is NOT a MLP it is a LLC. See the company FAQs for a summary of the minor differences. Quote below is from company website FAQs.
"LINN Energy is not a MLP or a corporation, but a publicly traded limited liability company with partnership tax status. The significant differences between LINN Energy, a MLP, and a corporation are illustrated in the chart below."
I'll need to think about this and it's implications for LINE/LNCO for a bit. While thinking on it, we know that this certainly will give the Kinder and El Paso shares/units a boost tomorrow:
"Shareholders in three separately listed companies – Kinder Morgan Energy Partners, Kinder Morgan Management and El Paso Pipeline Partners – will be handed a mix of cash and Kinder Morgan shares for their stakes, at premiums to Friday’s closing share prices of between 12 per cent and 16.5 per cent."
And the straightforward commitments to future dividends and growth amazed me. Big Kinder Kahunas:
“... adding that the combined group would be able to raise dividends, cut its cost of capital and use its shares as an acquisition currency. He promised to raise Kinder Morgan’s dividend by 16 per cent next year and by 10 per cent per annum for the rest of the decade."
I'm going to we awake and signed in at the open, just to see where KMI is going. Any wavering in the opening price due to uncertainty or whatever, I'd see as a buying opportunity. Probably not, with the dividend guidance I would expect it to pop to near $40.
Yes, remember Mr. Kinder has most of his vast wealth still in KMI. The KMP owners can take stock or cash.
Given KMI is likely to go down tomorrow, Mr. Kinder clearly does not mind paying out cash and further leveraging his ownership.
There should be some significant internal efficiencies and asset operation / management with the deal.
Clearly Mr. Kinder sees far more opportunities than collecting big IRD shares on connections to the value of the large existing network and export terminals. Pretty exciting.
Already looking ahead to the end of the Obama Medieval economics age. On to the nature gas century for America. Just beginning and therefore cost of capital needed to be reduced for nationwide expansion.
The IDRs were a huge burden. It was obvious that distribution growth lagged. The IDR load per unit was nearly equal to the distribution. I suspect Kinder finally got tired of seeing EPD able to hold back well over $1 billion annually to fund growth projects and also have a superb low cost of equity capital to go along with it. This deal should give Kinder a currency that should make growth easier.
The conversion to a c-corp rather than the more typical GP being absorbed into the LP is an interesting twist and will no doubt give analysts plenty to chew on tonight and in the morning.
This is a very interesting deal.
I think everyone knew that something would eventually happen with the Kinder Morgan family of companies, as is also likely with Energy Transfer (ETP,ETE, RGP,SXL and soon to add Susser) and as has already happened with Enterprise (EPD, EPE, DEP, TPP)...but I think most were expecting a merger of EPB into KMP and perhaps some sort of restructuring of the IDRs..but a total roll-up is a further nod to the creativity and drive of Kinder!
I own KMI, so will be interesting to see how this shakes out in the morning. Already sitting on a nice gain (thanks Kaiser) and now it looks like dividend growth rates will benefit...
The immediate transaction winners are every one except KMI. EPB will generate a return of 30% sans dividends in less than a year.
The big winners will be the holders on KMR. Which has the market inefficiency reduced to less than $0.25.
Of course the reason it is not a simplification like the EPB/KMP merger is because this is a cost of capital move. Which you claimed was a matter of opinion, when the Lisxa persona was roaming about spreading delusions.
I suspect this is only the first phase of the strategy. With the huge backlog of projects KMI had several years before massive cost of capital became an operational issue.
So they should be able to simplify and rationally organize the actual operating teams around the assets. Once this is done I would not be surprised Mr. Kinder does another reset partnership / manager split.
Anyways it will be interesting to see what happens to the value of KMI tomorrow. Odds are it will be down. But it is far from assured.
Believe me, no analysts thought Mr. Kinder would do it by buying in the partnerships. The standard for Progressive CEOs would have been to merge the partnerships then have the partner pay up dear to get the IDRs back.
I love Mr. Kinder. Well, respect Mr. Kinder a great deal.
I have a whole bunch of KMR.
As the EPD and KMP owners can take cash, it really is a done deal. the fact that Mr. Kinder is willing to take on the possible large increase in leverage says a great deal about his internal value calculations. The whole complex is clearly cheap - in the man's opinion with the best information and the largest interest.