I've been watching the Wall St. Jl. coverage of KMI's leveraged buyout, did catch the regulators' requirement that KMI would have to give up direction of MMP. It didn't seem clear to me what that meant in practical terms. This piece seems to make a guess, i.e., MMP loses some of its direction from Kinder. That doesn't sound good to me, although I'd like to hear what others think. Here's the copy:
FT.com Private equity antitrust Thursday February 15, 2:30 pm ET
As private equity funds start rivalling the biggest conglomerates in size, a new challenge is rearing its ugly head: antitrust scrutiny. Carlyle has already faced the problem. After joining a consortium to buy energy distributor Kinder Morgan (NYSE:KMI), the Federal Trade Commission forced it to become "passive" in another of its investments. Its stake in Magellan Midstream (NYSE:MMP) no longer gives it board representation. Co-investor Madison Dearborn will make the decisions.
ADVERTISEMENT Such situations will inevitably become more common, particularly in US media. First, the sector has been a magnet for buy-outs - with $45bn of deals announced in the US last year, according to Dealogic. Second, popular "club" deals mean individual funds' tentacles are spread especially widely. Third, detailed Federal Communications Commission rules on media cross-ownership add a layer of complexity above simple antitrust rules. Thomas H. Lee, for example, is involved in two recent mega-deals - Clear Channel (NYSE:CCU) and Univision (NYSE:UVN). That would give it a powerful portfolio of radio and TV stations. It will have to take a passive position in one of the two transactions if they both close.
Providence Equity Partners, the dedicated media outfit, will face similar constraints. Its latest fund, said to be about $12bn, would have, once geared, buying power of perhaps $50bn. Added to its existing portfolio, that would make it one of the world's biggest media conglomerates. There are ways for it to avoid US regulatory constraints. Providence, for example, is likely to spend over half its money overseas. Also, for now, most situations can be worked around by taking "passive" positions.
The question is whether regulators will remain comfortable with "passive" stakes as a solution, given the risk that big shareholders retain influence even if not on the board. On the flip side, if "passive" stakes really do mean giving up all power to somebody else, how will investors in private equity feel about them? After all, they are paying huge fees on the assumption that their chosen funds will squeeze the very best out of each company, not outsource the task to somebody else.
Exactly, Carlyle, as I understand it, isn't even unloading their investment, simply, removing themselves from having any day to day intervention, which I doubt they did much of anyway, since MMP has been a well run MLP since Williams spun them off.
I would expect to see steady, yet unspectacular results (i.e., distribution climbing by about 8% to 10% a year) which in turn will drive about 15% a year growth into MGG's distribution.
This MLP has solid assets, in a critical commodity sector that is relatively inelelastic to commodity prices. Sit back and let the distributions roll in.
Wouldnt get too concerned by this item. Really, all it means is that Carlyle wont be permitted to make decisions concerning the MMP's board. I know Merrill Lynch loves the company and when I see names like Neuberger, Blackrock etcetc as large holders, they are the smartest buyers in the world!! Long & Strong!!