I must add that their cost basis in KMI would be their cost basis in KMP (after the deemed sale of KMP due to the conversion), plus any taxable gain on that conversion. For most KMP owners, their cost basis in KMP is likely to be zero after the conversion.
thewzrdaz, sorry but I don't understand the "subsequent sale of KMI" in order to establish a cost basis for it. Their cost basis in KMI would seem to be their cost basis in KMP plus the amount of taxable gain they had on KMP when it was swapped for KMI. The need to subsequently sell the new KMI shares just to establish a cost basis seems unbelievable. How would they know what their gain or loss was on that sale if they didn't know their tax basis in KMI?
It will be less confusing on the tax return if one sells out now, rather than let them convert to KMI and cash??? I wonder if most investors could make the mental adjustment that its a sale in either case. The tax consequences are the same. Its only what happened to the sale proceeds that may differ. I suppose its a forced opportunity to diversify for some.
Keep proration in mind. It tends to give everyone about the same result as if they chose the mixed consideration. Usually in a proration, nobody can get all cash or all stock, even though they are listed as options. Subject to proration means something.
In yesterday's conference call, Rich Kinder stated on two occasions that they are hoping for a close by Thanksgiving. Just 40 days away. Forty short days. I hope KMI can stay depressed in price until then.
And apparently they need a unitholder vote, with the limited holders voting. Most of the individual unit holders (or the most vocal, anyway) seemed to be unhappy with the deal terms. So are they going to vote the merger down? See what happens to KMP's unit price then.
Ok, so what do those two sentences mean as far as Kinder transporting crude oil? Petroleum products means refined products such as gasoline, diesel, jet fuel, condensate, etc. there's a need for those products and their consumption will increase as their price declines. More pipeline throughput.
hardmetalman, Trans Mountain is the only pipeline serving the Alberta tars sands. All other production reaches the market by way of rail. There is so much tar sands production in Alberta that there are three other proposed pipelines to serve that area. Trans Canada has Keystone XL (stymied by the US). and the more recently proposed Energy East to Canada's East Coast. Enbridge has proposed the Gateway Pipeline from Alberta to Canada's West Coast.
Those additional pipelines wouldn't be on the drawing board if there wasn't far more production from Alberta than there is pipeline capacity. Those pipeline projects will be canceled before Trans Mountain suffers from any volume cutbacks.
The merger will require a lot of debt issuance? Why? For the relatively small cash portion of the deal? Remember the greater cash flow that goes to KMI once the cash distributions on the MLP units are no longer being paid. Also, the merger is mostly being financed by the swap of newly issued KMI shares for outstanding MLP units at ratios that were fixed when the deal was announced.
Lower pipeline usage? Name one pipeline of Kinder Morgan's that transports crude oil. SThere's Trans Mountain, of course, but that one tends to be booked each month because Keystone and other proposed pipelines haven't been built yet. Kinder's pipelines carry natural gas and refined products. Do you think the demand for refined products will decline when the price goes down?
rsaxton26, I couldn't agree more. What luck for this price collapse to be occurring now. If only the price stays low thru the end of the quarter. If only Kinder Morgan can complete the consolidation fast enough. The complainer's complaint was the taxes, and this market drop reduces the taxes. No long-term investors are hurt by KMI's lower price because the conversion ratios are already fixed.
All of the interest expense on the debt will be tax deductible by KMI. When much of the debt is with the MLP's there's no tax deduction for the interest by the partnerships (or KMI) because the partnerships are pass thru entities. Thus, the after tax cost of the debt will be lower after the merger.
wooglin_kai, I haven't spent much time on this board so I didn't know anmlrescue's knowledge level. You've explained why being concise was appropriate.
I realize that there are traders here who communicate with each other using jargon, and rightly so. I try explain things in more detail to help bring all the board readers along, and to allow opportunity for others to correct any misunderstanding that I might have. People faking that they know something is a pet peeve of mine.
Anmlrescue, you write " The point of the exercise is to essentially cut off Putin's ability to wage war."
Could you elaborate? What exercise? Saudi's lowering their oil price? Since when do Saudi's care about Putin's ability to wage war in the Ukraine? The Saudi's just care about their oil revenues, and keeping them high.
Those analysts upgrading KMI in recent days didn't see that potentially devastating lawsuit coming?
That silly lawsuit. Did Kinder Morgan misrepresent KMP, selling it as an estate planning and tax avoidance device? It was the MLP owners misplaced sense of entitlement, and their own runaway beliefs in what the future has to be, that caught them off balance. They wanted to pay no tax on the cash distributions they received, and have their heirs pay no tax on their subsequent unit sales either. Have your cake and eat it too. Somehow I don't think the judge will be too sympathetic.
I think the price slump is mostly an adjustment to normal after the recent analysts upgrades.
Upon reading your reply, anmlrescue probably said to himself "Oh yeah, the arb play. Forgot all about it."
If anmlrescue couldn't figure out why there is so much short interest, he might not know what the arb play is. I'll explain that since the conversion rates between the Kinder MLPs, KMR and KMI are fixed with respect to the consolidation, an investor can exploit pricing discrepancies in the market between these securities. Shorting KMI when it is momentarily overpriced and buying KMP (for example) simultaneously, knowing that the short position is covered when KMP converts to a fixed number of KMI shares at the closing.
You wrote KMP - KMP swap. You meant KMP to KMR, I assume. At this point its not about opinions. Its about understanding what transaction has taken place.
Selling KMP units and buying KMR stock with the proceeds are two separate transactions. Larry2607 will be taxed on the sale of KMP because there will be a gain on the sale (we are assuming he would not be so eager to sell at a loss). What he does with the proceeds starts a new open transaction (open until he sells the security he purchased).
You won't have a career in tax if you can't articulate the facts, at least in your mind, and get them straight. But anyone who advances to the stage where they invest for a living is not going to want a career in something as narrow as tax.
Mr. Phil2u, the exchange of KMR stock for KMI stock at the closing is tax free exchange of stock. There's no gain or loss for tax purposes. It's not a wash sale. Its a stock for stock swap. So definitely there's no loss deduction, unless he sells the KMI stock for proceeds that are less than his cost basis in KMR. The prior sale of KMP units has nothing to do with the acquisition of KMR with the proceeds. The income from the sale of KMP is a separate closed transaction for tax purposes.
Just because his sale proceeds would be $14,000 less if he sold now, than if he had sold at $98, in all probability he is still reporting a gain, or ordinary income on the sale. There's no loss anywhere, so there is no application of the wash sale rule.
I think the guy risks outsmarting himself. He should let us know how it worked at the end of the 4th quarter.
How does that work? The taxable gain that the unit holders must report for the merger is determined by the difference between the investor's adjusted cost basis and the selling price. The selling price will primarily be the fair market value of the KMI stock that we receive on the closing date. There will be some fixed amount of cash as part of the sale proceeds too. But the price of KMI stock on the closing date is the bigger factor.
So, the lower the price of KMI on that date, the lower the gain each MLP unit holder has to report. Much or most of the gain will be taxed at ordinary rates due to depreciation recapture.
The less tax we pay in 2014 on this deal, the more tax is deferred until the investor ultimately sells their KMI stock, assuming KMI's price springs back up after the closing.
the gain would never be taxed if the investor includes the stock in their estate when they die.