The consolidated KMI will have market value of $100B. EPD's market value is $70B. KMI is more likely to buy EPD than vice versa
Which is interesting because EPD has greater revenue & profit with less tax than the Kinder kingdom...
That either makes EPD vastly undervalued... or there's a problem at Houston at the Kinder franchise valuation
Of course some jerkwad on the street could come up with the fantasy that IF all EPDs profits were taxed at the corporate level like Kinders will be..... that EPD would then be worth $120 Billion
Do a 5 year or any other time period chart for that matter of EPD vs LINE and you will see the risk difference
and like I said.... it wouldn't hurt to run it against KMP & KMI either
That 5 yr has EPD up about 175% before Distributions... Line is up maybe 40%
EPD blows away KMP & KMI too... that's why EPD will attract even more positive growth as a result of this bone head move by Kinder
Kinder is driving EPD cost of Capital lower and will make it more difficult to compete with a tax differed MLP for the same growth borrowing/equity dollars
Remember every dollar of profit will face corporate tax at KMI... they are tax free at EPD and because EPD has done so much organic growth they continue to have massive depreciation
Kinder should have swallowed hard and reduced KMIs IDRs from KMP which would have given KMP a massive pop reducing its cost of capital and bringing in more dollars to KMI over time but he was way too greedy
if one had a colostomy would that change things?
Yes I believe remarks would sting with cynicism
Well that's a little league vs pro call.... owning 10,000 shares of EPD I'm really not worried that the K-1 costs an extra 100 per MLP with the accounts
We will be in an environment where investors are looking at them head to head and the equalization of share price will make it quicker and simpler to see EPDs strenghts
well if you don't know the difference between the risk between upstream and mid stream MLPs you are way out of your league in commenting on anything related to MLPs...
Mid streams operate under long term toll taking contracts that have inflation hedged in... always sold out prior to being built
Upstream producers have so many variables starting with commodity cost.... production costs..... trans costs when pipe is not available...... that revenue and income could be all over the place
One of the biggest problems KMP/KMI have is they have upstream exposure
I suggest you take a look at EPDs long term chart and IF you are looking at guaranteed retirement income whether or not that is not on the top of your list to park your money
EPD also has a better uninterrupted history of distribution increases every Q since inception.... and actually at a faster growth rate most of the time than Kinder family units
It would be a good Idea to run EPDs chart with both KMP and KMI to see which equity has out performed too
oh yeah... circle back and run the EPD chart against LINE and tell me about risk!... and return
careful when your remarks exit the same place as your farts
EPD is about to split and will trade about $38-$39 and will pay about a 3.7 tax differed distribution...
KMI will pay a taxable 5% and trade in the same range
The biggest difference is EPDs coverage ratio is much healthier and their cost of capital is far less...
So if you are looking to invest in mid stream energy infrastructure where would you put your money?
& don't talk about Kinder's promise of 10% divi growth... its just a promise... EPD could cover 10% now... and it would skyrocket their unit price driving their cost of capital lower still
IF EPD offered to buy KMI out in a 1 for 1 with the lower distribution it would be a huge EPD win and all shareholders
The reason KMI/KMP finds itself in this position is EPD/Dan Duncan inspired mgmt. has vastly outperformed Rich Kinder
interestingly exactly where KMI trades..... so that means you can take your KMP conversion shares and turn them into an equal # of EPD shares and get a higher after tax return with EPD
That analysis would indicate that in order to treat KMP & EPB unitholders the same KMP holders would be entitled to about another .3 shares of KMI per unit of KMP bringing their compensation up to 2.5 KMI.... might even induce some small KMP holders to hold the conversion
It would mean an additional 150 mil shares of KMI dilution
Its interesting because that is about where I figured the deal would be a push to slight negative for me
That's why this will be in court and other math will be presented that is even more favorable to KMP unitholders... the courts will demand that all the MLP holders receive equal treatment
Kinder has a history as in when he took KMI private... the courts made him negotiate compensation that was fairer to the shareholders which was about $10 more than the original offer he and his cronies muscled thru
Well as has been pointed out EPD does not have a GP that gets IDRs so the move would just tax all of EPDs income at the corporate level so anyone who has speculated that EPD would follow suit is a moron
I'll bet the douche just want to make it appear that the KMP deal is good so he is just a foolish talking head
The most unlikely scenario is that MLP structure will go the way of the dinosaur....... which would bring up the question of what did KMI know and when did they know it?
KMI has actually made the units of EPD more attractive and is lowering their largest competitors cost of capital way below theirs... not to mention EPD covers at between 1.4-1.6Xs DCF
EPD currently has just a 3.7% yield which is tax differed so it nets investors more than KMI at 4-4.5%
EPD shares just move higher and its all thanks to Rich Kinder
Where would you put you money? Stronger share appreciation and more net income.... or KMI
KMPs greatest achievement in its merger will be to drive its largest competitors cost of capital lower (thru higher unit price) while making it that much more attractive at the same time
KMP is changing the playing field and with this change MLPs will be more attractive and may not see the pressure they might have seen as rates rise
Just to keep it in perspective you are saying the divi is going to get that significant bump in the exact same time frame that KMI needs $5bil in cash for the KMP shareholders and a few billion more for for El Passo's crew
so you're talking about some serious debt accumulation
Cheaper only IF they can dilute thru common stock sales which is not going to be easy with a C Corp
Like I said they will be forced to issue preferred and bonds at higher yield and its debt... as debt climbs ratings drop and the cost of capital increases yet again
IF there are projects out there competing for money where will it flow... ETP at 6.5% differed or KMP 4.5-5% taxable...
KMP will be forced to other vehicles to compete for the cash and those vehicles will be higher yielding debt vehicles
What I said was it was a short that will be covered with conversion shares.... not resulting in any buy pressure
Do you comprehend what dilution will do to a C Corp stocks share price and its ability to bay a divi...
MPLs routinely do $500 mil offerings to pay for a growth project.... KMI will no longer have any of the MLP tax consideration benefit either on the corporate or investor level.... its a monster waiting to rear its head
Kinder was the MLP genius.... his performance with public C Corps not so good
He attempted to screw KMIs original shareholders.... and lost in court... a fact you may not be considering.... But the bigger question is why did he go private and back public again... wasn't for shareholders... it was for him and his cronies pockets.... and he may #$%$ over as the price drops
As KMI drops the premium erodes at an even faster level at KMP.... which will force KMIs hand to increase the share consideration considerably to KMP... KMI may have rights but no court will allow KMP to be taken UNDER solely at the benefit of the GP
Then as share consideration increases KMI pressure increases with it.... driving KMI down further
MLP funds evaporate.... you have over 200 mil KMP shares that were owned as such... they become 500 mil KMI that must be sold
You are not comprehending what the loss of an MLPs ability to raise capital on a tax differed basis
Buyers lined up en mass to buy units at better than 6% tax differed...... those buyers have no interest in KMI common stock at 4.5-5% taxable... they will look at the EPD & ETP offerings (yes EPD is a low yield but its still differed)... in states like NY the tax hit is almost 25% of the divi... these are the investors who funded MLPs
So KMI will have to turn to high yield taxable preferred stock and bond offerings which are debt and depress the value of the company... the taxable yield they may have to put out could very well exceed KMPs yield
Then factor in that the EPDs and ETPs will still have a lower cost of capital so they will be the ones doing the cherry picking when it comes to projects
KMI should have been looking at ways to improve KMPs unit price to drive the cost of capital down to where they could compete
The play is short KMI shares to lock down the conversion price for KMP and still receive the cash portion...
These short shares will not be repurchased as they will be covered with the conversion shares
This is being played out on a tens of millions of shares level.... could turn into 100s of millions
It is a massive damper on the stock and the deal... the deal actually sux for everyone and will become more and more apparent
as I pointed out in another post... 100s of millions of KMP shares that CANNOT own KMI along with 100s of millions of shares that DO NOT WANT KMI
and 100 million who are ticked and will refuse to own KMI
That's money in the MKT that KMI will not see... KMI will turn into a high yield high cost of capital company
Overhang is significant for many reasons....
A) many KMP shares are held by MLP funds which cannot own KMI (this represents about 225 mil KMP which will become 500mil KMI for sale)
B)other funds that already own KMP already own KMI so they may be overexposed by holding KMP conversion shares (Probably about another 200 mil KMP shares which will become 440mil KMI for sale)
C)many KMP shareholders (trusts) want to own an MLP with the tax advantages and high yield... that's what they're in it for
D) KMI is about tripling its shares outstanding... that's no reason for any fund to buy or increase their exposure... in fact it is a legitimate reason to cut their exposure
They are creating over 1 billion shares for KMP alone... KMI wasn't an in demand market darling to begin with and one of the biggest reasons stated for the deal is REDUCED COST OF CAPITAL.... which means dilution to fund organic projects and outright buys.... which will not be as easy to find buyers lining up for outside the MLP structure... this could cause KMI to rely on higher yielding preferred stock and bond offerings which will only make the debt levels that much more insane and keep the cost of capital high... which reduces the demand for stock
There will always be a ton of shares available... and that doesn't even include naysayers who will short this like crazy