Business Context and Reporting Period
This Form 8-K, dated May 24, 2012, reports the completion of a major acquisition by Kinder Morgan, Inc. (KMI). Effective May 25, 2012, KMI completed the acquisition of El Paso Corporation (New El Paso) pursuant to a Merger Agreement dated October 16, 2011. The transaction involved a series of mergers resulting in El Paso LLC becoming a direct, wholly owned subsidiary of KMI.
Key Financial Metrics and Transaction Consideration
The filing details the consideration paid to former New El Paso stockholders and equity award holders, which includes a mix of stock, cash, and warrants. The filing does not provide consolidated revenue, profit, or cash flow metrics for the combined entity, as pro forma financial information is scheduled for a future filing.
- Total Cash Consideration: Approximately $11,550.6 million.
- Stock Issuance: Approximately 330.2 million shares of Kinder Morgan Class P common stock.
- Warrant Issuance: Approximately 504.6 million warrants to purchase one share of Kinder Morgan Class P common stock.
- Merger Consideration Structure:
- Stock Consideration: 0.9635 share of KMI Class P stock + 0.640 warrant (subject to proration).
- Cash Consideration: $25.91 cash + 0.640 warrant.
- Mixed Consideration: 0.4187 share of KMI Class P stock + $14.65 cash + 0.640 warrant.
Proration Adjustment: Due to oversubscription of the Stock Consideration, holders electing this option received a prorated mix: 0.4231 share of KMI Class P stock, $14.53 cash, and 0.640 warrant per New El Paso share.
Material Changes and Governance Updates
The acquisition resulted in significant changes to KMI's corporate governance and bylaws effective May 25, 2012:
- Board Expansion: The size of KMI's board of directors increased from 13 to 15 members.
- New Directors: Anthony W. Hall, Jr. and Robert F. Vagt, former directors of New El Paso, were elected to the KMI board. Mr. Vagt was appointed to the audit committee, and Mr. Hall to the nominating and governance committee.
- Bylaw Amendments:
- Supermajority Board Vote definition amended to require 10 directors instead of 8.
- El Paso Pipeline Partners, L.P. (EPB) and its general partner (EPGP) were added to exceptions regarding Supermajority Board Vote requirements, similar to existing treatment of Kinder Morgan Energy Partners, L.P. (KMP).
- Shareholders Agreement: Amended to reflect the increased board size and to extend specific regulatory and filing obligation exceptions to EPB and EPGP.
Outlook, Risks, and Unusual Items
Pro Forma Financials: Unaudited pro forma condensed combined financial statements for the three months ended March 31, 2012, and the year ended December 31, 2011, will be filed as an amendment to this report within 71 calendar days. The current filing does not contain these metrics.
Financial Statements of Acquired Business: Audited financial statements for El Paso Corporation are incorporated by reference from its 2011 Form 10-K, and unaudited statements from its Q1 2012 Form 10-Q.
Risks and Contingencies: The filing notes that the description of the Merger and Warrant Agreements is qualified by reference to the full agreements filed as exhibits. No specific new risks or contingencies beyond the standard merger integration and regulatory compliance are detailed in the text of this summary.
Investor Verification Checklist
- Verify the final pro forma financial impact of the merger once the amendment to this 8-K is filed (within 71 days).
- Review the full text of the Merger Agreement (Exhibit 2.1) and Warrant Agreement (Exhibit 4.1) for detailed terms regarding the 504.6 million warrants issued.
- Confirm the specific voting rights and economic terms of the Kinder Morgan Class P common stock issued to former El Paso shareholders.
- Monitor the integration of El Paso Pipeline Partners, L.P. (EPB) into KMI's operational and regulatory framework as outlined in the amended Bylaws.
- Check the background and potential conflicts of interest for the two new board members, Anthony W. Hall, Jr. and Robert F. Vagt.