Business Context and Reporting Period
Company: Kinder Morgan, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: October 16, 2011
Event: Entry into a Material Definitive Agreement (Merger Agreement) with El Paso Corporation.
Key Financial Metrics and Transaction Terms
This filing details a proposed acquisition rather than reporting standard periodic financial results (revenue, profit, cash flow). Key financial terms of the transaction include:
- Merger Consideration: El Paso shareholders may elect one of three options, subject to pro-ration to ensure approximately 57% cash and 43% stock:
- 0.9635 shares of Kinder Morgan Class P common stock plus 0.640 warrants per El Paso share.
- $25.91 cash plus 0.640 warrants per El Paso share.
- 0.4187 shares of Kinder Morgan Class P common stock, $14.65 cash, plus 0.640 warrants per El Paso share.
- Warrant Terms: Each warrant allows the purchase of one share of Class P common stock at an exercise price of $40.00, exercisable for five years post-closing.
- Financing Commitment: Barclays Bank plc committed to provide:
- Up to $6.8 billion under a senior 364-day term loan facility.
- $5.0 billion under a senior three-year term loan facility.
- $1.5 billion under a senior revolving credit facility.
- Termination Fee: El Paso may be required to pay Kinder Morgan a termination fee of $650 million under certain circumstances, or reimburse expenses up to $20 million plus financing costs.
Material Changes and Transaction Structure
The filing announces a multi-step transaction structure intended to qualify as a tax-free reorganization under Section 368(a) of the Internal Revenue Code:
- First Merger: Merger Sub One merges with El Paso; El Paso survives and converts to a Delaware LLC.
- Second Merger: Merger Sub Two merges with the converted El Paso entity.
- Third Merger: The surviving entity merges into Merger Sub Three (a Kinder Morgan subsidiary).
Upon completion, El Paso will become a direct, wholly-owned subsidiary of Kinder Morgan. The filing does not provide comparative financial data (e.g., revenue or profit changes) as this is a transaction announcement, not an earnings report.
Guidance, Outlook, Risks, and Contingencies
Conditions to Closing: The transaction is subject to customary conditions, including:
- Approval by El Paso and Kinder Morgan stockholders.
- Regulatory approvals, including expiration of the HSR Act waiting period.
- Listing approval for Class P stock and warrants on the NYSE or NASDAQ.
- El Paso maintaining net operating loss carryforwards of at least $2.6 billion.
- Receipt of tax opinions confirming reorganization status.
Timeline: The parties aim to close the transaction no later than December 31, 2012.
Risks and Forward-Looking Statements: The filing includes a Safe Harbor warning that actual results may differ due to factors such as the ability to consummate the transaction, obtain financing, realize synergies, integrate operations, and changes in energy markets or regulatory conditions.
Important Facts for Investor Verification
- Verify the final terms of the Merger Agreement in the upcoming Form S-4 Registration Statement and Joint Proxy/Information Statement/Prospectus.
- Confirm the outcome of shareholder votes for both Kinder Morgan and El Paso.
- Monitor regulatory approvals, specifically antitrust clearance under the HSR Act.
- Assess the impact of the $13.3 billion total financing commitment on Kinder Morgan's future debt load and liquidity.
- Review the specific terms of the warrants and the pro-ration mechanics for the cash/stock election.