Business Context and Reporting Period
Company: Kinder Morgan, Inc. (KMI)
Filing Type: Form 8-K (Current Report)
Date of Report: August 9, 2014
Event: Entry into Material Definitive Agreements for three concurrent mergers (collectively, the "Transactions").
KMI has entered into merger agreements to acquire Kinder Morgan Energy Partners, L.P. (KMP), Kinder Morgan Management, LLC (KMR), and El Paso Pipeline Partners, L.P. (EPB). KMI currently indirectly owns 100% of the general partners of KMP and EPB and holds significant minority stakes in the operating entities (approx. 13% of KMP, 8% of KMR, and 41% of EPB).
Key Financial Metrics and Transaction Terms
This filing details the structure of the mergers rather than historical financial performance. Key financial terms include:
- KMP Merger Consideration: Unitholders may elect (i) $10.77 cash + 2.1931 shares of KMI stock; (ii) $91.72 cash; or (iii) 2.4849 shares of KMI stock.
- KMR Merger Consideration: Shareholders receive 2.4849 shares of KMI stock per share.
- EPB Merger Consideration: Unitholders may elect (i) $4.65 cash + 0.9451 shares of KMI stock; (ii) $39.53 cash; or (iii) 1.0711 shares of KMI stock.
- Financing: KMI secured a $5.0 billion senior unsecured 364-day term loan facility (Bridge Facility) from Barclays Bank PLC to fund the cash portions of the transactions.
- Termination Fees:
- KMP Merger: $817 million (payable via waiver of incentive distribution rights if KMI terminates).
- KMR Merger: $311 million.
- EPB Merger: No termination fee; parties bear their own expenses.
Material Changes and Conditions
The Transactions are subject to concurrent completion; the failure of one merger agreement to close will prevent the others from closing. Key conditions include:
- Approval by KMI stockholders to amend the certificate of incorporation and issue new shares.
- Approval by unitholders/shareholders of KMP, KMR, and EPB.
- Expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act.
- Effectiveness of a registration statement on Form S-4.
- Listing approval of KMI Common Stock on the NYSE.
- Deadline: All agreements may be terminated if closing does not occur by May 11, 2015.
Guidance, Outlook, and Risks
Management Commentary: The Boards of Directors for KMI, KMP, KMR, and EPB have determined the transactions are fair and reasonable and have recommended approval to their respective security holders. A Support Agreement has been signed with Richard D. Kinder to vote his shares in favor of the transactions.
Risks and Contingencies:
- Regulatory Risk: Transactions are contingent on antitrust clearance and other regulatory approvals.
- Market Risk: Forward-looking statements regarding synergies and future results are subject to risks including energy market volatility, commodity price changes, and credit market conditions.
- Financing Risk: The $5.0 billion bridge facility is subject to customary closing conditions and definitive documentation.
- Superior Proposal: Boards retain the right to change recommendations if a superior proposal is received.
Investor Verification Checklist
- Verify the final vote results of KMI, KMP, KMR, and EPB security holders.
- Monitor the status of the Hart-Scott-Rodino antitrust waiting period and other regulatory approvals.
- Review the upcoming Form S-4 registration statement for detailed financial projections and risk factors.
- Confirm the finalization of the $5.0 billion bridge financing with Barclays Bank PLC.
- Check for any announcements regarding superior proposals or changes in board recommendations prior to the May 11, 2015 deadline.