KN Energy Inc., an integrated natural gas company based in Lakewood, Colo., has signed a definitive merger agreement with pipeline operator Kinder Morgan Inc., Houston.
The deal, valued at about $500 million, will create a firm with a total enterprise value of about $8.5 billion. This value includes the $2.5 billion value of Kinder Morgan Energy Partners LP, in which Kinder Morgan Inc. is the sole stockholder of the general partner, Kinder Morgan GP Inc.
Under the terms of the deal, KN Energy will issue about 41.5 million shares of stock in return for all the outstanding shares of Kinder Morgan Inc. As a result of the transaction, Kinder Morgan Inc. has canceled a planned initial public offering.
The new company will retain the Kinder Morgan name, and Kinder Morgan Chairman and CEO Richard D. Kinder will remain in his post. KN Energy Chairman and CEO Larry D. Hall has resigned, effective immediately. Board member Stewart Bliss has been named interim chairman and CEO.
"The combination creates one of the premier midstream energy companies in the U.S., which will operate more than 30,000 miles of pipeline transporting natural gas, refined petroleum products, and natural gas liquids," said the companies in a joint statement. Of this pipeline mileage, 25,000 will come from KN Energy and 5,000 from Kinder Morgan Energy Partners.
KN has operations in 16 states that include: natural gas gathering, processing, marketing, storage, and transportation; natural gas and NGL sales; electricity generation development projects; and energy services.
In addition to Kinder Morgan`s products pipeline system, which includes more than 20 terminals, the firm operates 24 bulk terminal facilities that transload more than 40 million tons/year of coal, coke, and other products. It also owns 51% of Plantation Pipe Line Co., 20% of Shell CO2 Co., and a 25% interest in an NGL fractionator.
"ellipseManagement will focus on maximizing the use of and expanding KN`s asset base, selling nonstrategic assets to reduce KN`s level of outstanding debt, and making strategic acquisitions, both on its own and in conjunction with Kinder Morgan Energy Partners," said the firms. "In addition, the combined company will be able to contribute qualifying assets to Kinder Morgan Energy Partners in exchange for cash and/or publicly traded limited partnership units."
The combined company would continue to share in the earnings of such assets through its interests in the partnership. The deal is expected to close early in the fourth quarter and to be immediately accretive to KN`s earnings.