The transaction strengthens Kinder Morgan’s position as a major player in the US gas industry, providing the infrastructure to transport growing production from new fields to new markets.
Barclays Plc agreed to lend Kinder Morgan the entire $11.5 billion cash portion of the bid. Kinder Morgan’s current debt is held by its Kinder Morgan Kansas subsidiary and is currently rated “BB” by Standard & Poor’s, two notches below investment grade.
The total value of the acquisition, including debt assumed from Houston-based El Paso, is $37.8 billion, Kinder Morgan said in a document prepared for investors.
The acquisition is the largest ever proposed of a pipeline company, surpassing the 2007 leveraged buyout of Kinder Morgan itself by a group including Kinder and Goldman Sachs Group Inc. If completed, it will be the ninth-largest takeover in the global energy industry and the biggest in more than a year, according to data compiled by Bloomberg.
Kinder Morgan said it will try to sell El Paso’s exploration and production business. Evercore Partners and Barclays are advising Kinder Morgan on the effort, which may reap $6 billion or more, said a person with knowledge of the matter.
El Paso had announced in May that it would spin off the unit to its shareholders. As a stand-alone company, the business, known as EP Energy Corp., had $374 million of net income in 2010, El Paso said in an August regulatory filing.
For each El Paso share, Kinder Morgan is offering $14.65 in cash, 0.4187 share of Kinder Morgan, and 0.64 Kinder Morgan warrant, which allows the holder to buy a Kinder Morgan share at $40 within the next five years, the statement said.
The takeover values El Paso at about 13 times the last 12 months’ earnings before interest, taxes, depreciation and amortization of $2.67 billion, according to Bloomberg data.