Bloomberg News

Kinder Nets $800 Million in One Day on Consolidation Deal

August 11, 2014

Kinder Morgan

Pipe is stacked for use in the construction of a section of the Kinder Morgan, Inc. Rockies Express Natural Gas Pipeline just outside Laramie, Wyoming, in this Aug. 28, 2006 file photo. Photographer: Matthew Staver/Bloomberg

For Texas billionaire Richard Kinder, pocketing an extra $800 million is all in a day’s work.

The value of Kinder’s holdings in a corporate empire that controls a pipeline network long enough to circle the Earth three times surged by $800 million after he said he would consolidate his companies to grow faster. The windfall is part of a template the consummate financial engineer has made for himself as he built his fortune from $40 million in assets cast off from his former employer Enron Corp.

Bringing together Kinder’s complex of pipes, oil storage tanks and natural gas-processing plants under one roof will create the biggest energy infrastructure company in North America. Currently the companies have a combined market value of $106 billion. Kinder said the deal paves the way for more transactions by creating a financial behemoth that can vacuum up smaller rivals.

As chairman and chief executive officer of Kinder Morgan Inc. (KMI:US), or KMI, Kinder takes a $1-a-year salary and earns no annual bonus from any of the four companies. His ownership stakes in all the companies earned him $380 million in dividend payments last year, which stands to rise under the deal.

Kinder declined through a spokesman to be interviewed.

Bucking a Trend

The consolidation runs counter to the industry trend of spinning off pipelines and oil terminals into tax-advantaged partnerships that funnel cash to investors. By simplifying his empire’s corporate structure, Kinder will lower borrowing costs, free up cash for bigger dividend payouts and unify the company under a single stock that he can use as currency to buy competitors.

The merger will make it easier and more profitable for Kinder “to pursue expansion and acquisitions in a target-rich environment,” the company said in a slide presentation published on its website yesterday.

The transactions are the latest evolution in Kinder’s odyssey that began 18 years ago when he quit Enron to strike out on his own. The company’s rapid expansion and splintering into multiple entities had become more of a burden than a boon in recent years as cash that the company needed to grow was channeled to investors.

Kinder has lagged rivals such as Williams Cos. (WMB:US) and Enterprise Products Partners LP (EPD:US) during the past three years, generating a 63 percent total return compared with 183 percent for Williams’ investors and Enterprise’s 102 percent return.

Personal Gains

Richard Kinder’s personal stake of 243.1 million shares in KMI, makes him the largest individual investor in the Houston-based energy infrastructure company that yesterday announced plans to absorb its three sister companies.

KMI rose $3.25 to $39.37 at the close in New York. The rise adds $790 million to the value of his stake. The value of his holdings in the other three entities -- Kinder Morgan Energy Partners LP (KMP:US), Kinder Morgan Management LLC and El Paso Pipeline Partners LP (EPB:US) -- jumped by a combined $11.7 million today.

Kinder, 69, told investors during a conference call today that he’ll take stock in lieu of cash for his stakes in the three targeted companies that are being absorbed in the $44 billion combination. The merger is expected to be completed by the end of this year.

Looking ahead, Kinder’s potential acquisition targets include more than 120 energy MLPs that have a combined enterprise value of $875 billion, according to the company’s website presentation. The pipeline giant also has ample room to grow through new projects as expanding shale exploration and production spurs the need for $640 billion in new pipelines and storage tanks through 2035.

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net

To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net Will Wade, Carlos Caminada


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Companies Mentioned

  • KMI
    (Kinder Morgan Inc/DE)
    • $41.63 USD
    • 1.07
    • 2.57%
  • WMB
    (Williams Cos Inc/The)
    • $46.0 USD
    • 1.20
    • 2.61%
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