El Paso & KMI Ready to Merge - Analyst Blog
11 Mayo 2012 - 7:30AM
Zacks
El Paso
Corporation (EP) is set to complete its proposed merger
with Kinder Morgan, Inc. (KMI) on May 24, 2012.
Both the companies have already received all required approvals
from their respective board of directors, shareholders and
regulators.
In October 2011, El Paso had
entered into an agreement to merge with Kinder Morgan. The deal is
worth approximately $38 billion. The deal value includes $17
billion outstanding debt of El Paso and its subsidiaries.
Per the agreement, the shareholders
of El Paso can opt for either cash or Kinder Morgan common stock,
or a combination of both for each El Paso share. On the other hand,
El Paso equity award holders can opt for cash or a combination of
cash and Kinder Morgan common stock for each share of El Paso
common stock.
The El Paso - Kinder Morgan merger
is expected to be one of the largest energy transactions in recent
years. The merged entity will have an enterprise value of $94
billion and is expected to operate 13,000 miles of pipelines for
the transportation of refined products and 67,000 miles of natural
gas pipelines in North America. The overall 80,000 miles network
will unite Kinder Morgan's pipelines in the Midwest, the Rocky
Mountains and Texas with El Paso's wide network spreading from the
east of the Gulf Coast to New England, and in the west through
Arizona, California, New Mexico and Nevada.
The transaction is expected to
generate cost savings of $350 million a year or 5% of the combined
companies' earnings before interest, taxes, depreciation and
amortization. The company also expects a boost in its dividend
payments through 2015. At the same time, Kinder Morgan intends to
divest El Paso’s exploration and production assets in order to
curtail the high debt pressure following this transaction.
At the end of first quarter 2012,
El Paso’s earnings declined due to lower realized prices of natural
gas and natural gas liquids.
At present, we observe a growth in
natural gas demand, given its lower pricing. Being a low-pollutant
also boosts its demand. We believe the merged company will supply
natural gas from the production area to the consumers directly with
its strong pipeline network. This will minimize logistical expenses
leading to a decline in cost of production and eventually benefit
end users.
El Paso Corporation currently
retains a Zacks #5 Rank, which translates into a short-term Strong
Sell rating.
Based in Houston, Texas, El Paso
Corporation engages in natural gas transmission and the exploration
and production sectors of the energy industry. The company
primarily operates in United States and has some exposure in Brazil
and Egypt.
EL PASO CORP (EP): Free Stock Analysis Report
KINDER MORGAN (KMI): Free Stock Analysis Report
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