El Paso Corporation
) is set to complete its proposed merger with
Kinder Morgan, Inc.
) 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
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
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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