Kinder Morgan says goodbye to weird corporate structure and special tax status

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The thing Wall Street loves more than anything else is when a company outsmarts its competitors and the taxman; the thing Wall Street hates more than anything else is when that same company goes on to also outsmart Wall Street itself. To put that another way, it's a fine line between stupid and clever, and for years now, Kinder Morgan ( KMI ) has been dancing along that line. It now appears that it may have strayed over the line, based on how positively the Street has responded to its having announced that it was throwing its trickiness aside and playing it straight from now on.

What trickiness was that? First, and most easily understandable, is the MLP tax status of Kinder Morgan Energy Partners ( KMP ). The status means that the company has certain tax benefits, in exchange for the necessity of distributing most of its profits to shareholders. Then there is the weird corporate structure in which Kinder Morgan owns the general partner interest in Kinder Morgan Energy Partners L.P., along with limited partner interests in both Kinder Morgan Energy Partners L.P. and Kinder Morgan Management L.P. ( KMR ).

Don't want to have sift through all that to figure out where the money is actually going? No one can blame you. The very complexity appears to have made investors shy away, worried, perhaps, that they couldn't figure out who the suckers at the table were because they were the suckers.


In any case, it's all out the window now: the new company (which will trade as KMI) will absorb all the others, and will not be an MLP. The company will still likely pay a solid dividend, but it will have the flexibility to reinvest as much of its profits as chooses to. As of Friday, total value of the combined company appeared to be $92 billion, but the Street is paying a big premium today for unity. KMI is up 5.9%, KMP is up 14.4% and KMR is up 20.3%.

Kinder Morgan is a powerful gas pipeline company; I explained back in May, based on its sharply rising revenue, that it looked stronger than ever . While that assessment certainly appears to have been correct, I'm more than happy to double-up on it today: as strong as it was as an MLP-centered corporate family, KMI is likely to be even more powerful as a unified growth company. 

Julian Close has been a business writer since the first day of the twenty-first century, having written for PRA International and the United Nations Department of Peacekeeping. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. He became a stockbroker in 1993, but now works for Fresh Brewed Media and uses his powers only for good. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC .


This article was originally published on MarketIntelligeneCenter.com



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Taxes

Referenced Stocks: KMI , KMP , KMR

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