On Sunday, Kinder Morgan Inc. (NYSE: KMI) said it will consolidate its empire by buying out investors in Kinder Morgan Energy Partners, L.P. (NYSE: KMP), Kinder Morgan Management, LLC (NYSE: KMR) and El Paso Pipeline Partners (NYSE: EPB).
The $70 billion deal, which will create the largest energy infrastructure company in the U.S. and the fourth-largest U.S. energy firm overall, is the second-largest acquisition in U.S. energy sector history trailing only Exxon’s $74.5 billion 1999 purchase of Mobil.
The news should provide a lift to units of Kinder Morgan Energy Partners, Kinder Morgan Management and El Paso. KMP unitholders will receive 2.1931 KMI shares and $10.77 in cash for each KMP unit. This results in a price of $89.98 per unit, a 12 percent premium based on the Aug. 8, 2014, closing prices, according to a statement issued by Houston-based Kinder Morgan Inc.
“KMR shareholders will receive 2.4849 KMI shares for each share of KMR. This results in a price of $89.75 per share, a 16.5 percent premium based on the Aug. 8, 2014, closing prices. This is a premium of 16 percent based on the July 16 reference date used by the parties in the negotiation”, according to the statement.
“El Paso unitholders will receive .9451 KMI shares and $4.65 in cash for each EPB unit. This results in a price of $38.79 per unit, a 15.4 percent premium based on the Aug. 8, 2014, closing prices,” said Kinder Morgan Inc. in the statement.
And for good measure, Kinder Morgan Inc. said the combined company will pay an annual dividend of $2 per share next year, a 16% jump from current levels. Several exchange traded funds focusing on master limited partnerships (MLPs) also stand to benefit from this news.
The actively managed First Trust North American Energy Infrastructure Fund (NYSEArca: EMLP) is one example. EMLP, which is just 26 months old and already home to over $791 million in assets uner management, allocates combined 11.7% of its weight to Kinder Morgan Management and Kinder Morgan Inc. Those stocks are the ETF’s second- and third-largest holdings.
EMLP also has an almost 1.5% weight to El Paso Pipeline. EMLP was the first RIC-compliant MLP product that doesn’t dilute the tax benefits of holding individual MLPs. However, by limiting MLP holdings to 25%, the ETF includes other energy infrastructure firms with similar characteristics to MLPs. [MLP ETFs Look to Dodge Tax Headaches]
The Global X MLP & Energy Infrastructure ETF (NYSEArca: MLPX), already this year’s top-performing energy ETF, stands to build on those gains thanks to the Kinder Morgan consolidation. MLPX allocates a combined 13.2% of its weight to Kinder Morgan Inc., Kinder Morgan Management and El Paso.