Kinder Morgan buying El Paso Corp. for $21 billion *updated*

Kinder Morgan approached El Paso in August about a $21 billion deal announced Sunday that will unite two Houston pipeline powerhouses.

“I was the suitor here,” said Richard Kinder, CEO of Kinder Morgan, said in an interview. “We spent about seven weeks working together negotiating and arrived at what we think is a good deal for everyone.”

The combined company will have 80,000 miles of pipelines and a footprint with access to virtually every natural gas supply base and demand center in the U.S., Kinder said.

“We think it’s a company that will be posed to grow in the future as we expand and extend this footprint,” he said, noting the merged company will become North America’s largest midstream company and its fourth largest energy company.

The transaction is expected to close in the second quarter of 2012, pending regulatory approval.
Kinder is optimistic the Federal Trade Commission will approve the combination because the companies have “minimal” overlap,” he said. Both companies have pipelines in the Rockies, he noted.

Kinder Morgan went public in February, allowing it to finance the El Paso deal. Kinder said El Paso was his first choice of potential acquisitions, but declined to say who else he considered.

Once the transaction is completed, Kinder will remain chairman and CEO of the combined entity. The parent company will be named Kinder Morgan, Inc., and its corporate headquarters will remain in Houston.

Kinder Morgan will also assume about $17 billion in debt of El Paso and of El Paso Pipeline Partners.
The agreement values El Paso at $26.87 a share, a 47 percent premium to the stock’s 20-day average closing price and 37 percent above where it closed Friday.

El Paso has that it won’t look for other other buyers and if the deal doesn’t close to pay a fee of $650 million under
certain circumstances.

The combination will result in cost savings of about $350 million a year, Kinder said, adding that an integration team will be created to determine how many employees and how much real estate space the combined operations will need.

The companies have a total of 12,800 employees. Kinder Morgan has 900 workers in Houston and El Paso has 1,900 employees here.

El Paso was focused on spinning off its exploration and production business, which it announced in May, when Kinder came knocking, said El Paso CEO Doug Foshee.

“It’s a great deal for El Paso, not only in the near term but as well as in the long-term,” Foshee said. “When this transaction closes, El Paso shareholders will continue to be significant shareholders in the now much larger Kinder Morgan family.”

Foshee said he wasn’t sure what his role will be after the deal closes, and that for now he was focused on seeing the deal through and selling El Paso’s exploration and production business.

Foshee joined El Paso in 2003, working to restore the company’s reputation after industrywide fallout from the Enron debacle and an attempt by dissident shareholders to take over its board.

“I think each member of team El Paso can take pride in having done that,” he said. “Had we not done that, wouldn’t be a company that is interesting to anyone, especially not Kinder Morgan.”

–Purva Patel contributed to this report.

Kinder Morgan