Kinder Morgan sold for $15bn

HOUSTON: Kinder Morgan accepted the largest pipeline takeover in history after a group led by Richard Kinder, the former Enron executive who helped found the company, raised its offer to $15bn. Kinder and partners, including Goldman Sachs Group, insurer American International Group, Carlyle Group and Riverstone Holdings, raised their bid to $107.5 a share from a May offer of $100 a share, Houston-based Kinder Morgan said on Monday in a statement. The buyers also will assume $7bn in debt, bringing the transaction’s total value to $22bn.

Rising energy demand has driven $40.5bn in energy-related acquisitions this year worldwide, 60% ahead of last year’s pace. Prices for natural gas, the fuel carried by many of Kinder Morgan’s pipelines, have climbed almost 7% since the buyout group’s first offer was announced in May.

“This is a good price for the company as a publicly traded entity based on where it had been,” said Robert Lane, an analyst at Sanders Morris Harris Group in Houston who rates Kinder Morgan shares at “hold” and doesn’t own any. “You have to remember it was trading down at $85 when the deal was made.”

The company’s shares have climbed 20% since the offer on May 29, representing a gain of $415m for Kinder, who owned an 18% stake in Kinder Morgan as of a June filing. Mr Kinder, 61, will remain chairman and chief executive and will reinvest all his shares, according to the statement.

The offer accepted by Kinder Morgan values Mr Kinder’s stake at $2.58bn. Co-founder Bill Morgan, his son Mike Morgan, and director Fayez Sarofim are also among the Kinder Morgan investors.

Kinder Morgan owns stakes in or operates 43,000 miles (69,187 km) of pipelines in the US and Canada. The company manages Kinder Morgan Energy Partners, an operator of pipelines and fuel terminals. The purchase agreement includes a $215m breakup fee, Kinder Morgan said today in a filing with the US Securities and Exchange Commission.

A number of class-action lawsuits claiming the initial offer was too low were filed against Kinder Morgan in Kansas, where the company is incorporated. The group may have been waiting for those suits to be certified by the courts to announce its higher bid, Sanders Morris Harris’s Mr Lane said.

“We thought that they’d have to wait until the lawyers for the class-action lawsuits had settled their stuff,” Mr Lane said. “You didn’t want to announce the deal before you had the class action certified and then have the lawyers for the class action come back and say ‘We need more money.’ I think that’s what they were waiting for more than anything else.”

Mr Kinder quit as president of Enron after Kenneth Lay won a five-year extension of his contract to be chairman and chief executive, blocking Mr Kinder from moving up at the company. Kinder Morgan was formed in July 1999, when Mr Kinder and his partners bought KN Energy, a Colorado-based pipeline company.

Mr Kinder and Bill Morgan, also a former Enron executive and a University of Missouri classmate, created the company that would become Kinder Morgan by buying Enron’s stake in gas-liquids and carbon-dioxide pipelines as Enron expanded in energy trading.

Enron collapsed in December ’01 under crushing debt and allegations of fraud. Mr Lay and his successor as Enron’s CEO, Jeffrey Skilling, were convicted in May of spearheading the fraud that led to Enron’s failure. Lay, who was scheduled to be sentenced in October, died last month.