Kinder Morgan Inc (NYSE:KMI) recently announced that it will be acquiring its three associated companies Kinder Morgan Energy Partners LP (NYSE:KMP), El Paso Pipeline Partners, L.P. (NYSE:EPB) and Kinder Morgan Management, LLC (NYSE:KMR) in a $44 billion deal. The total value of the deal would actually come to $71 billion as Kinder Morgan Inc (NYSE:KMI) will also assume $27 billion in debt from these companies, apart from paying about $40 billion in stock and $4 billion in cash to investors in these companies.
David Faber and Jim Cramer discussed the move by Kinder Morgan Inc (NYSE:KMI) to acquire Kinder Morgan Energy Partners LP (NYSE:KMP) and the other two companies in a move to consolidate its vast oil-and-gas pipeline empire into a single company on CNBC.
“He would recognize that these incentive distribution right was kick back money, maybe as much as 40, 50%, some people say 60% of the actual net income going back to the partner Kinder Morgan Inc (NYSE:KMI), that that had been disadvantaging Kinder Morgan to be up on due deals. Even though it had done Copano and it’d done El Paso and the cost of was capital too high for Kinder, a lot of people also felt that it was law of large numbers. Now Rich Kinder’s company does produce as of last year 55,000 barrels of oil in Texas, so its also an oil company, [...] but the essence of this company was that people said, “Rich is letting down people” [...],” Cramer said.
With this deal, Kinder Morgan Inc (NYSE:KMI) will also be renouncing the financial structure that it popularized in the 90′s, the master limited partnerships. The enterprise value of this deal is going to be $140 billion – $100 billion in market value and $40 billion in debt. Cramer feels that this deal of Kinder Morgan Inc (NYSE:KMI) acquiring Kinder Morgan Energy Partners LP (NYSE:KMP) and the other two companies, will give it the necessary leverage to go out and buy any company that it wants to.