Takeover of Kinder Morgan takes company private

Kinder Morgan, Inc. Enters Into Agreement to Sell to Investor Group for $107.50 Per Share
News Release, Kinder Morgan, 28-Aug-2006

Enigmatic Kinder pulls off biggest U.S. buyout
Dave Ebner, Globe and Mail, 29-Aug-2006

Kinder Morgan agrees to takeover
Gene Laverty and Jim Polson, Vancouver Sun, 29-Aug-2006

Kinder Morgan Agrees to an Improved Buyout Offer Led by Its Chairman
Jad Mouawad, New York Times, 29-Aug-2006

Kinder group boosts bid to $22 billion
Purva Patel, Houston Chronicle, 28-Aug-2006

COMMENT: In this takeover, Richard Kinder himself, and a syndicate of investment companies including The Carlyle Group, Investors Group and AIG.

There's a wealth (is that an appropriate word in this context?) of reading on the Carlyle Group and its integration with the US political, corporate and military sectors. Google will give you hours of entertainment:
Wikipedia
Sourcewatch.org
Carlyle's Way, Red Herring

Under the terms of the agreement, KMI stockholders will receive $107.50 in cash for each share of KMI common stock they hold. The board of directors of KMI, on the unanimous recommendation of a special committee comprised entirely of independent directors, has approved the agreement and will recommend that KMI's stockholders approve the merger.

The purchase price represents a premium of approximately 27 percent over $84.41, the closing price of KMI stock on Friday, May 26, the last trading day before the Investor Group made its proposal to take the company private.

"We are proud to partner with this prominent group of private equity firms, all of which have proven records of success," said Kinder. "They share our goals and will be strong partners moving forward. I also want to thank our 8,300 employees for their efforts and the company's success and assure them that we will continue to focus on incentive programs that enable them to share in the company's future accomplishments."

Kinder, who will continue as Chairman and CEO following the close of the transaction, will reinvest all of his 24 million KMI shares. "This buyout reflects the confidence that senior management and the sponsors have in the potential of Kinder Morgan Energy Partners, L.P. (NYSE: KMP). KMI's ownership of the general partner of, and other partnership interests in, KMP represents KMI's largest asset," Kinder said.

The transaction is expected to be completed by early 2007, subject to receipt of stockholder approval and regulatory approvals, as well as the satisfaction of other customary closing conditions.

The transaction will be financed through a combination of equity contributed by the Investor Group, and debt financing provided by Goldman Sachs Credit Partners L.P. and affiliates of Citigroup Global Market Inc., Deutsche Bank Securities Inc., Wachovia Securities and Merrill Lynch, Pierce, Fenner & Smith Incorporated. There is no financing condition to the obligation of the Investor Group to consummate the transaction.

Morgan Stanley and The Blackstone Group L.P. are acting as financial advisors to the special committee, and have each delivered a fairness opinion. Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal advisor to the special committee. Bracewell & Guiliani LLP is acting as legal advisor to the independent directors.

Goldman Sachs & Co. is acting as financial advisor to the Investor Group. Wachtell, Lipton, Rosen and Katz is acting as legal advisor to the private equity investors, and Weil, Gotshal and Manges LLP is acting as legal advisor to Richard Kinder and the other management investors. Simpson Thacher & Bartlett LLP is acting as legal advisor on the financing to the Investor Group.

Kinder Morgan, Inc. is one of the largest energy transportation, storage and distribution companies in North America. It owns an interest in or operates approximately 43,000 miles of pipelines that transport primarily natural gas, crude oil, petroleum products and CO2; more than 150 terminals that store, transfer and handle products like gasoline and coal; and provides natural gas distribution service to over 1.1 million customers. KMI owns the general partner interest of Kinder Morgan Energy Partners, one of the largest publicly traded pipeline limited partnerships in the United States. Combined, the companies have an enterprise value of more than $35 billion.

Founded in 1869, Goldman Sachs is one of the oldest and largest investment banking firms. Goldman Sachs is also a global leader in private corporate equity and mezzanine investing. Established in 1992, the GS Capital Partners Funds are part of the firm's Principal Investment Area in the Merchant Banking Division. Goldman Sachs' Principal Investment Area has formed 12 investment vehicles aggregating $35 billion of capital to date. With $8.5 billion in committed capital, GS Capital Partners V is the current primary investment vehicle for Goldman Sachs to make privately negotiated equity investments.

American International Group, Inc. (AIG), world leaders in insurance and financial services, is the leading international insurance organization with operations in more than 130 countries and jurisdictions. AIG companies serve commercial, institutional and individual customers through the most extensive worldwide property-casualty and life insurance networks of any insurer. In addition, AIG companies are leading providers of retirement services, financial services and asset management around the world. AIG's common stock is listed in the U.S. on the New York Stock Exchange as well as the stock exchanges in London, Paris, Switzerland and Tokyo. For further information on AIG see http://www.aig.com.

The Carlyle Group is a global private equity firm with $41.9 billion under management. Carlyle invests in buyouts, venture & growth capital, real estate and leveraged finance in Asia, Europe and North America, focusing on aerospace & defense, automotive & transportation, consumer & retail, energy & power, healthcare, industrial, technology & business services and telecommunications & media. Since 1987, the firm has invested $19.7 billion of equity in 500 transactions for a total purchase price of $79.7 billion. The Carlyle Group employs more than 670 people in 15 countries. In the aggregate, Carlyle portfolio companies have more than $46 billion in revenue and employ more than 184,000 people around the world. See http://www.carlyle.com.

Riverstone Holdings LLC is a New York-based energy and power focused private equity firm founded in 2000 with $7 billion currently under management. Riverstone conducts buyout and growth capital investments in the midstream, upstream, power and oilfield service sectors of the energy industry. To date, the firm has committed more than $3 billion to over 20 investments across each of these four sectors, involving more than $15 billion of assets. For more information on Riverstone Holdings, see http://www.riverstonellc.com.

This news release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although it is believed that the expectations are based on reasonable assumptions, there can be no assurance that such assumptions will materialize. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein are enumerated in Kinder Morgan Inc.'s and Kinder Morgan Energy Partners, L.P.'s Forms 10-K and 10-Q as filed with the Securities and Exchange Commission.

Important Additional Information Regarding the Merger will be Filed with the SEC:

In connection with the proposed Merger, the Company will file a proxy statement with the Securities and Exchange Commission (the "SEC"). INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ THE PROXY STATEMENT WHEN IT BECOMES AVAILABLE BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION ABOUT THE MERGER AND THE PARTIES TO THE MERGER. Investors and security holders may obtain a free copy of the proxy statement (when available) and other relevant documents filed with the SEC from the SEC's website at http://www.sec.gov. The Company's security holders and other interested parties will also be able to obtain, without charge, a copy of the proxy statement and other relevant documents (when available) by directing a request by mail or telephone to Investor Relations, Kinder Morgan, Inc., 500 Dallas Street, Suite 1000, Houston, Texas 77002, telephone (713) 369-9490, or from the Company's website, http://www.kindermorgan.com.

The Company and its directors, executive officers and other members of its management and employees may be deemed to be participants in the solicitation of proxies from the Company's shareholders with respect to the Merger. Information about the Company's directors and executive officers and their ownership of the Company's common stock is set forth in the proxy statement for the Company's 2006 Annual Meeting of Shareholders, which was filed with the SEC on April 3, 2006. Shareholders and investors may obtain additional information regarding the interests of the Company and its directors and executive officers in the Merger, which may be different than those of the Company's shareholders generally, by reading the proxy statement and other relevant documents regarding the Merger, which will be filed with the SEC.

SOURCE Kinder Morgan, Inc.

Kinder Morgan News Release, 28-Aug-2006

TOP

CALGARY

Richard Kinder has pulled off the biggest management buyout in the history of the United States and is now ready to run his seven-year-old pipeline and energy giant Kinder Morgan Inc. as a private concern.

Private is the key word. While he is a multibillionaire and one of the United States' leading financier-entrepreneurs, Mr. Kinder doesn't even have an entry on the sprawling on-line encyclopedia Wikipedia.

"Who the hell knows who Rich Kinder is? And who cares?" he told The Wall Street Journal in 2004 in a rare interview.

Mr. Kinder, who a decade ago was president of Enron Corp. before quitting after a power struggle, is backed by company co-founder Bill Morgan, Houston money manager Fayez Sarofim and four equity firms including Goldman Sachs.

The group has orchestrated a $22-billion (U.S.) deal - $15-billion in equity and $7-billion in debt - winning control of Kinder Morgan in a development announced yesterday by adding $7.50 a share to their original offer of $100 a share made in late May.

Mr. Kinder takes a salary of $1 a year and accepts no stock options. He owns almost a fifth of the company, a stake valued at $2.6-billion, every cent of which he is pouring into the private company. Dividends bring him more than $80-million annually.

Kinder Morgan entered Canada last year with its $6.9-billion (Canadian) deal to buy Terasen Inc., whose key asset is a large oil pipeline from Edmonton to Vancouver. Mr. Kinder said the long-term potential of the oil sands was the reason for the move, calling predicted production growth there "one hell of an opportunity" in a conference call last August when the deal was announced.

"We're going to see what develops and be there on the ground to get our share of it," Mr. Kinder said.

Kinder Morgan is also the general partner to still-public Kinder Morgan Energy Partners LP, which is a master limited partnership, an arrangement used to reduce corporate taxes that's akin to the income trust structure in Canada. Mr. Kinder, in his early 60s, is chairman and chief executive officer of both.

All told, the connected companies control roughly 70,000 kilometres of oil, natural gas, carbon dioxide and products pipelines in North America, as well as vast storage facilities.

Kinder Morgan has faced criticism, mostly over questions about the integrity of its pipeline network, and has taken hard hits for several spills. But it has mostly stayed out of the public eye as the company became one of the biggest successes in U.S. business, outpacing the benchmark Standard & Poor's 500-stock index by more than 4-to-1 over the past five years.

"You've got to give the guy a ton of kudos because of what he's done," said William Lacey, a vice-president at brokerage FirstEnergy Capital Corp. in Calgary. "He's created a pipelining infrastructure giant in a fairly abbreviated timeline. And he's created an enormous amount of wealth and not just for himself."

Mr. Kinder has said he'd prefer a root canal to an interview with a journalist and turned down requests for a one-on-one with The Globe and Mail last year after the Terasen deal. A company representative said Mr. Kinder says all he needs to say on quarterly conference calls.

Kinder Morgan Energy Partners is currently leading the building of the $4-billion-plus (U.S.) Rocky Express Pipeline, moving natural gas from Colorado and Wyoming to Ohio and possibly on to Pennsylvania. It is the first major pipeline in the United States since the Alaskan oil pipeline was finished in the late 1970s. EnCana Corp., the Calgary-based gas producer, is backstopping more than a quarter of the line with a long-term deal to move gas on the project from its Colorado operations.

For Mr. Kinder, it's all happened in less than 10 years. He had hoped to become CEO of Enron and left when he didn't get the gig. With Mr. Morgan, he started Kinder Morgan Energy Partners LP in 1997, buying some minor Enron assets for $40-million, and in 1999, Kinder Morgan Inc. was created.

Mr. Kinder was born in a small town on the banks of the Mississippi River in Missouri. He is a lawyer by training and in 1980, after his foray into real estate soured around his 35th birthday, he was bankrupt, with just $100 cash in his pocket, according to a 2003 profile by Fortune magazine.

He joined what became Enron and he rose nearly to the top before being stymied by Kenneth Lay. Feeling betrayed, he joined with Mr. Morgan, whom he had met at the University of Missouri, where he had also met Mr. Lay.

He is a pioneer in moving and using carbon dioxide to increase oil recovery from old wells. He believed in "steel in the ground" rather than the financial engineering strategy pursued by Enron but is a master financier himself, using the partnership structure of Kinder Morgan Energy to tremendous advantage for himself and investors.

As he told The Wall Street Journal in 2004: "Our goal is getting everybody [at our firm] to think, 'How would I spend the money if it was my money?' . . . Whatever I do, if it is good for shareholders, it is good for me and vice versa."

*****

Kinder Morgan Inc.

The deal

CEO Richard Kinder, along with co-founder Bill Morgan, other officers and some deep-pocketed backers, will buy Kinder Morgan Inc. for about $15-billion (U.S.), plus $7-billion of debt.

The backers

Among the companies underwriting the purchase are Goldman Sachs Capital Partners, American International Group Inc., Carlyle Group and Riverstone Holdings LLC.

The company

Kinder Morgan owns an interest in or operates about 69,000 kilometres of pipelines used to transport natural gas, crude oil, petroleum products and CO{-2}. It has more than 150 storage terminals and provides natural gas distribution services to more than 1.1 million customers.

History

Mr. Kinder and Mr. Morgan founded Kinder Morgan Energy Partners LP in 1997. The two former Enron executives bought some of that firm's assets for $40-million, and in 1999 Kinder Morgan was created. They also acquired KN Energy, a Colorado-based pipeline firm started in 1936.

Canadian connection

The company owns Terasen, serving about 892,000 retail customers in British Columbia, and Kinder Morgan Canada, which transports about 2.7 million barrels a day of refined petroleum products and crude oil through more than 20,900 kilometres of pipeline from Western Canada.

TOP

NEW YORK -- Kinder Morgan Inc., operator of 69,000 kilometres of North American oil and gas pipelines, agreed to a sweetened $15 billion takeover from a group led by co-founder and chairman Richard Kinder that will take the company private.

The new offer of $107.50 a share compares with the $100-a-share bid made in May, Houston-based Kinder Morgan said Monday in a statement. The buyers also will assume $7 billion in debt, bringing the transaction's value to $22 billion, the largest-ever pipeline acquisition. The bid by Richard Kinder, American International Group Inc., Goldman Sachs Group Inc., Carlyle Group and Riverstone Holdings LLC comes as rising energy demand spurs more takeovers. There have been $407 billion in energy acquisitions announced this year, 55 per cent ahead of 2005's pace. Prices for natural gas, the fuel carried by many Kinder Morgan pipelines, are up nine per cent since the buyout group made its first offer 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."

Kinder Morgan's shares have climbed 23 per cent since the offer on May 29, representing a gain of $475 million for Kinder, who owned an 18 per-cent stake in Kinder Morgan as of a June filing. Kinder, 61, will remain chairman and chief executive and will reinvest all his shares, according to the statement.

The deal values Kinder's stake at $2.58 billion. Co-founder Bill Morgan, his son Mike Morgan and director Fayez Sarofim are also among the Kinder Morgan investors.

Shares of Kinder Morgan rose $2.51 US, or 2.5 per cent, to $104.21 in New York Stock Exchange composite trading.

The company manages Kinder Morgan Energy Partners LP, an operator of pipelines and fuel terminals.

The purchase agreement includes a $215 million breakup fee, Kinder Morgan said today in a filing with the U.S. Securities and Exchange Commission.

At least five lawsuits were filed after the initial offer, seeking a higher price for shareholders, according to statements by law firms. The buyout group may have been waiting for those suits to be certified by the courts to announce its higher bid, Sanders Morris Harris's Lane said.

"We thought that they'd have to wait until the lawyers for the class-action lawsuits had settled their stuff," 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.' "

Kinder was president of Enron Corp. until quitting after Kenneth Lay won a five-year extension of his contract to be chairman and chief executive, blocking Kinder from moving up.

TOP

Kinder Morgan Inc., one of the largest pipeline operators in the country, said yesterday that it had agreed to a sweetened buyout offer of $15 billion from a group of investors led by its chairman and co-founder, Richard D. Kinder.

The buyers, who plan to take the company private, agreed to increase their cash offer to $107.50 a share, from an offer of $100 a share made in May. In addition, they will assume $7 billion of debt, Kinder Morgan, of Houston, said in a statement.

The transaction is one of the largest leveraged buyouts ever.

The buyout is led by Mr. Kinder, a former president of Enron who was ousted after a dispute with Enron’s founder, Kenneth L. Lay. The investor group includes Goldman Sachs Capital Partners, part of the investment bank’s equity business; the American International Group, the insurance company; and two private equity firms, the Carlyle Group and Riverstone Holdings.

Kinder Morgan’s board accepted the higher offer yesterday and will recommend its approval by shareholders. In trading on the New York Stock Exchange, the company’s shares rose $2.57 yesterday, to $104.27.

Some investors had criticized the initial offer as too low and threatened to sue the company. At the time, the offer represented an 18.5 percent premium over the price of Kinder Morgan shares. The new offer amounts to a 27 percent premium over Kinder Morgan’s closing price of $84.41 on May 26, the last trading day before the initial one was made.

After the May offer, the company’s board appointed an independent panel to help evaluate it. Some analysts had expected Kinder Morgan to be worth much more. Indeed, a low market valuation was one reason that Mr. Kinder cited in May for wanting to take the company private.

Paul Sankey of Deutsche Bank wrote in a note to investors yesterday: “There are megabulls on Kinder Morgan who valued it at $150, and expected a bump to $120, but this was not reflected by the market, which clearly didn’t see much upside. But the independent committee had to protect itself by asking for some kind of increase, and this offer should do enough to satisfy shareholders who owned equity worth $84 a share when the process started.”

Kinder Morgan operates about 43,000 miles of pipelines for natural gas, oil, other petroleum products and carbon dioxide. It also runs more than 150 terminals for gasoline and petroleum products and provides natural gas distribution service to more than 1.1 million customers.

Among its larger assets, Kinder Morgan owns Plantation Pipelines, one of the nation’s main transportation networks for petroleum products, carrying gasoline from refineries on the Gulf Coast to markets on the Atlantic Coast.

Mr. Kinder has been called the anti-Ken Lay. Mr. Lay, Enron’s chairman, blocked Mr. Kinder’s career there and pushed him out in favor of Jeffrey K. Skilling, who became president and chief executive after Mr. Kinder left. Under the new leadership, Enron shunned its traditional businesses in favor of more lucrative, and riskier, trading activities. It collapsed in 2001, and Mr. Skilling was convicted of fraud. Mr. Lay died last month of a heart attack.

Kinder Morgan is largely the result of Mr. Kinder’s strategy after he left Enron in 1996. At the time, he took over Enron’s stodgy pipeline assets and quickly expanded the business through a series of mergers and acquisitions.

In 1999, for example, he engineered a merger between Kinder Morgan Energy Partners and KN Energy, a gas utility in the Midwest. That deal was followed by several smaller acquisitions of storage terminals, distribution networks and other so-called midstream assets.

Among the investors in the current buyout besides Mr. Kinder are the company’s other founder, William V. Morgan; and two directors, the billionaire financier Fayez S. Sarofim and Michael C. Morgan, Mr. Morgan’s son. Mr. Kinder owns 24 million shares of Kinder Morgan, or 18 percent of the company.

Copyright 2006 The New York Times Company

TOP

By PURVA PATEL
Houston Chronicle
Aug. 28, 2006, 11:36PM

Kinder Morgan Inc. moved another step closer to going private Monday when a management-led group raised its offer to shareholders in a deal that marks the second-largest such buyout in the past two years.

The $22 billion definitive agreement, announced by the company Monday, is surpassed only by the pending buyout of HCA, according to Dealogic, which says that offer, plus the debt assumed by the buyers, is worth $32.7 billion.

A group of investors, including CEO Richard Kinder and other members of the Houston company's board, will acquire the oil and natural gas pipeline operator for $15 billion and take on $7 billion in company debt.

This is up from the $13.5 billion original offer announced May 26.

Kinder Morgan shareholders will receive $107.50 per share, compared with the $100 per share originally offered. The new offer is 27 percent higher than the $84.41 closing price of the company's shares May 26 — the day before the deal was announced.

Shareholders who filed suit, claiming the $100 buyout offer was too low, are not happy with the latest price, but one analyst said it may well be the best they can do.

Robert Lane, an analyst at Sanders Morris Harris Group, said the higher price is likely a sign of tough bargaining on the part of the independent committee of the board.

"I believe the special committee was waiting until the lawsuits were certified into one class action so they could be dealing with fewer lawyers," he said. "I'm sure they'll still be out there in some shape or form, but I don't think the price is going up anymore. I don't think there's any benefit to the lawyers to keep going if they have a price that allows them to claim victory."

Lane's firm had predicted the company would go out between $105 and $110, but it values the company as high as $150 if it undergoes major restructuring, he said.

Darren Robbins, an attorney representing some of the shareholder plaintiffs, said his clients plan to pursue the litigation because they're not happy with many of the terms of the agreement.

"There's no doubt $107.50 is better than $102.50, so we want to acknowledge where concessions were made, but it simply doesn't lend itself to an agreement by the plaintiffs to discontinue the case," he said.

He added that the shareholders believe the company included terms that were potentially harmful to them.

For instance, Robbins said, a $215 million termination fee and up to $45 million in expense fees to be paid if the deal doesn't go through are exorbitant, given that the company was being acquired by insiders who wouldn't have to spend as much as an outsider would in evaluating the company for purchase.

"From a shareholder's perspective, it is a barrier that another bidder has to pay, but the shareholder doesn't get a bit of that," he said.

Company spokesman Larry Pierce declined to comment on pending litigation.

Kinder Morgan shares closed at 104.27, up $2.57.

In a research note released Monday morning, analysts for Deutsche Bank said the relatively mellow market reaction to the news meant the market didn't see much of an upside to the deal.

"But the independent committee had to protect itself by asking for some kind of increase, and this offer should do enough to satisfy shareholders who owned equity worth $84 a share when the process started," they wrote.

Standard and Poor's affirmed its BBB credit rating but said the higher debt level could lead to a reduced rating in the future.

"Bondholders are most affected because there will be a lot more debt on the company's balance sheet to post this transaction," analyst John Whitlock said.

Pierce said CEO Kinder will reinvest all of his 24 million shares, taking his stake in the company to about 33 percent from 18 percent. Other investors include co-founder Bill Morgan, current board members Fayez Sarofim and Mike Morgan, and Goldman Sachs Capital Partners. Morgan Stanley and the Blackstone Group are acting as financial advisers to the special committee, and have each delivered a fairness opinion, the company said.

The deal is expected to be completed in early 2007.

purva.patel@chron.com

Copyright 2006 Houston Chronicle

TOP