Pipeline giant to go private

August 29, 2006|By Martin Zimmerman | Martin Zimmerman,LOS ANGELES TIMES

When Richard D. Kinder left Enron Corp. 10 years ago, he walked away with a pipeline business that didn't fit into the flashy company's vision for building the energy trader of the future.

Yesterday, the company that Kinder and his partners built from Enron's castoffs said it would go private in a buyout valued at $14.6 billion.

If approved by shareholders, the acquisition of Houston-based Kinder Morgan Inc. by an investment group led by Kinder and other senior executives would be the third-biggest leveraged buyout ever.

It would also bring Kinder, an executive admired for his $1 annual salary and dedication to shareholders, a hefty paper gain on his company stock holdings.

The investment group is buying Kinder Morgan for $107.50 per share in cash. The group initially offered $100 a share in late May but sweetened its bid after several shareholder lawsuits were filed seeking a higher price for the company. The buyers also will assume $7 billion in debt for a total transaction value of just less than $22 billion.

"They're paying a pretty good premium over where the company's stock has been trading, and that's a good thing for shareholders," said Houston energy consultant Andrew Lipow.

The deal is expected to close early next year.

Kinder Morgan operates a 43,000-mile North American pipeline system that transports natural gas, crude oil and petroleum products.

The company also owns extensive storage facilities and serves retail natural gas customers in the Chicago area and parts of Colorado, Wyoming and Nebraska.

The company also is the general partner of Kinder Morgan Energy Partners, a publicly traded pipeline company with large holdings in California that have been confronted with problems in recent years. Kinder Morgan Inc. owns a 13 percent stake in the energy partnership, and the two companies share senior management teams.

Richard Kinder was Enron's president and chief operating officer when he left in 1996 after being passed over for the top job. The next year, he paid $40 million for Enron's network of liquids pipelines.

While his former employer slid into bankruptcy and scandal, Kinder and partner William Morgan, a fellow University of Missouri alumnus, built their modest pipeline operator into an industry powerhouse with 8,300 employees. Last year, Kinder Morgan earned $554 million, about $30 million better than 2004.

Along the way, Kinder picked up accolades for his modest management style, which includes flying coach, serving barbecue and beer at get-togethers with Wall Street analysts and taking $1 a year in pay - 93 cents after taxes - with no stock options or restricted stock.

Not that Kinder is hurting. His approximately 18 percent stake in Kinder Morgan is worth $2.58 billion at the sweetened buyout price. The company's stock rose $2.57 yesterday to $104.27, bringing the paper gain on Kinder's personal holdings to about $476 million since the investment group first proposed taking Kinder Morgan private on May 28.

Investment tracker Morningstar Inc. named Kinder its chief executive of the year for 2005, noting that his company returned almost 30 percent a year on average to its shareholders over 10 years.

Other members of the investment group include insurer American International Group Inc., investment bank Goldman Sachs Group Inc. and investment firms Carlyle and Riverstone Holdings.

One analyst said the buyout could catch the attention of regulators because Goldman Sachs, Carlyle and Riverstone have already made substantial investments in refiners, pipeline companies and terminal operators.

"The deal is likely to draw Federal Trade Commission scrutiny," Tom Kloza, publisher and chief oil analyst at Oil Price Information Service, wrote to clients.

Martin Zimmerman writes for the Los Angeles Times.

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