For Texas billionaire Richard Kinder, pocketing an extra billion is all in a day's work.
The value of Kinder's holdings in a corporate empire that controls a pipeline network long enough to circle the Earth three times surged by almost $1 billion after he said he would consolidate his companies to grow faster. The windfall is part of a template the consummate financial engineer has made for himself as he built his fortune from $40 million in assets cast off from his former employer Enron Corp.
Bringing Kinder's complex of pipes, oil storage tanks and natural gas-processing plants under one roof will create the biggest energy infrastructure company in North America. Currently, the companies have a combined market value of $106 billion. Kinder said the deal paves the way for more transactions by creating a financial behemoth that can vacuum up smaller rivals.
As chairman and chief executive officer of Kinder Morgan Inc., or KMI, Kinder takes a $1-a-year salary and earns no annual bonus from any of the four companies. His ownership stakes in all the companies earned him $380 million in dividend payments last year, which stands to rise under the deal.
Kinder declined through a spokesman to be interviewed.
The consolidation runs counter to the industry trend of spinning off pipelines and oil terminals into tax-advantaged partnerships that funnel cash to investors. By simplifying his empire's corporate structure, Kinder will lower borrowing costs, free up cash for bigger dividend payouts and unify the company under a single stock that he can use as currency to buy competitors.
The merger will make it easier and more profitable for Kinder "to pursue expansion and acquisitions in a target-rich environment," the company said in a slide presentation published Sunday on its website.
The transactions are the latest evolution in Kinder's odyssey that began 18 years ago when he quit Enron to strike out on his own. Kinder Morgan's rapid expansion and splintering into multiple entities had become more of a burden than a boon in recent years as the partnership structure siphoned off cash for investors that the company needed to grow.
Kinder has lagged rivals such as Williams Cos. and Enterprise Products Partners LP during the past three years, generating a 73 percent total return compared with 221 percent for Williams' investors and Enterprise's 130 percent return.
Richard Kinder's personal stake of 243.1 million shares makes him the largest individual investor in the Houston-based energy infrastructure company that Sunday announced plans to absorb its three sister companies.
Shares of Kinder Morgan rose $3.25, or 9 percent, to close Monday at $39.37, after earlier increasing to $42.49. The rise adds $941 million to the value of his stake. The value of his holdings in the other three entities -- Kinder Morgan Energy Partners LP, Kinder Morgan Management LLC and El Paso Pipeline Partners LP -- jumped by a combined $12.4 million Monday.
Kinder, 69, told investors during a conference call Monday that he'll take stock in lieu of cash for his stakes in the three targeted companies that are being absorbed in the $44 billion combination. The merger is expected to be completed by the end of this year.
Looking ahead, Kinder's potential acquisition targets include more than 120 energy master limited partnerships, or MLPs, that have a combined enterprise value of $875 billion, according to the company's website presentation. The pipeline giant also has ample room to grow through new projects as expanding shale exploration and production spurs the need for $640 billion in new pipelines and storage tanks through 2035.
Information for this article was contributed by Zain Shauk and Jim Polson of Bloomberg News.
Business on 08/12/2014