Kinder Morgan Agrees to Shed Assets to Complete El Paso Acquisition (KMI, KMP, EP, EPB)

US pipeline company Kinder Morgan Inc. (NYSE: KMI) has reached a tentative agreement with the US Federal Trade Commission (FTC) on asset sales that Kinder Morgan must make in order to get FTC approval for its $21.1 billion acquisition of El Paso Corp. (NYSE: EP).

Kinder Morgan has agreed to sell several assets of Kinder Morgan Energy Partners LP (NYSE: KMP) including the Trailblazer Pipeline Company and the company’s 50% interest in the Rockies Express Pipeline. Kinder Morgan Inc. will part with its Kinder Morgan Interstate Gas Transmission (KMIGT) system as well as KMIGT’s Wyoming treating facilities.

To replace the assets it plans to sell, KMI is going to make KMP an offer it can’t refuse:

KMI expects to offer (drop down) EP assets to KMP to replace the assets that KMP will divest. KMI expects the divestitures and these dropdowns to occur contemporaneously, but subsequent to the close of the KMI-EP transaction. Now that the required asset divestitures are tentatively known, EP also expects to offer EP assets to El Paso Partners, L.P. (NYSE: EPB). Such a dropdown transaction to EPB could be completed by EP before the close of the KMI-EP transaction.

KMI president and CEO Richard Kinder said that the company would have preferred to keep these assets, but the sale is necessary in order to win FTC approval. El Paso’s shareholders voted last week to approve the sale to KMI.

The sale of KMP’s stake in the Rockies Express is especially interesting because the 1,700-mile pipeline from Wyoming to Ohio was built before the huge increase of natural gas production in the Marcellus shale and the coming boom in production from the Utica shale. There have even been rumors that the flow of the Rockies Express might be reversed, to carry some of that natural gas to the Midwest.

KMI did not identify any buyers for the assets, but Richard Kinder did say that the company does “anticipate significant interest in the Kinder Morgan assets that will be sold, particularly the Rockies Express Pipeline.”

Shares of KMI are off about -1.5% at $35.55 in a 52-week range of 23.51-$37.66. Shares of KMP are down nearly -2% at $82.27 in a 52-week range of $63.42-$90.60.

Paul Ausick