Mini-Tender Offer Riles Kinder Morgan

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Last Thursday, Canada-based firm TRC Capital made an unsolicited offer to purchase up to 4 million shares of Class P common stock in Kinder Morgan Inc. (NYSE: KMI) at a price of $23.30 per share. The offer was 4.5% below the closing price of the stock on the day it was made.

On Monday, Kinder Morgan issued a press release encouraging its shareholders to reject TRC Capital’s offer:

Kinder Morgan does not endorse TRC Capital’s unsolicited mini-tender offer and recommends that shareholders do not tender their shares. Kinder Morgan is not associated with TRC Capital, its mini-tender offer or the mini-tender offer documentation.

Kinder Morgan’s shares closed at $23.35 on Friday and dropped as low as $22.57, a new 52-week low, on the day and traded down as much as $23.31 Monday morning, before inching back up around $23.45.

TRC Capital has recently launched similar mini-tender offers for PayPal, Yahoo and AT&T shares, among others, and in every case, the company’s management has recommended that shareholders reject the offer. No surprise there because accepting the price sets a new floor for the stock. Even the offer can drive the stock lower, as happened with Kinder Morgan.

Kinder Morgan directed shareholders to a 2001 letter from the U.S. Securities and Exchange Commission that explains the mini-tender offer.

The largest energy infrastructure company in the United States has watched its share price decline for months now as investors apparently no longer believe that the company can continue paying its rich distributions in light of falling prices (and demand) for oil, refined products and natural gas. Kinder Morgan issued $1.6 billion in convertible preferred stock late last month as it tries to balance its budget without borrowing or issuing more common stock.

Before Kinder Morgan reported third-quarter results, we took a look at whether the company was undervalued, and on the basis of that, the low-ball, mini-tender offer appears to be an attempt by TRC Capital to get a bargain price for less than 0.2% of KMI shares.

Kinder Morgan shares traded up about 1% shortly before noon on Monday, at $23.55 in a 52-week range of $22.57 to $44.71.

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