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Kinder Morgan Deal
Posted on 8/11/14 at 8:18 am
Posted on 8/11/14 at 8:18 am
4
Posted on 8/11/14 at 8:30 am to Speck
Posted on 8/11/14 at 11:40 am to Speck
Rich kinder made $1.5B on the deal....I made much less.
Posted on 8/11/14 at 4:21 pm to cwill
Me, too. 1500 @ $31.53. That $2.00/sh dividend in 2015, which I can magically manage to 0% Fed tax rate, ain't the worst thing in the world, either.
Posted on 8/11/14 at 4:26 pm to Speck
God Bless America. A bunch of related companies can merge - which really won't change much - and create a huge profit for a few shareholders.
Posted on 8/11/14 at 10:52 pm to LSUFanHouston
quote:
God Bless America. A bunch of related companies can merge - which really won't change much - and create a huge profit for a few shareholders.
I'm not a shareholder, but you know nothing about it if this is your takeaway. And it sounds like you're bitter...and you have Houston in your name. I don't get it.
This post was edited on 8/11/14 at 10:54 pm
Posted on 8/12/14 at 9:00 am to TigerBite
quote:
I'm not a shareholder, but you know nothing about it if this is your takeaway. And it sounds like you're bitter...and you have Houston in your name. I don't get it.
LOL. Sorry, didn't mean to sound bitter. Was actually attempting to crack a joke. I'm quite familiar with how it works. Rich Kinder basically wrote the book on MLPs, and quite a few of my clients have done very well with the deferred tax on distributions coming of KMP.
But, technically, a bunch of related companies did merge, and technically, a few shareholders made a bunch of money, and technically, the companies won't be run any differently. Still the same (great) management.
The deal is very shareholder friendly - no denying that.
The deal makes sense from an investor point of view, for sure. MLP's are great, but, KM had long outgrew the benefits of an MLP, especially since they rolled in El Paso.
Posted on 8/12/14 at 10:37 pm to LSUFanHouston
quote:
and technically, the companies won't be run any differently
Actually, this is where you are mistaken. This unlocks billions of dollars for acquisitions.
Posted on 8/13/14 at 6:07 am to TigerBite
It really had to come. The MLP's made the cost of finance too great.
Posted on 8/13/14 at 9:29 am to Iowa Golfer
I am sitting on my KMP. Will ride it out and tag along for the next few years. I bought at 72.
Posted on 8/13/14 at 9:56 am to TigerBite
quote:
and technically, the companies won't be run any differently
quote:
Actually, this is where you are mistaken. This unlocks billions of dollars for acquisitions.
Let's try this again.
The company will not be run any differently. They will have the same management, the same shareholders, and the same strategy - build and purchase assets in the midstream space.
Yes, not having to pay a preferred distribution will free up tons of cash to invest. I do expect them to grow. They will up the scale of the stuff they are currently doing.
Which is the whole reason for the deal - they could not continue to get bigger and bigger prospects using their current organization setup.
Posted on 8/13/14 at 10:52 am to LSUFanHouston
As I figure it their cost to finance would have been approaching 12% under the present structure. The net tax impact is almost a wash with lowered cost to grow assets. Not quite a wash.
Posted on 8/13/14 at 12:00 pm to Iowa Golfer
I wonder if Williams is next. I'm genuinely interested to see if and how KM will continue to operate like a traditional MLP under the c-corp structure.
Posted on 8/13/14 at 12:40 pm to sneakytiger
Williams or Enterprise. Enterprise is getting pretty unwieldy as well.
Posted on 8/13/14 at 12:45 pm to LSUFanHouston
quote:
God Bless America. A bunch of related companies can merge - which really won't change much - and create a huge profit for a few shareholders.
This has zero to do with the "merger."
All of the companies being merged are already under a single umbrella called an Master Limited Partnership. MLP's are required to pay out dividends at a certain percentage every year to keep MLP status (many tax issues involved here). Anyway, this forces MLP's to continually acquire assets.
Once you get to a combined value of 100Billion plus, assets that can continually move the needle get harder and harder to find. This pushed Kinder Morgan into dropping MLP status and becoming a "normal" traded company.
Posted on 8/13/14 at 1:45 pm to LSUFanHouston
Plains might be another candidate as well.
Agree - there's still a lot of growth opportunities out there but the need for an MLP to continually tap the markets to finance new growth is exhausting. I think the basic idea is that a C-corp structure allows for moving away from strictly yield based valuation and they will start to reinvest internally generated cash flow into new growth, and if growth starts to dry up, share buy-backs.
BWP made a similar move earlier this year by cutting their distribution to invest cash flow in new growth vs. dilution. Their unit price got slammed for it, but it's since somewhat recovered. They are still structured as an MLP though.
quote:
Once you get to a combined value of 100Billion plus, assets that can continually move the needle get harder and harder to find. This pushed Kinder Morgan into dropping MLP status and becoming a "normal" traded company.
Agree - there's still a lot of growth opportunities out there but the need for an MLP to continually tap the markets to finance new growth is exhausting. I think the basic idea is that a C-corp structure allows for moving away from strictly yield based valuation and they will start to reinvest internally generated cash flow into new growth, and if growth starts to dry up, share buy-backs.
BWP made a similar move earlier this year by cutting their distribution to invest cash flow in new growth vs. dilution. Their unit price got slammed for it, but it's since somewhat recovered. They are still structured as an MLP though.
Posted on 8/13/14 at 2:00 pm to dwr353
quote:
I am sitting on my KMP. Will ride it out and tag along for the next few years. I bought at 72.
you gonna owe some taxes
Posted on 8/13/14 at 2:19 pm to sneakytiger
quote:
Plains might be another candidate as well.
I'm not as familiar with Plains, but that would not surprise me.
Every time I think of Plains, I chuckle. Several years ago, when I was a wee bit new CPA, I had a bunch of clients in Houston who were in Plains. This is when MLPs were still kind of a "wealthy investor" idea. One year, Plains got some operations in Canada. So when that year's K-1 came out, included in the package was the Canadian version of a K-1, to refect the share of income/loss from Canadian operations. Thus, we had to discuss with each client whether or not they wanted to file a Canadian non-resident return. For most of the clients, the amounts weren't much, and they took our reccomendation to pass on filing. However, I had a couple of clients who had a share of Canadian income in the low 5 figures, and they were old ladies who "didn't want to get in trouble" so they wanted me to prep a Canadian non-resident return.
Good times.
Posted on 8/13/14 at 2:21 pm to nolaks
quote:
you gonna owe some taxes
I sent a memo to all our partners and our tax staff yesterday morning outlining/reminding them of the tax treatment of a termination in an MLP, which is what this will be.
Many of our clients who hold this stuff are old people who like the distribution yield and were planning on holding it until they die, when they could get a step-up in basis which means the taxes would have been deferred forever. Not the case now.
Posted on 8/13/14 at 9:34 pm to Iowa Golfer
quote:
It really had to come. The MLP's made the cost of finance too great.
Agreed. This makes more sense and the structure will unlock billions to buy up some other targets.
Kinder Morgan was in a very unique position. I don't believe that this will start a trend...there just aren't that many companies that have this ability. Energy Transfer would be one of the very few and they are still in the process of merging/acquiring multiple companies.
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