EP EL Paso Corp. (Holding Co.)

El Paso Corporation (EP) is set to complete its proposed merger with Kinder Morgan, Inc. (KMI) on May 24, 2012. Both the companies have already received all required approvals from their respective board of directors, shareholders and regulators.

In October 2011, El Paso had entered into an agreement to merge with Kinder Morgan. The deal is worth approximately $38 billion. The deal value includes $17 billion outstanding debt of El Paso and its subsidiaries.

Per the agreement, the shareholders of El Paso can opt for either cash or Kinder Morgan common stock, or a combination of both for each El Paso share. On the other hand, El Paso equity award holders can opt for cash or a combination of cash and Kinder Morgan common stock for each share of El Paso common stock.

The El Paso - Kinder Morgan merger is expected to be one of the largest energy transactions in recent years. The merged entity will have an enterprise value of $94 billion and is expected to operate 13,000 miles of pipelines for the transportation of refined products and 67,000 miles of natural gas pipelines in North America. The overall 80,000 miles network will unite Kinder Morgan's pipelines in the Midwest, the Rocky Mountains and Texas with El Paso's wide network spreading from the east of the Gulf Coast to New England, and in the west through Arizona, California, New Mexico and Nevada.

The transaction is expected to generate cost savings of $350 million a year or 5% of the combined companies' earnings before interest, taxes, depreciation and amortization. The company also expects a boost in its dividend payments through 2015. At the same time, Kinder Morgan intends to divest El Paso’s exploration and production assets in order to curtail the high debt pressure following this transaction.

At the end of first quarter 2012, El Paso’s earnings declined due to lower realized prices of natural gas and natural gas liquids.

At present, we observe a growth in natural gas demand, given its lower pricing. Being a low-pollutant also boosts its demand. We believe the merged company will supply natural gas from the production area to the consumers directly with its strong pipeline network. This will minimize logistical expenses leading to a decline in cost of production and eventually benefit end users.

El Paso Corporation currently retains a Zacks #5 Rank, which translates into a short-term Strong Sell rating.

Based in Houston, Texas, El Paso Corporation engages in natural gas transmission and the exploration and production sectors of the energy industry. The company primarily operates in United States and has some exposure in Brazil and Egypt.

 
EL PASO CORP (EP): Free Stock Analysis Report
 
KINDER MORGAN (KMI): Free Stock Analysis Report
 
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