Market reaction to the deal
The $71 billion deal that will see the Kinder Morgan group roll up into just one company will be the largest the energy industry has seen since Exxon purchased Mobil for $73.7 billion back in 1999.
Markets reacted positively to the news of the consolidation.
Following the news of the acquisition, shares of Kinder Morgan Partners (KMP) jumped 17% to close at $94.12 and El Paso Partners shares rose ~21% to close at $40.56. Shares of Kinder Morgan Management also advanced to close at $95.42—approximately 24% higher than the previous market close.
Kinder Morgan Inc. (KMI) itself closed at $39.37 on Monday following the acquisition announcement on Sunday. This was a jump of almost 9% compared to the previous market close of $36.12 on Friday.
Kinder Morgan lags peers lately
Up until recently, Kinder Morgan was lagging behind rivals like Williams Companies (WMB) and Enterprise Products Partners LP (EPD) during the past three years, generating total returns of 63% compared with WMB’s 183% and EPD’s 102% return.
Plus, over the past few months, KMI had underperformed the Alerian MLP ETF (AMLP). This is likely due to the complicated ownership structure that has been clouding growth expectations.
However, the market’s reaction to the deal clearly shows that this underperformance could be a thing of the past.
Wall Street interpretation
Reuter’s energy analyst Mike Stone feels that the markets understand why KMI had to make this move. He said, “Over time the Street will give them more credit…The stock is up so the Street is understanding the play to switch from an MLP to a C-Corp.”
While Kinder Morgan MLPs will no longer enjoy the benefits associated with master limited partnerships, the new bigger company is expected to do well. See the previous part of this series for the rationale and key advantages of the deal.