Adage Capital and Kinder Morgan
Adage Capital exited a position in Kinder Morgan Inc (KMI) during the third quarter that ended in September 2014. The position accounted for 0.37% of the fund’s total 2Q portfolio.
Kinder Morgan overview
Kinder Morgan Inc (KMI) is the largest midstream and third-largest energy company in North America with a combined enterprise value of approximately $120 billion. It owns an interest in or operates approximately 80,000 miles of pipelines and 180 terminals. Its pipelines transport natural gas, refined petroleum products, crude oil, condensate, CO2 and other products. Its terminals transload and store petroleum products, ethanol, and chemicals, and handle products such as coal, petroleum coke, and steel. Kinder Morgan is also the leading producer and transporter of CO2 for enhanced oil recovery projects in North America.
Kinder Morgan owns approximately 10% limited partner interest and 2% general partner interest in Kinder Morgan Energy Partners (KMP), a leading pipeline transportation and energy storage company. It’s one of the largest publicly-traded pipeline limited partnerships in America. Kinder Morgan Management, LLC (KMR) is a limited partner in and manages and controls the business and affairs of Kinder Morgan Energy Partners (KMP). Kinder Morgan Inc (KMI) also owns an approximate 39% limited partner interest and a 2% general partner interest in El Paso Pipeline (EPB) as well as certain natural gas pipeline assets.
Kinder Morgan’s $44-billion consolidation
In August, Kinder Morgan Inc. (KMI) announced that it will be consolidating all its affiliates under one public company in a $44-billion deal excluding debt. It said it will acquire all outstanding public units of Kinder Morgan Energy Partners (KMP) and all outstanding shares of Kinder Morgan Management (KMR). El Paso Pipeline Partners (EPB) will be acquired by Kinder Morgan Energy Partners (KMP), which in turn will be 100% owned by Kinder Morgan Inc. (KMI).
A release from the company said, “This transaction dramatically simplifies the Kinder Morgan story, by transitioning from four separately traded equity securities today to one security going forward, and by eliminating the incentive distribution rights and structural subordination of debt.” You can read more details at Everything you need to know about the Kinder Morgan consolidation. The company also expects “to pursue expansion and acquisitions in a target-rich environment.”
It was previously noted that although Kinder Morgan Energy Partners (KMP) and El Paso Pipeline Partners (EPB) shareholders could lose some of the advantages of an MLP, management projects that the tax disadvantage should not be significant. More than half of Kinder Morgan Energy Partners’ (KMP) and El Paso Pipeline Partners’ (EPB) cash flows are already taxed at Kinder Morgan Inc. (KMI), the holding company, under the current structure.
Kinder Morgan posts robust 3Q results
Kinder Morgan’s third-quarter profit grew to $329 million, or $0.32 per share, up from $286 million, or $0.27 per share, a year earlier. Revenue rose 14% to $4.29 billion. It said it saw “continued strong performance at” Kinder Morgan Energy Partners (KMP) and El Paso Pipeline Partners (EPB). Its quarterly cash dividend was increased 7% to $0.44 per share ($1.76 annualized) from $0.41 per share ($1.64 annualized) for the same period last year. Kinder Morgan Inc (KMI) said it “remains on track to meet or exceed its published annual budget of $1.78 billion in cash available to pay dividends.”
Adage Capital’s positions traded in 3Q14
Adage Capital added new positions in Shire Plc (SHPG), Mallinckrodt Plc (MNK), TRW Automotive Holdings Corp. (TRW), and Duke Energy Corp (DUK). It exited positions in AbbVie Inc (ABBV) and Kinder Morgan Inc (KMI). Notable position increases were Citigroup Inc. (C) and NiSource Inc. (NI).
The next part will highlight Adage Capital’s position increases, starting with Citigroup Inc. (C).