Update Kinder Morgan Energy Partners (KMP)

03/01/2012 7:15 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

It’s on to the vote for Kinder Morgan’s (KMI) bid to acquire El Paso (EP) and its mix of oil and gas assets and pipelines for $21.1 billion.

Delaware Chancery Court Judge Leo Strine scolded Goldman Sachs (GS) for its conflict of interest in the deal—saying that he found it disturbing that Goldman, which owns 19% of Kinder Morgan, served as El Paso’s advisor on the offer—but decided to deny an injunction on the shareholder vote scheduled for March 6.

“Although it is true that measures were taken to cabin Goldman’s conflict,” he characterized those efforts as ineffective. He also noted that Goldman’s lead banker on the deal failed to disclose that he personally owned $340,000 of Kinder Morgan stock.

But despite those very real problems, Judge Strine ruled that a vote was the proper vehicle for any shareholder who objects to Goldman’s role and who thinks that the investment bank’s advice resulted in El Paso selling for a low price. “El Paso stockholders should not be deprived of the chance to decide for themselves about the merger, despite the disturbing nature of some of the behavior leading to its terms,” Strine ruled. Kinder Morgan’s cash-and-stock bid works out to a 37% premium on the pre-deal price of El Paso’s shares, according to El Paso.

Kinder Morgan is the general partner of Kinder Morgan Energy Partners (KMP), a master limited partnership that’s a pick in my dividend income fund http://jubakpicks.com/ . My projection is that some of the pipeline assets Kinder Morgan would acquire in this deal, if it goes through, would flow down to Kinder Morgan Energy Partners and increase the asset base of the master limited partnership.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did not own shares of El Paso, Goldman Sachs, Kinder Morgan or Kinder Morgan Energy Partners as of the end of December. For a full list of the stocks in the fund as of the end of December see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
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