Deal Spotlight: Kinder Morgan's $20 billion takeover of El Paso Corp.

On the surface Kinder Morgan’s $20 billion takeover of El Paso Corp announced on October 16th, creates the world’s largest pipeline company, with 80,000 miles of pipeline for natural gas, petroleum and refined products. The deal stretches a pipeline network for the combined firm coast to coast, connecting pipeline from Florida to California. When the deal was announced, speculation turned to what participants would be involved next in the industry consolidation. Yet for all the speculation, this deal, nearly failed to materialize.

According to the S-4 filed by Kinder Morgan, the company approached El Paso about a possible deal on August 30th. In previous years, the company maintained an interest in striking such deal, though an offer never was proposed. However, with this proposal, the CEO of El Paso rejected such offer, knowing the company had other options, specifically a planned spin-off of the company. On September 9th, having received the rejection, CEO Richard Kinder submitted a response, which stated plans for a proposed “Bear Hug” acquisition of the company for $25.50 per share, which would be taken public to shareholders.

Further complicating negotiations, El Paso had retained Goldman Sachs as its financial advisor to review such proposals, while also advising the company on its planned spin-off. However, Goldman held a 19% stake in Kinder, which raised concerns over possible conflict of interest. Morgan Stanley would later replace Goldman as the lead advisor on the transaction.

According to the filing, over the next several days the companies would hold negotiations, with an offer being raised to $26.50 per share. Still, El Paso had filed the necessary paperwork with the SEC to proceed with it proposed spin-off. It wasn’t until October 17th, a day after the deal was announced, that El Paso withdrew its forms from the SEC on its proposed spin-off.

Read more about this deal and the big picture trends impacting your business in the November 2011 edition of FactSet Flashwire Monthly.