Kinder Morgan to buy El Paso for $21 billion

Sun Oct 16, 2011 6:46pm EDT
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By Michael Erman and Anna Driver

(Reuters) - Kinder Morgan Inc struck a $21 billion deal to buy rival El Paso Corp, combining the two largest North American natural gas pipeline companies and making a big bet on the fast-growing market for that fuel.

Despite weak natural gas prices, production of the fuel has been rising as energy companies pile into shale fields -- underground formations rich in oil and gas.

El Paso already owned the largest natural gas pipeline system in North America, with more than 43,000 miles of pipelines. The combined company would own 67,000 miles of natural gas pipelines and another 13,000 miles of pipelines to move refined products and other fuels, Kinder Morgan said on Sunday.

"We believe that natural gas is going to play an increasingly integral role in North America," Kinder Morgan Chief Executive Richard Kinder said in a statement. "We are delighted to be able to significantly expand our natural gas transportation footprint at a time when it seems likely that domestic natural gas supply and demand will grow at attractive rates for years to come."

The offer of $26.87 a share in cash, stock and warrants, represents a 37 percent premium to El Paso's Friday closing price of $19.59.

Including El Paso's debt, the deal tops $38 billion, making it the second biggest merger in 2011, according to Thomson Reuters data.

The deal derails El Paso's plan, announced in May, to split into two publicly traded companies, which would have separated its exploration and production business from its pipeline operations. Kinder Morgan said it plans to sell El Paso's exploration and production assets.

John White, an analyst at Houston-based Triple Double Advisors, said the deal makes perfect sense for both companies.   Continued...

<p>Richard D. Kinder, Chairman and Chief Executive Officer of Kinder Morgan Energy Partners LP addresses the Reuters Energy Summit in Houston June 2, 2009. REUTERS/Richard Carson</p>