Kinder Morgan to buy El Paso Corp. for $20.7B

October 19, 2011 - 9:35 AM

HOUSTON (AP) — Kinder Morgan agreed to buy El Paso Corp. for about $20.7 billion in cash and stock in a deal expected to create the largest natural gas pipeline in the U.S.

"We believe that natural gas is going to play an increasingly integral role in North America," said Richard Kinder, Kinder Morgan Inc.'s chairman and chief executive, on Sunday, citing the recent developments in natural gas shale drilling.

After adding El Paso's pipeline network, Kinder Morgan would have the largest natural gas pipeline network in the country with 80,000 miles of pipelines.

Kinder will remain chairman and CEO of the combined company.

Kinder Morgan, which is based in Houston, said the deal is expected to boost Kinder Morgan's shareholder value through increased cash flow and future growth opportunities. It's also expected to boost Kinder Morgan's dividends and result in about $350 million a year in cost savings.

The companies valued the deal at $26.87 per El Paso share, which includes $14.65 in cash, 0.4187 in Kinder Morgan shares and 0.640 in Kinder Morgan warrants.

Based on El Paso's about 770.25 million outstanding shares, the deal is worth about $20.7 billion.

Kinder Morgan said it will assume a significant amount of El Paso debt as part of the deal. It put the value of the acquisition at $38 billion including the debt.

Kinder Morgan said it expects to fund the purchase with a combination of equity and debt. But once the deal closes, the company said it plans to sell off El Paso's exploration and production assets and the cash raised will help reduce that debt.

El Paso had announced plans to spin off its exploration and production unit in May.

El Paso Corp. is based in Houston.

The deal, which has been approved by the board of both companies, is expected to close in the second quarter of next year and is subject to regulatory approval.