Kinder Morgan Energy Partners L.P. has plans to take over Copano Energy LLC for about $3.22 billion in stock. This would spread Kinder Morgan’s footprint in Texas, Oklahoma and Wyoming. The purchase price will reach about $5 billion including debt.
Per the deal, Copano shareholders will get $40.91 per share, which is a 23.5% premium to Copano's closing price of $33.13 on Jan 29. Shares of Kinder Morgan - which agreed to pay 0.4563 share for each Copano share - closed at $89.66 on Tuesday on the New York Stock Exchange.
The boards of directors of both the companies approved this unit for unit agreement, which is expected to close in the third quarter of 2013. The deal is yet to pass the customary closing conditions that include regulatory approval and a vote of the Copano unitholders. With more than 14% stake Copano's largest shareholder − TPG Capital Management LP − has already given its green signal to the deal.
A midstream entity with operations mainly in Texas, Oklahoma and Wyoming, Copano has throughput capacity of 2.7 billion cubic feet per day (Bcf/d), and over 1 Bcf/d of processing capacity and 315 million cubic feet per day of treating capacity. It has 9 processing plants and holds shares or operates about 6,900 miles of pipelines.
This Copano acquisition will facilitate Kinder Morgan to pursue development activities in the prolific Eagle Ford Shale areas of South Texas and also allow it to enter the Barnett Shale Combo in north Texas as well as the Mississippi Lime and Woodford shales in Oklahoma.
Kinder Morgan is one of the largest publicly traded master limited partnerships (MLPs) and generally serves as a benchmark for the pipeline MLP group. Kinder Morgan Inc. (KMI - Free Report) , one of the largest mid-stream energy companies in the U.S., owns the partnership’s general partner interest.
Last year’s purchase of El Paso Corp for $38 billion positioned Kinder Morgan as the largest midstream company in North America. It expanded its portfolio further with the addition of Tennessee Gas Pipeline (TGP) and a portion of El Paso Natural Gas (EPNG) with this acquisition. Various agreements and modifications are lined up in the coming years with these assets, which are expected to augment the partnership's revenues.
Kinder Morgan retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, there are certain other energy pipeline operators like Sunoco Logistics Partners L.P. that offer value and is worth buying now. The partnership sports a Zacks Rank #2 (Buy).