Kinder Morgan Inc. said Sunday it will pay about $21-billion to buy El Paso Corp. , creating the largest pipeline company in North America.
The offer of $26.87 a share, represents a 37 per cent premium to the closing price of El Paso shares, based on its Friday, Oct. 14 closing price of $19.59.
When including El Paso's debt, the deal tops $38-billion.
The offer per share comprises $14.65 in cash, 0.4187 Kinder Morgan shares – valued at $11.26 per El Paso share – and 0.640 Kinder Morgan warrants – valued at $0.96 per El Paso share – based on Kinder Morgan's closing price on Friday.
The warrants will have an exercise price of $40 and a five-year term.
The transaction has been approved by each company's board of directors the companies said. Pipeline transportation and energy storage company KMI said it has a commitment letter from Barclays Capital underwriting the full amount of cash required for the transaction.
El Paso Corp owns North America's largest natural gas pipeline system.
The new company hopes to generate $350-million a year in cost savings, or about 5 per cent of the combined companies' earnings before interest taxes, depreciation and amortization. It is expected to be immediately accretive to dividend yield for KMI holders through these savings.
The new combined company will be 68 per cent owned by KMI shareholders with EP holders owning the remaining 32 per cent.
The companies also said the transaction is expected to close in the second quarter of 2012 subject to regulatory approvals.