Senior managers offer to buy Kinder-Morgan

Wednesday, May 31, 2006

The purchase price was $13.4 billion.

The chairman and CEO of pipeline operator Kinder Morgan Inc. has teamed up with senior managers and outside investors to purchase the company for about $13.4 billion and take it private, officials announced this week.

Richard D. Kinder, a native of Cape Girardeau, sent a letter to the Houston-based company's board of directors Sunday offering to pay $100 a share, an 18.5 percent premium above Friday's $84.41 closing price. The deal also includes the assumption of more than $8 billion in debt, bringing its total value to almost $22 billion.

The Wall Street Journal reported in its Tuesday edition -- which featured a picture of Kinder on the front page -- that the deal would be the largest management-led buyout in history and one of the largest leveraged buyouts ever.

"We believe that our offer is fair and in the best interest of the company and its public shareholders and that the shareholders will find our proposal attractive," wrote Kinder, adding that he intends to remain as chairman and CEO following the transaction.

"The familiarity of our management team with the company means that we will be in a position to finalize the merger agreement very quickly," he added.

The company's board of directors has formed a special committee of independent directors to consider the proposal.

"The board of directors cautions KMI's shareholders and others considering trading in its securities that it has only received the proposal and that no decisions have been made by the board of directors with respect to the company's response to the proposal," the company said in a news release.

Kinder said in his letter that the acquisition would be structured as a merger between Kinder Morgan and the group of investors that includes co-founder Bill Morgan, board members Fayez Sarofim and Mike Morgan, Goldman Sachs Capital Partners, AIG Global Asset Management Holdings Corp., The Carlyle Group and Riverstone Holdings LLC.

Kinder said he would reinvest 100 percent of his equity stake in the company and that combined with the investments from other senior managers and board members this would amount to roughly $2.8 billion, based on the proposed transaction price. The outside investors would provide $4.5 billion in equity, and the remainder of the transaction would be financed with debt.

Richard Kinder grew up in Cape Girardeau, graduating from Central High School in 1962. His brother, Dr. Jerry Kinder, still lives here.

Kinder and several partners started a racket club for tennis in Cape Girardeau in the 1970s, according to one of his partners, Jack Mehner, who owns Advanced Business Systems. They added on to the Howard Johnson's, putting in two indoor tennis courts and a racketball court.

The business failed, Mehner said, because there wasn't enough income. But that's no direct reflection on Kinder. Kinder left town shortly after that.

"Richard's a sharp guy," Mehner said. "Look how far he's gone. It's neat and great to see a home-town guy go that far."

Though he now lives in Houston, Kinder continues to give back to his home town, as well. In April, Kinder and his wife Nancy donated $25,000 to help fund grants to teachers in the Cape Girardeau public schools for supplies teachers need for classroom projects and lessons. In 2004, the foundation they created to honor Kinder's mother, Edna C. Kinder, began the "Great Idea" teaching grants giving out checks totaling $20,400 that year.

During a three-year period starting in 2001, the Kinders handed out 10 awards worth $10,000 each to Cape Girardeau area schoolteachers.

Kinder Morgan also once had designs on building a $300 million power plant between Crump and Whitewater in rural Cape Girardeau County. In October 2002, the company terminated those plans, citing "repeated, unexplained delays" by the Missouri Department of Natural Resources.

Kinder Morgan owns an interest in or operates about 43,000 miles of pipelines that transport primarily natural gas, crude oil and petroleum products. It also has more than 150 terminals that store, transfer and handle products such as gasoline and coal, and provides natural gas distribution service to more than 1.1 million customers.

The company had net income of $554 million in 2005, an increase of about $30 million from the year before. Its first quarter profit jumped 35 percent to $193.7 million.

On May 22, Kinder Morgan closed on the sale of its water and utility services unit to a private group of investors for $111 million in cash.

As of Friday, the company had 133.6 million outstanding shares valued at $11.28 billion.

Business editor Scott Moyers contributed to this report.

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