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October 17, 2011 6:38 PM

Bracewell, Weil Lead for Kinder Morgan in $38 Billion Gas Pipeline Deal

Posted by Tom Huddleston Jr.

CORRECTIONS: 10/17/11, 5:05 p.m., This article originally misstated the terms of the Kinder Morgan warrants in the second paragraph, and it omitted Morgan Stanley's role as financial adviser to El Paso. We regret the errors.

Oil and gas pipeline company Kinder Morgan announced Sunday that it will pay $21.1 billion to acquire rival El Paso Corporation with an eye toward amassing the largest natural gas pipeline network in the U.S. The combination of the two Houston-based competitors would create a 67,000-mile pipeline network and a company with an enterprise value of almost $94 billion.

In exchange for each share of El Paso stock, Kinder Morgan will pay $26.87 in a mix of cash, stock, and warrants to buy Kinder Morgan shares at a price of $40 over the next five years. The price represents a 37 percent premium over El Paso's closing price Friday, the last trading day before the deal was announced, both companies said in a statement.

The deal's terms also call for Kinder Morgan to assume debt owed by El Paso and its affiliates, bringing the takeover's total value to $38 billion, the companies said. Barclays Plc, which is serving as financial adviser to Kinder Morgan along with Evercore Partners, provided $11.5 billion to help finance the deal, according to Bloomberg.

Kinder Morgan expects its shareholders to own about 68 percent of the combined company, with El Paso shareholders owning the balance.

Dealbook labeled the deal a crowning achievement in the career of Kinder Morgan chief executive Richard Kinder, who cofounded the company in 1997 after leaving his post as president of Enron. The company began with the purchase of pipelines from Enron and has continued to grow ever since, Dealbook noted.

Kinder Morgan, which was taken private in 2006 by The Carlyle Group and Goldman Sachs's private equity arm in a $22 billion leveraged buyout, had a $300 million enterprise value in 1997, Kinder told Dealbook. According to Bloomberg, the company launched the largest private equity–backed IPO in U.S. history in February, with an initial offering priced at $2.9 billion.

The Am Law Daily reported in February that Kinder Morgan turned to Bracewell & Giuliani and Weil, Gotshal & Manges as outside counsel for the public offering, and the two firms are advising the company on the El Paso acquisition. Bracewell's team on the deal includes corporate and securities partners Gregory Bopp and Lance Behnke, as well as energy partner J.J. McAnelly.

Bracewell has been one of Kinder Morgan's go-to firms since the company's founding. The firm represented Kinder Morgan in 2010 on its $875 million cash acquisition of a 50 percent interest in Petrohawk Energy's stake in the Haynesville Shale deposit in the southeastern United States.

The Weil team advising Kinder Morgan includes corporate partners Thomas Roberts, R. Jay Tabor, Mary Korby, and P.J. Himelfarb, tax partners Marc Silberberg and Jared Rusman, benefits partner Andrew Gaines, and intellectual property partner Michael Epstein. The firm and Tabor advised CEO Kinder and the company's senior management on Kinder Morgan's privatization in 2006 and on numerous transactions since then, according to Weil's Web site.

Simpson Thacher & Bartlett banking partner Jennifer Hobbs is advising Kinder Morgan in connection with more than $13 billion of committed debt facilities that were arranged to finance some of the transaction, according to a statement from Simpson Thacher. Joseph Listengart is general counsel of Kinder Morgan.

El Paso turned to a team from Wachtell, Lipton, Rosen & Katz led by corporate partners Daniel Neff and David Katz, and supported by antitrust partner Nelson Fitts, executive compensation and benefits partner Michael Segal, restructuring and finance partner Eric Rosof, and tax partner Jodi Schwartz. Wachtell has been advising El Paso on a plan, announced in May, to spin off its exploration and production business, which Kinder Morgan said it will attempt to sell once it completes the El Paso acquisition.

Morgan Stanley is financial adviser to El Paso in connection with the transaction, while Goldman Sachs served as financial adviser to El Paso on the proposed spin-off and related matters on this deal. Sullivan & Cromwell is advising Goldman Sachs in that role. El Paso's general counsel is Robert Baker.

The deal is expected to close in the second quarter of 2012 and is subject to shareholder and regulatory approval. Kinder Morgan said the deal would immediately improve its dividends per share due to $350 million in predicted annual savings expected as a result of the acquisition.

The deal was the first and largest of three multibillion-dollar energy transactions announced in the past two days. Monday saw Norway's Statoil say that it has agreed to pay $4.4 billion in cash for Austin–based Brigham Exploration, while AmeriGas Partners said Monday that it will expand its operations by acquiring the propane unit of Energy Transfer Partners for $2.8 billion.

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