Well, on Sunday (Oct. 16), Kinder Morgan Energy Partners LP (NYSE: KMP) said it would buy El Paso for $26.87 a share. That's a 32% premium to the price the stock was trading at at the time of my recommendation. EP stock yesterday (Monday) rose more than 24% to close at $24.45.
The Standard & Poor's 500 Index has slumped nearly 8% since June 6, so readers who followed my advice would have enjoyed a nice rate of return over the last four months, compared to the overall market.
The case that I made for El Paso back in June was a simple one: The company's assets were valued at less than the equivalent assets held by its peers. El Paso at the time was in the process of breaking itself into two parts, so it could unlock some of the trapped value.
Kinder Morgan recognized that, as well, and acted.
It's not always easy to spot real value in the market, but when a company like EP is selling for less than its intrinsic value, and then announces it is going to voluntarily break itself up, it's going to get some serious attention.
Kinder Morgan realized that EP was not only selling at a real market discount, but that it also had the core elements to build a world-class company.
The combined company will own about 80,000 miles of pipeline in the United States, making the new Kinder Morgan the largest independent transporter of petroleum products in the country.
After the merger is completed, Kinder Morgan investors will own 68% of the company while El Paso investors will own 32%.
"This once in a lifetime transaction is a win-win opportunity for both companies," said Kinder Morgan Chief Executive Officer Richard Kinder. "The transaction is expected to produce immediate shareholder value (upon closing) through strong cash flow accretion and offers significant future growth opportunities."
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