Posted on 10/18/2011 5:23:11 AM PDT by thackney
Ten years to the day after Enron Corp. began its rapid fall, Rich Kinder made a move that may signal his rise to new heights.
On Oct. 16, 2001, Enron – from which Kinder had resigned as president five years earlier – reported a surprise third-quarter loss.
The loss marked the beginning of the end for the one-time energy giant as it began its spiral to a Dec. 2, 2001, bankruptcy filing, thousands of local layoffs, the collapse of the energy trading business and years of criminal and civil litigation.
On Oct. 16 a decade later, Rich Kinder’s company, Kinder Morgan Inc., announced plans to acquire natural gas pipeline giant El Paso Corp. in a $21.1 billion deal that will make Kinder Morgan the fourth-largest energy-related business in the country behind oil giants Exxon Mobil Corp., Chevron Corp. and ConocoPhillips.
The deal may be the pinnacle of a 15-year journey that saw Kinder take a handful of unwanted pipelines from Enron and build them into a booming energy empire.
It took a combination of patience, conservative budgets and the skillful use of a once-esoteric business structure known as a master limited partnership.
“Rich was the guy who helped build up the most stable part of Enron’s business and had the foresight, good luck – whatever you might call it – to leave at the top,” said Dan Pickering, chief energy strategist with Houston-based TPH Asset Management.
“He has a knack for being in the right place at the right time. And I can tell you from experience that’s usually not just luck.”
Bought Enron pipeline Kinder, a Missouri native and lawyer by training, was at Florida Gas in the 1980s when the company was acquired by Houston Natural Gas.
He helped the late Ken Lay build the company into the multifaceted powerhouse called Enron, then left in 1996 when he was not promoted to succeed Lay as CEO.
A year later he joined Bill Morgan, another former Enron executive, and purchased a small pipeline business from Enron for $40 million.
It was not nearly as sexy as trading weather derivatives and broadband data capacity or building power plants overseas – activities that made Enron a stock market darling in the late 1990s.
But it was a solid, conservative business that – at scale – creates enormous cash flow.
Over the years Kinder Morgan grew through dozens of acquisitions and a smaller number of major project expansions.
Like a toll road “We’re not a complicated company to understand. We’re just a gigantic toll road,” Kinder once told the Chronicle, explaining why the pipeline company’s fortunes don’t rise and fall with oil and gas prices. “We just get paid a fee to move products, and we don’t care what gets moved down the highway.”
Key to Kinder Morgan’s success has been a corporate financial structure that’s obscure to most people – the Master Limited Partnership, or MLP.
The one associated with Kinder Morgan Inc. is Kinder Morgan Energy Partners.
An MLP must pay out most of its profits to shareholders, helping it avoid most corporate income taxes and keeping its borrowing costs low.
Increased payouts MLPs have been around for years, but by focusing on the idea of increasing payouts to investors, Kinder was able to grow the companies more quickly.
“Rich Kinder has been an exceptional financial engineer,” said John Olson, a longtime Houston energy analyst who has followed Kinder and his companies for years. “He is able to orchestrate a very attractive record on Wall Street and continued to find more opportunities.”
Kinder took Kinder Morgan Inc. private in a leveraged buyout in 2006, saying investors were undervaluing the business. He brought it back to the public markets earlier this year in a $3 billion initial public offering.
Despite the size of the El Paso deal, Kinder and his company eschew flash in favor of a more conservative approach.
The company doesn’t have corporate jets. Base pay for executives is capped below industry standards in favor of a strict “pay for performance” program.
Dollar a year CEO Kinder famously takes just $1 per year in salary, although his ownership of nearly one-third of the sharesof the Kinder Morgan companies’ general partnermakes his net worth close to $6.5 billion, according to Forbes. On Monday, one former banker who has worked with Kinder Morgan pointed to another sign of its straightforward approach, in the shareholder presentation about the El Paso deal: The company was sure to put in red ink the one time in the last 11 years it failed to hit its targeted distribution to shareholders – in 2006 when it missed projections by two cents.
“It’s the appropriate way to do business,” he said.
The company publishes its annual budgets and planned dividend payments a year in advance, where it typically under-promises and over-delivers. It’s a technique analysts love, says Olson.
“Rich can read Wall Street like a book,” Olson said.
Someone’s gotta do it.
And I'll bet he didn't contribute to the Obama Campaign!
He will have to be punished for daring to become a success when so many unfortunate victims are sitting on their asses, waiting for someone to give them wealth!
I’ve owned their stock in past years.
Sorry I sold ...
I still do along with several others in the same industry.
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