Pipe Fitting
Santa Fe Pacific Pipeline Partners, which operates a 3,300-mile network of underground pipelines for moving refined petroleum products around the West, said Monday it has agreed to be acquired for $1.15 billion by Texas pipeline operator Kinder Morgan Energy Partners.
The deal, in which Kinder Morgan will pay a 28% premium over Orange-based Santa Fe Pacific’s recent trading price, will create the largest publicly traded pipeline partnership in the nation, with about $325 million in annual sales.
Both companies’ partnership units--a form of stock--trade on the New York Stock Exchange. Kinder Morgan said it will pay $85 million cash and exchange 1.39 of its partnership units for each unit of Santa Fe Pacific.
The deal values Santa Fe Pacific’s 19 million units at about $55 each. The units have been trading in the $37-$40 range recently, and Monday’s announcement sent them soaring 22% to a closing price of $50.25, up $9.13 for the day. Kinder Morgan units rose 81 cents to close at $39.81.
The impact of the acquisition on Santa Fe Pacific’s 435 employees is unclear, but officials at Kinder Morgan said they expect the combined companies to eliminate duplicate operating overhead--usually a signal that layoffs are coming. More than 200 of the workers are in Southern California, including about 180 at company headquarters in Orange.
“Our markets are completely different, so the cost efficiencies are in management and operations,” said Bill Morgan, Kinder Morgan’s vice chairman.
Morgan said that no personnel decisions have been made, although he expects that Kinder Morgan’s top executives, including himself, Chairman Rich Kinder and President Tom King, will continue to hold the same posts in the combined companies.
For investors, Monday’s stock jump was just part of the anticipated benefits from the acquisition, analysts said.
Subsidiaries of railroad giant Burlington Northern Santa Fe Corp. own about 44% of Santa Fe Pacific, with the remaining 11 million units held by about 18,000 individual and institutional investors.
Kinder Morgan officials expect the combined companies to be more profitable than the individual businesses. They said Monday that the annual Kinder Morgan distribution--a limited partnership’s version of a stock dividend--will increase 12.5% to $2.25 per unit immediately after the acquisition, up from the present $2-per-unit level.
For Santa Fe investors, who have been getting about $3 per unit, the stock swap will effectively raise distributions to $3.16 a year, a 5.3% increase.
Santa Fe shareholders, who will own about two-thirds of the combined companies, “are getting a big piece of a fast-growing company,” said industry analyst Zach Wagner of the Edward Jones brokerage in St. Louis.
“Santa Fe has been real slow, an income investment,” Wagner said, “and now it will be a growth investment. Kinder Morgan has been on a rapid growth track.”
Indeed, Morgan said Monday that the acquisition would be followed by expansion in California and throughout the West. The pipeline operation “was not a focus” of Burlington Northern Santa Fe, said Morgan, while “our entire focus is on operating pipelines.”
Kinder Morgan, which is about a third the size of Santa Fe Pacific, has 170 employees and operates three pipelines that carry liquid propane, butane and carbon dioxide within Texas and from several Texas locations to Chicago and southwest Louisiana. The company had $71.3 million in sales and a profit of $11.9 million last year.
Santa Fe Pacific, with $240.1 million in sales and a $52.3 million profit for 1996, operates three pipeline systems that move gasoline, jet fuel and diesel fuel.
The company was started in 1956 by Southern Pacific Corp. as part of the railroad company’s effort to expand its transportation capabilities. It changed its name to Santa Fe Pacific Pipelines after the 1983 merger of Southern Pacific and the Santa Fe Corp., and went public in 1988 when Santa Fe spun off a 56% interest.
Santa Fe Pacific was was quietly put on the block this year after Burlington Northern Santa Fe--the result of yet another railroad merger, in 1995--decided that the company had more value as a marketable asset than as an operating subsidiary.
Morgan said his company was approached with the deal about three months ago by the investment banking arm of Goldman, Sachs & Co.
Santa Fe Pacific’s largest system supplies the Arizona market through terminals at Phoenix and Tucson from refineries in the Los Angeles and El Paso areas. A second pipeline of about 1,000 miles connects numerous refineries and terminals in the San Francisco Bay area, while the third brings refined petroleum products into Eugene, Ore., from Portland.
Branches of Santa Fe’s pipelines also deliver fuel to Reno and Las Vegas, and the company maintains a network of 14 storage and truck loading terminals in California, Arizona, Nevada and Oregon.
The acquisition is expected to be completed early next year.
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Energy Merger
Orange-based Santa Fe Pacific Pipeline Partners is being acquired by Kinder Morgan Energy Partners of Houston to form the largest publicly traded pipeline partnership in the United States. Here’s a look at the operations of both:
Santa Fe Pacific Pipeline Partners
Headquarters: Orange
Chairman/president/CEO: Irvin Toole Jr.
Business: Owns and operates 3,300 miles of pipeline carrying gasoline and other refined fuels to six Western states
Employees: 435
1996 net sales: $240.1 million
1996 net income: $52.3 million
Status: Public
Exchange: NYSE
Purchase price: $1.47 billion in cash, stock and assumed debt
Kinder Morgan Energy Partners LP
Headquarters: Houston
Chairman/CEO: Richard D. Kinder
Vice Chairman: William V. Morgan
Business: Owns and operates interstate pipeline systems transporting carbon dioxide to West Texas and fuels derived from natural gas, such as propane and butane, to the Midwest and Louisiana
Employees: 170
1996 net sales: $71.3 million
1996 net income: $11.9 million
Status: Public
Exchange: NYSE
Monday’s stock close: $39.81
Takeover Benefit
Santa Fe Pacific Pipeline’s stock jumped $9.13 when merger plans were announced Monday.Weekly closing prices, and Monday’s final:
October 1997
Monday’s close: $50.25
Gaining Ground
By acquiring Santa Fe’s pipelines, Kinder Morgan gains entry to the fast-growing markets of the West, where demand for gasoline is expected to soar in coming years. Santa Fe’s pipeline system: (map)
Sources: Bloomberg Business News, Santa Fe Pacific Pipeline, Kinder Morgan Energy Partners LP; Researched by JANICE L. JONES / Los Angeles Times
