Filed by Kinder Morgan, Inc.
Pursuant to Rule 425 Under the Securities Act of 1933
And Deemed Filed Pursuant to Rule 14a-12
Under the Securities Exchange Act of 1934
Subject Company: El Paso Corporation
Commission File No.: 001-14365
Kinder Morgan, Inc.
Employee Meeting
Held on October 17, 2011
Good morning!
Audience: Good morning.
Well thats pretty enthusiastic this morning and a pretty big crowd. We are being webcast, at least thats what they tell me so this will be available to Kinder Morgan employees around the country. Obviously, I think all of you know the purpose of the meeting this morning. We did announce yesterday afternoon that were buying up all the stock of El Paso and thats gonna have some pretty important ramifications just to kind of put it in perspective for you. When we put these two companies together, well be creating by far the largest midstream energy company in North America. Well be the largest natural gas pipeline company by a long shot and you put it all together in total, well have 80,000 miles of pipeline across the U.S. and Canada of which 67,000 will be natural gas. By enterprise value, the combined entity, including the two MLPs, KMP and EPB, their MLP, well have enterprise value and thats just the amount of stock market value and debt of approximately $94 billion and thatll make us the fourth largest energy company in North America behind Exxon, Chevron and Conoco.
So, this is a very big enterprise that weve created. Particularly, there have got to be a few people in the room who go back 15 years, not many, but who remember when we started this company and we had about 175 employees and the total enterprise value was about $300 million. So, weve come a long way since then, but I think more importantly for the future you could talk about size all you want, but I think the important thing is whats our strategy, why did we do it and whats the impact on all of you here today.
First of all, the reason that we did it is we believe that as you look forward over the next five, ten, fifteen years, natural gas is gonna play an absolutely critical role in this country. It is the fossil fuel of choice and if you are intent on reducing carbon emissions, number one, or number two, if youre intent on reducing our dependence on foreign oil, all that leads you down the path to use more natural gas. It is the cleanest fossil fuel. Its cheap,
its abundant, its domestic and natural gas alone is not gonna allow us to wean ourselves totally from foreign oil coming in, but to the extent that more of it is used both on power generation and increasingly in transportation, it will cut down on the amount of imports that we have to do. So, its just a very positive thing from a long-term standpoint.
The other thing thats important as weve talked so many times about natural gas, the whole production platform has just been stood on its ear by the shale plays. So, today we conservatively believe we have something beyond 100 years of natural gas reserves in this country to last at least 100 years as the fuel of choice in America. So, we have a really long-term opportunity here. Now, where does that leave us? We think if you put together the largest single platform of pipelines to move that natural gas around, thats gonna lead to tremendous opportunities for years and years to come. So, while its immediately accretive to the cash flow at KMI and KMP, longer term we thing its gonna allow us to grow even more rapidly particularly in terms of growth opportunities. Now, weve always said size for size of sake doesnt mean a lot but when you have that big footprint, you have the opportunity to expand that footprint through acquisitions, through extensions, through expansions of those pipelines and by putting these two companies together, we will serve just about every supply basin in North America, and we will connect virtually all the demand centers in North America. And if you just put the map up there and we didnt use a slide today, but if you put the map of the two companies together, which weve done on the website, youll see that we access just about every place.
We will now have in addition to our natural gas network that accesses all of Texas and all of the Rockies and east as far as Ohio on Rex (?) and north as far as Chicago on NGPL. In addition to all that, we will now have pipelines that go all the way to the tip of Florida through Florida Gas thats owned by Citrus, 50 percent by El Paso, it goes all the way to Boston on the Tennessee Gas pipeline, it goes right through the midst of Marcellus, you know thats the one shale play we havent had a role in is the Marcellus. This will give us direct access to the Marcellus. In conjunction with Rex, it will also give us access to the Utica thats the brand new shale play in Ohio because Tennessee goes right through that. We will have access to all the southeastern United States over to the Atlanta area through the old Sonat system now part of El Paso, which we dont now have at Kinder Morgan. Why is that important? Because when you talk about converting coal plants to natural gas, most people believe and I do that its the southeast will lead that trend
because theyre heavily coal reliant in Alabama and Georgia and South Carolina and a lot of those old plants will simply not be able to meet the new regs that come into effect in the next few years and a lot will be shut down and/or converted to natural gas. So, thats another great area for us.
In addition, of course, they have pipelines going to southern California thats the El Paso Natural Gas system and then the Ruby Pipeline that goes into northern California. So, its a great pipeline. Were gonna put it together with ours. We think we will realize expensive savings, probably about $350 million a year in synergies and savings out of the combined enterprise. It sounds like a lot, but its only about five percent of EBITDA. If you go all the way back to when we merged with KN in 99, we took about about 11 percent out of the combined cost of the company. So, I think we will be able to achieve that. Were gonna have a transition team Steve Cain is gonna head it up from our standpoint. We will have people from El Paso on that team also and over the next couple of quarters, we estimate this will probably close in the second quarter of 2012. So, over the next six or eight months, well see how we put these two companies together as seamlessly as possible.
Now, Ive talked all about pipelines, but obviously, El Paso has another big chunk of assets and thats its E&P company. They were planning on spinning that off and going to were going to become a pure pipeline play like we are and were going to accelerate that. Instead of spinning it off, were going to sell it to third parties. We will try to do that very quickly and we hope to realize the benefit of that and the cash from that transaction by the time we close or shortly thereafter, and thats a big part of our strategy and well have full cooperation from El Paso and their senior management in getting ready to do that divesture and again, we hope we can do it approximately contemporaneously with the closing of the merger transaction. Well be working on that with them and David Kinder will head up our efforts on this side. Well obviously have investment bankers involved, a lot of other people who will be frothing at the bit to get some fees out of this thing, Im sure. You know, thats what they live for, but any rate, well certainly negotiate those fees down as much as we can, but thats kind of the game plan.
Well sell the E&P, then well take these pipeline assets, which are such a great fit with us, and over a period itll probably take us three of four years, we will drop those down to
KMP and the EPB. Well now have two publicly traded MLPs that we will control or be the general partner of and we will drop those down. We will then finance them in the regular way we do drop downs, which is KMP. Well continue to issue equity for 50 percent of the transaction and debt for 50 percent and in all likelihood, KMI, the ultimate parent company will take back some of that stock for its own account as part of the consideration, but the great bulk of it will be cash so that at the end of all this transition period, we will end up being just what we are today, which is a very pure GP. At KMI, we will be receiving cash every quarter from KMP and the EPB and we will use that to pay it out as dividends to our shareholders and so far the market seems to like it pretty well. KMIs up a couple two and a-half dollars this morning and KMP is up I think three dollars or so. Now thats all the whim of the market and it could change by noon or thereafter. You know how the market is, but I think overall the response has been pretty positive. So, thats kind of the game plan of the whole thing and I think our strategy is very clear. I think weve got a good game plan. It really creates a company thats never been done of this size in North America. In fact, over the weekend, we were researching a lot of things theres Kim, she was leading this and some of the bankers were saying, Well, this is the largest pipeline company in the world. And I said, Wait a minute. What about that Russian company called Gazprom? So, they ran that and Kim, I think they have 100,000 miles; is that right? So, we are not as big as Mr. Putins Gazprom (laughter), but then we dont break peoples kneecaps either (laughter). We just have to rely on ordinary persuasion, you know (laughter).
So, at any rate, we think its a very exciting transaction. We think its gonna be very beneficial and now, that all sounds like apple pie and motherhood. So, what does it mean for everybody in this room and everybody whos listening in on the webcast? You know I think with the exception of the natural gas pipeline group, everybody else this obviously has nothing to do with the CO2 operations, the Products Pipelines or the Terminals group. Clearly, were gonna be melding these two natural gas pipeline groups together and clearly, were gonna be combining the corporate areas. We will have were gonna expand the board from 13 people at KMI from 13 to 15 and El Paso will name two members to that board. We dont know who they will be yet. Itll be their choice as to who they are. Theyve been very cooperative. I think theyre very enthusiastic about this this deal. The Kinder Morgan office of the chairman, senior management will remain the same and well continue to look for good people on all these pipeline assets at El Paso to work with us maximizing the value of everything concerned,
but as I said, Steve Cains gonna head this group up with assistance obviously from Martin and the whole team of the Natural Gas Pipelines group and a lot of people at corporate to make sure were getting all the efficiencies we can out of the system. So, I think its really a win-win for Kinder Morgan and I know one question that comes up: Well, theyve got this big building over there. Where will we end up? Well, the only thing I can tell you for certain is our headquarters will remain in downtown Houston (laughter). So, well just look at that. Its a big building and they own it outright. We will now own it. So, well just look at what makes the most sense to put where, but certainly, I dont think well be discombobulating at all to anybody in terms of locates of office.
So, thats what it is. We think its a great deal. Were very enthusiastic about it and I think the deeper we get into it, the more positives we will find. You know, I think our track record the last 15 years has been that this is right down the sweet spot for us. When we find a huge package of assets like this, generally speaking, were able to take those assets, dispose of what doesnt fit the Kinder Morgan model in pretty quick fashion, and in this case, thats the E&P assets over there and then meld in the assets that do fit our platform, run em a little more efficiently and bring savings to the bottom line and very importantly, and I saw this in one of the quotes this morning in one of the papers that we will bring one stop shopping really to natural gas producers around the country. One of the natural gas producer gas producer CEOs was quoted as saying that Theres never been any asset base assembled like this and when you want to move gas in North America, youll go to Kinder Morgan when this is completed. And thats, of course, what we hope to be able to do.
So, with that, Mark, Steve, anything else before we take questions? Okay, well take any questions that you may have and try to answer.
Question/Answer Segment
[Note audience not miked]
Question 1
Yes, sir, Buzz.
Buzz, regulatory hurdles getting there. We clearly will have to pass antitrust review with the Federal Trade Commission. One of the beauties of this combination as I kind of described it to you is that we dont have a lot of overlap between our systems and their systems. The one area where we do have some overlap is in the Rockies, where we have a number of pipelines, they have a number of pipelines and well just have to work with the regulators to see what we need to do in that respect, but we dont anticipate itll be any barrier to getting the transaction closed and well just work with the regulators to get that done over a period of the next several months. Really doesnt need much else in the way of approvals other than the approvals both KMI and El Paso boards, of course. Im sorry, shareholders boards have already approved. Good, correct.
Question 2
By any reason, I guess another question would be: For any reason somebody tops us, comes in and offers more and El Paso would decide to go with them and they have a fiduciary duty to listen to the other offers, they also have a duty in the merger agreement not to shop it not to go out and solicit anybody else to come in, but if somebody did come in and top us, we have a breakup fee of $650 million. So, we wouldnt go home empty handed. But thats not the reason were doing the deal (laughter). We believe this just has tremendous strategic value and you know, by way of indication how positive it is, you know, at the KMI level, right now were paying out 30 cents a quarter in dividends or $1.20 per year. Now, thats up a little bit from where we thought wed be in February. We said then we could pay out about a $1.16 a year.
Now, remember, we have 707 million shares outstanding at KMI. So, when we talked about paying out a $1.16 per year, which is 29 cents a quarter, that amounted to about $820 million. Weve already raised that and said we now think well pay out this year about $1.18 and thats about $835 million and thats what we expect to produce or maybe a little bit north of that this year at KMI. So, were already beating our targets. Now we said in our press release yesterday that as a result of our own growth and bringing these new El Paso assets in, on a pro forma basis if we were to close this on January 1st, wed take that distribution or that dividend up to a dollar (audio skipped).
So, its a very nice increase from the $1.20 level where we are today and more importantly, weve said that we would grow, we would up our long-term dividend growth
rate at KMI from 10 percent per year today to 12½ percent and then at KMP, weve said we could grow there at 5 percent a year. We now think we can grow at 7 percent a year. Thats how powerful adding all these assets is and putting them into the Kinder Morgan family of companies. And weve said well continue to grow the El Paso pipeline MLP also. So, I think its a win-win. Lot of people say that but I really believe in this case, really is a win-win for everybody both the El Paso shareholders who are getting a nice payment upfront. Theyre getting about 60 percent cash, about 40 percent Kinder Morgan, KMI stock, and so we think its a winner for everybody concerned.
Other questions?
Question 3
Yeah, Joe.
How the deal came about. Well, I guess well be describing a lot more detail in the proxy statement thats required to be filed in a couple of weeks, but basically I went over that cliché we did a lot of preliminary work, Park Shaffer led the team doing all this, but a lot of help from the rest of the finance group and we got some investment bankers involved. We took a long, hard look, spent a lot of time over the summer looking at it and then actually right at the end of August, I walked over to El Paso and sat down with Doug Foshee, their CEO, and made an offer to him to combine the two companies. In true form, we negotiated back and forth for about seven weeks and yesterday both boards approved it. So, we initiated it and just because we thought it would make a great combination to put these two companies together and it really is transformational I think.
So, while I think some of the hyperbole in the papers this morning was a little overdrawn, I do think that it is a great mark of confidence in the midstream infrastructure business in this country and in the future of natural gas, which again I think is just extremely important in this country and I think youre gonna see increasing efforts to move in that direction. You know, Ive relayed before I think in employee meetings. Ive met with the Secretary of Energy and met with the President over the last couple of years and I was astounded at the beginning of how little consideration they gave to natural gas as a real game changer, but as time goes on, I think theyve become theyre not all the way in any fossil fuel camp and they still like bicycles and wind wind turbines and solar panels. You know, they loaned a lot of money for solar panels
(laughter). They still like that, but I think theyre increasingly realizing that in the real world that the rest of us live in, you know, natural gas is really important. Other people other than I have summed it up is its cheap, abundant, and domestic and thats really three important characteristics.
So, this is a huge bet on natural gas, but not a bet on natural gas prices. Its a bet, again, like everything else we do, its just a toll road. Its a bet that therell be a lot of natural gas moving down the pipeline network over the next 10, 15, 20 years and that well be able to take this footprint and continue to grow it.
Other questions?
Question 4
Yes, maam.
Compare and contrast the cultures of the two organizations.
I think El Pasos a very good company and theyve come a long way in the last few years and Doug Fochees done a great job. You know they were on the kind of and they would be the first to say this kind of on the ropes earlier in the decade and I think theyve come a long way back and I think well be able to meld them into the Kinder Morgan culture very successfully. Were gonna have an employee meeting with them in about an hour. So what else?
Question 5
Yes, maam.
The question is: Since pipelines are our core business, do we intend to spin off non-core business like the terminals business.
Let me tell you, our core business at Kinder Morgan are our pipelines, our CO2 operations and our terminal business. Were gonna keep em all. No plans whatsoever. In fact, I would say that I would say that the terminals business is enormously successful. Were just continuing. In fact, the board, we went ahead and had a board meeting on Sunday and the board approved really another $200 million plus almost $250 million on improvements to terminals for export coal capacity. So, they are definitely not an unwanted stepchild.
Conclusion
All right, what else is on your mind?
All right, well look, Ill just close by saying this. I missed one thing here I wanted to mention. We certainly couldnt have got to where we are today without all of you and the reason that we have the strength to be able to go out and make a $38 billion acquisition is because of what our 8,000 employees have done.
(Applause)
So, I just want to thank all of you. Have a great day and I think were gonna have some exciting months and years ahead of us. Thank you.
(Meeting Concludes, 22:22)
IMPORTANT ADDITIONAL INFORMATION WILL BE FILED WITH THE SEC
Kinder Morgan, Inc. (KMI) plans to file with the SEC a Registration Statement on Form S-4 in connection with the proposed transaction, and KMI and El Paso Corporation (EP) plan to file with the SEC and mail to their respective stockholders a Joint Proxy/Information Statement/Prospectus in connection with the proposed transaction. THE REGISTRATION STATEMENT AND THE JOINT PROXY/INFORMATION STATEMENT/PROSPECTUS WILL CONTAIN IMPORTANT INFORMATION ABOUT KMI, EP, THE PROPOSED TRANSACTION AND RELATED MATTERS. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT AND THE JOINT PROXY/INFORMATION STATEMENT/PROSPECTUS CAREFULLY WHEN THEY BECOME AVAILABLE. Investors and security holders will be able to obtain free copies of the Registration Statement and the Joint Proxy/Information Statement/Prospectus and other documents filed with the SEC by KMI and EP through the web site maintained by the SEC at www.sec.gov. In addition, investors and security holders will be able to obtain free copies of the Registration Statement and the Joint Proxy/Information Statement/Prospectus by phone, e-mail or written request by contacting the investor relations department of KMI or EP at the following:
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Kinder Morgan, Inc. |
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El Paso Corporation |
Address: |
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500 Dallas Street, Suite 1000 |
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1001 Louisiana Street |
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Houston, Texas 77002 |
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Houston, Texas 77002 |
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Attention: Investor Relations |
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Attention: Investor Relations |
Phone: |
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(713) 369-9490 |
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(713) 420-5855 |
E-mail: |
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kmp_ir@kindermorgan.com |
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investorrelations@elpaso.com |
PARTICIPANTS IN THE SOLICITATION
KMI and EP, and their respective directors and executive officers, may be deemed to be participants in the solicitation of proxies in respect of the proposed transactions contemplated by the merger agreement. Information regarding KMIs directors and executive officers is contained in KMIs Form 10-K for the year ended December 31, 2010, which has been filed with the SEC. Information regarding EPs directors and executive officers is contained in EPs Form 10-K for the year ended December 31, 2010 and its proxy statement dated March 29, 2011, which are filed with the SEC. A more complete description will be available in the Registration Statement and the Joint Proxy/Information Statement/Prospectus.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
Statements in this document regarding the proposed transaction between KMI and EP, the expected timetable for completing the proposed transaction, future financial and operating results, benefits and synergies of the proposed transaction, future opportunities for the combined company, the sale of EPs exploration and production assets, the possible drop-down of assets and any other statements about KMI or EP managements future expectations, beliefs, goals, plans or prospects constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that are not statements of historical fact (including statements containing the words believes, plans, anticipates, expects, estimates and similar expressions) should also be considered to be forward looking statements. There are a number of important factors that could cause actual results or events to differ materially from those indicated by such forward looking statements, including: the ability to consummate the proposed transaction; the ability to obtain the requisite regulatory, shareholder approvals and the satisfaction of other conditions to consummation of the transaction; the possibility that financing might not be available on the terms committed; the ability to consummate contemplated asset sales; the ability of KMI to successfully integrate EPs operations and employees; the ability to realize anticipated synergies and cost savings; the potential impact of announcement of the transaction or consummation of the transaction on relationships, including with employees, suppliers, customers and competitors; the ability to achieve revenue growth; national, international, regional and local economic, competitive and regulatory conditions and developments; technological developments; capital and credit markets conditions; inflation rates; interest rates; the political and economic stability of oil producing nations; energy markets, including changes in the price of certain commodities; weather conditions; environmental conditions; business and regulatory or legal
decisions; the pace of deregulation of retail natural gas and electricity and certain agricultural products; the timing and success of business development efforts; terrorism; and the other factors described in KMIs and EPs Annual Reports on Form 10 K for the year ended December 31, 2010 and their most recent quarterly reports filed with the SEC. KMI and EP disclaim any intention or obligation to update any forward looking statements as a result of developments occurring after the date of this document.