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FTC OKs Kinder Morgan Buyout with Gasoline Settlement

Kinder Morgan Inc. (KMI) said Thursday it received clearance from the Federal Trade Commission (FTC) for its $22 billion management-led buyout (see Daily GPI, Dec. 20, 2006; May 31, 2006) following a settlement to resolve antitrust concerns over gasoline terminaling operations.

The FTC challenged the buyout because private equity parties to the deal hold "significant positions" in KMI competitor Magellan Midstream, raising antitrust concerns over gasoline terminaling operations in 11 markets.

KMI management is backed by a group of investment firms that includes private equity funds managed and controlled by The Carlyle Group and Riverstone Holdings LLC. According to the FTC, Carlyle and Riverstone already hold significant positions in Magellan Midstream, a major competitor of KMI in the terminaling of gasoline and other light petroleum products in the southeastern United States. The proposed transaction would threaten competition between KMI and Magellan in 11 metropolitan areas in the Southeast, likely resulting in higher prices for gasoline and other light petroleum products, the FTC said Thursday.

The FTC's order settling the complaint and allowing the transaction to proceed will effectively turn Carlyle's and Riverstone's interest in Magellan into a passive investment, by requiring them to: (1) remove all of their representatives from the Magellan board of managers and its boards of directors, (2) cede control of Magellan to its other principal investor, Madison Dearborn Partners, and (3) not influence or attempt to influence the management or operation of Magellan. The order also requires the parties establish safeguards against the sharing of competitively sensitive information between KMI and Magellan.

In addition to Carlyle, Riverstone, and KMI management, firms in the acquiring group include affiliates of Goldman Sachs Capital Partners and American International Group. Through the proposed transaction, Carlyle and Riverstone would acquire a combined 22.6% interest in KMI. A private equity fund controlled and managed by Carlyle and Riverstone already holds a 50% interest in the general partner that controls Magellan.

KMI shareholders voted in December to approve the merger, and the only outstanding approvals are from state regulatory utility commissions in California, Colorado, Nebraska and Wyoming, KMI said. The California Public Utilities Commission this week issued a procedural schedule, which could delay the closing of the transaction until the second quarter of 2007. The company said it is still hopeful the transaction can be closed in the first quarter.

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