How to enter the Kinder Morgan (KMI) and Kinder Morgan Energy Partners (KMP) merger
Kinder Morgan completed its merger with Kinder Morgan Energy Partners on 11/26/2014. KMP shareholders had a choice to take all cash, cash and Kinder Morgan stock or all Kinder Morgan stock.
The SEC filing for this merger can be found at through the Kinder Morgan web site at: https://www.kindermorgan.com/pages/investor/kmi_sec_filings.aspx . Choose the S-4A filing of 10/1/2014.
Though KMP shareholders had a choice of the merger consideration this merger is a fully taxable transaction.
For tax purposes this is treated as a sale of Kinder Morgan Energy Partners (KMP), with the proceeds used to purchase Kinder Morgan (KMI).
The sale proceeds are the sum of the market value of KMI shares received plus any cash received. All the information below is from the information available from the S-4 filed with the SEC.
1. Sell Transaction
If the all cash option was chosen, the total merger consideration is $91.72 per Kinder Morgan Energy Partners share.
If the mixed option was chosen the total consideration is $100.38 per KMP share. This is $10.77 in cash and $89.61 in Kinder Morgan shares (40.86 x 2.1931). Calculate the total value received for your Kinder Morgan Energy Partners shares by multiplying 100.38 by the total shares of Kinder Morgan Energy Partners owned.
If the all KMI shares option was chosen, the total consideration was $100.5121 per KMP share. (40.86 x 2.2264 + 9.5414). Because this option was oversubscribed the all share option was prorated so that shares and cash were received.
All cash option Total Proceeds = [91.72 x (# of Kinder Morgan Energy Partners shares owned)] - (Reorganization fee, if any).
Mixed option Total Proceeds = [100.38 x (# of Kinder Morgan Energy Partners shares owned)] - (Reorganization fee, if any).
All share option Total Proceeds = [100.5121 x (# of Kinder Morgan Energy Partners shares owned)] - (Reorganization fee, if any).
Use the Suspense account to receive the sale proceeds unless you chose the all cash option. Use the broker account in this case.
Date this transaction 11/26/2014.
2. Transfer Cash Received
Transfer from the Suspense account to the Broker account (or bank if appropriate), all cash not accounted for by the value of Kinder Morgan (KMI) shares received. The amount of the transfer will be ($10.77 * The original number of Kinder Morgan Energy Partners shares).
If your Suspense account balance was zero when you entered the sell transaction above, then the balance after transferring the cash received will be the total purchase price of the Kinder Morgan shares you received in this merger.
3. Buy Transaction
Enter a buy transaction for the full number of Kinder Morgan (KMI) shares you were entitled to receive in this merger. This will be either 2.1931 KMI shares per KMP share or 2.2264 KMI shares per KMP share depending on whether the mixed or all share option were chosen.
Date the transaction 11/26/2014. The total purchase amount should be (40.86 x # of Kinder Morgan shares received, including fractional shares. Save the buy transaction.
4. Sell Fractional Shares
Two of the options will generate fractional shares and cash-in-lieu received. Sell the fractional shares for the cash-in-lieu reported on your broker statement. Date this transaction 11/27/2014 or the date the cash was received in your account.
If your broker charged a reorganization fee you may have a negative balance in the Suspense account after the KMI buy. A transfer from the broker to the Suspense account will balance this and decrease your broker account by the amount of the reorganization fee. Accounting for the reorganization fee in this way (as a cost of the sale) decreases the gain from the EPB sale. This is more beneficial to club members than entering the fee as an expense.