Kinder Morgan Inc Harvard Case Solution & Analysis

Brief Description of Situation& Problem

The special committee of Kinder Morgan had to meet to decide that whether they should accept the offer of $ 22 billion to make the company private. A consortium of the potential buyers has been formed, led by the CEO of KMI, Richard Kinder, president C. Park Shaper, other senior management and significant shareholders in the firm. This consortium also includes a group of the financial sponsors, which is led by Goldman Sachs.

The per share bid had reached to a final value of $ 107.50 per share after a series of meetings and negotiations. The proposed bid structure included $ 3 billion roll over equity from the current management of the company and the participating board members, $ 5.1 billion of equity from the financial sponsors and $ 14.1 billion of debt. The problem faced by the special committee is that they need to make a decision now of whether they should accept the final offer of consortium or not.


The analysis of this case has been performed by looking at the qualitative reasons and quantitative reasons to accept the bid offer. However, before that we have defined advantage buyouts, its characteristics that make KMI a perfect candidate for LBO and the situation in which LBO is seen as an option for valuation of the companies.

Kinder Morgan Inc Harvard Case Solution & Analysis

Leveraged Buyout

A leveraged buyout or an LBO is the acquisition of a private or a public company with a significant amount of debt. There are many typical features of a good LBO candidate. The stock price of the LBO target usually trades at a lower multiple to free cash flow as compared to the other close companies or the high growth industry. This is true for Kinder Morgan Inc as its stock price was trading lower than the projected price of the analysts, which show that the stock price of the company is undervalued.

Secondly, the amount of the debt on the balance sheet of LBO targets is also lower as compared to the level of the free cash flow, which was again true for KMI since, the level of debt, and equity was balanced by the management acting as a GP. Apart from this, the management of the acquiring company has the ability to hire a new management team for the company and get rid of the old management team. However, in this case, this LBO is a management buyout therefore, the management team would not be replaced but it might be expanded.

Apart from this, the future capital expenditure requirements for KMI are low with steady cash flows as shown in exhibit 12 of the case. Moreover, KMI also possesses competitive advantages and it was in a great position to generate future cash flows and repay the debt in future. Finally, the acquisition of KMI by its management would also offer the company a feasible exit option through an IPO later on when all the debt of the company would become mature. Overall, it could be seen that KMI meets all the typical features of a goof LBO candidate....................

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