• DEALS & DEAL MAKERS
• OCTOBER 19, 2011, 5:45 P.M. ET
• WSJ

Kinder Morgan Deal Has $650 Million Breakup Fee

By BEN LEFEBVRE

Pipeline operator El Paso Corp. must pay Kinder Morgan Inc. $650 million if their merger deal is called off, according to details released Wednesday.

The boards of both companies have approved the $21.1 billion merger, which would create the largest natural-gas pipeline operator in North America. Kinder Morgan Chief Executive Richard Kinder said he expected the deal, unveiled Sunday, to be completed by the end of the second quarter, although shareholders must still vote on the proposal.

The combined company would control 67,000 miles of natural-gas pipelines connecting nearly every major production region in the U.S. to major markets. Mr. Kinder has said he would do "whatever it takes," including selling assets, to get the merger past antitrust regulators.

The breakup fee, disclosed in a regulatory filing, would be more than four times as large as the approximately $135 million termination fee included in the $5.7 billion merger agreement between natural-gas pipeline operators Energy Transfer Equity LP and Southern Union Co. That deal, the result of a bidding war between Energy Transfer and Williams Cos., is still awaiting approval by Southern shareholders.

The sheer size of the Kinder Morgan-El Paso deal could justify that larger termination fee, said Morningstar analyst Avi Feinberg. "This deal is so much bigger than what we usually see," he said.

On Wednesday, Kinder Morgan reported third-quarter earnings of $151.5 million compared with $10.6 million a year earlier. Revenue rose 5.6% to $2.21 billion.

"There are exceptional growth opportunities in the midstream energy sector, particularly in the natural-gas shale plays and in the coal export business," Mr. Kinder said in the company's earnings release.