El Paso Corporation announced that its Board of Directors has granted initial approval of a plan to separate the company into two publicly traded businesses by year end 2011.
Following the completion of the proposed spinoff, El Paso Corporation will be comprised of El Paso’s Pipeline Group, its Midstream Group, and its general and limited partner interests in El Paso Pipeline Partners, L.P. . It will be the premier pipeline company in North America, uniquely integrated in the major U.S. supply and market regions. With a planned 2012 annual dividend of $0.60 per share and a targeted low double-digit dividend growth rate, it is positioned to be a very attractive corporate yield investment. As a separate publicly traded company, El Paso’s exploration & production business is well positioned to compete with the industry’s leading independent producers. It has more than 10 years of low-risk, repeatable drilling inventory to fuel its future growth. Current positions in the Eagle Ford and Wolfcamp shales and the Altamont field are expected to provide a profitable and rapidly growing oil production profile.
“ We believe that the creation of these two stand-alone public companies will result in significant and sustainable value creation ,” said Doug Foshee (image), chairman, president, and chief executive officer of El Paso Corporation . “ With the completion of what was an $8 billion pipeline backlog, the elevation of our E&P business to one of the top independent producers, outstanding leadership and employees in each of our businesses, and the accelerated improvement of our balance sheet, we are ready to take this important step .”
El Paso plans to complete a separation by year end with a tax-free spinoff of its E&P company. The planned separation is subject to market, regulatory, tax, final approval by the company’s Board of Directors and other customary conditions.
Benefits
El Paso believes that there are material benefits to the stand-alone companies from a separation:
— Greater management focus on distinct business strategies
— Credit enhancing to El Paso Corporation
— Greater flexibility to grow businesses supported by separate equity currencies
— Independent capital structures and credit profiles, which provide a lower cost of capital
— Improved capital markets access
— Increased flexibility and efficiency in capital allocation
Ongoing Management of El Paso Corporation
The seasoned management of El Paso Corporation is in place. Doug Foshee will remain chairman & chief executive officer of the company.
Management of Exploration & Production Company
Brent Smolik will be named as chief executive officer and Dane Whitehead will become the chief financial officer. Doug Foshee will become the non-executive chairman.
Transaction Approvals
The spinoff of the E&P company will be structured as a pro rata distribution of the shares of the exploration and production company to the El Paso shareholders of record. The transaction will not require shareholder approval. El Paso plans to seek a tax ruling from the Internal Revenue Service regarding the tax-free nature of the spinoff for both the company and its shareholders.
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Source: El Paso , May 25, 2011;