Dear Mr. Berko: I bought 1,000 shares of Kinder Morgan Energy Partners on your recommendation this April at $76 because of regular dividend increases and because I would get $5,560 in income, which is a 7.3 percent yield, and it would be tax-free. Now the stock is $97 because it’s merging with three of Richard Kinder’s other companies, and my new stock, Kinder Morgan, or KMI, will only pay me $4,400, which is a lot less. What am I missing here? Have I been screwed?
— ND, Joliet, Ill.
Dear ND: You certainly have and royally, too. You’ve been gut-jabbed, pole-axed and back-stabbed by Richard Kinder, who founded Kinder Morgan Energy Partners (KMP-$96). However, that gain isn’t worth bupkis when you realize how cleverly Richard sliced and diced his KMP shareholders. For each share of KMP you own, Richard will give you $10.27 in cash plus 2.2 shares of Kinder Morgan, Inc. (KMI-$40). So when the deal closes in December, you end up with 2,200 shares of KMI and $10,270 in cash. But according to estimates released by Richard’s lawyers, your tax liability from the merger ranges between $12 and $18 a share. It seems that Richard has slyly taken KMP shareholders to the cleaners.
It won’t be till December, when the deal is done, that thousands of bonkered shareholders will realize they’ve been short-circuited, shortchanged and given the short end of the stick by this merger. Frankly, I’m surprised that swarms of lawyers haven’t descended on KMP owners who’ve been blinded by their quick share gains and don’t realize that Richard has sucked several pints of blood from their incomes. For instance:
1) You know that Richard’s merger reduces the annual income on your original investment from $5,560 to $4,400 on your new KMI shares, but do you realize the initial diminution of your income is $1,160, or 22 percent? Sort of like getting an unexpected cut in your Social Security benefits.