El Paso Corporation (EP) has decided to split into two separate publicly traded companies by the end of 2011. The company has received the necessary initial approval from its board of directors.
After the break-up, El Paso Corporation will consist of El Paso Pipeline Group, Midstream Group and its general and limited partner interests in El PasoPipeline Partners, L.P. (EPB). The hived off Exploration and Production (E&P) Group will become a separate publicly traded company and compete with independent oil producers.
El Paso Corporation, following the separation, will become one of the major North American pipeline companies well connected in the major supply and market regions. El Paso's promise to pay an annual dividend of 60 cents a share in 2012, with a targeted low double-digit dividend growth rate, will make it an attractive investment opportunity for investors.
The Exploration and Production wing of El Paso, slated to go solo, currently has more than 10 years of low-risk, repeatable drilling inventory, which will boost and ensure the growth of the new company in the forthcoming years. El Paso's current holdings in Eagle Ford and Wolfcamp shales and the Altamont field will also guarantee the viability of the newly emerged E&P business.
The E&P spin-off will be structured as a pro rata distribution of shares of the exploration and production company to El Paso shareholders of record. The split is subject to market, regulatory, tax and final approval by the company's board of directors together with other customary conditions. However, the transaction does not require shareholder approval.
The new business will likely to have benefits of greater access to capital markets, strong management with distinct strategies, increased flexibility and efficiency in capital allocation while the new capital structure will also provide an opportunity for lower cost of capital.
The market has reacted positively to the separation news with the shares closing $1.24 per share or 6.5% higher than the previous day's close. We believe that El Paso’s decision to split into two separately trading companies at the end of 2011 will create two strong stand-alone entities, with one concentrating on pipeline operation and the other on exploration and production.
El Paso Corporation currently retains a Zacks #3 Rank (short-term Hold rating). The company competes with DCP Midstream Partners L.P. (DPM) and Williams Companies Inc. (WMB).
Based in Houston, Texas, El Paso Corporation involves in the natural gas transmission and in the exploration and production sectors of the energy industry. The company primarily operates in United States and has some exposure in Brazil and Egypt.
DCP MIDSTREAM (DPM): Free Stock Analysis Report
EL PASO CORP (EP): Free Stock Analysis Report
EL PASO PIPELIN (EPB): Free Stock Analysis Report
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