HOUSTON Nearly everyone on Wall Street seems to like Kinder Morgan Inc's (KMI.N) $44 billion deal to scrap its master limited partnership (MLP) structure, except Kevin Kaiser.
Kaiser, a 27-year-old Ivy League-educated analyst at independent research firm Hedgeye Risk Management, first took aim at the pipeline company in September.
At the time, he recommended shorting Kinder Morgan Energy Partners in a report that claimed the company skimped on maintenance work to boost cash distributed to investors in its MLPs, an assertation the company disputed.
Now, in a new report obtained by Reuters, Kaiser is recommending investors short Kinder Morgan Inc, which will be the remaining entity after it buys out its two MLPs El Paso Pipeline Partners LP EPB.N and Kinder Morgan Energy Partners LP KMP.N and Kinder Morgan Management LLC KMR.N for cash and stock.
He argues the combined company will be overvalued and have too much debt. Kinder Morgan Inc's shares traded on Tuesday at $38.50.
"With (pro forma) Kinder Morgan prices at a valuation comparable to Facebook's FB.N, the risk from here is to the downside," Kaiser wrote. "The valuation risk is substantial and is exacerbated by the higher leverage.
But anyone who was short Kinder Morgan Energy Partners would have had a very bad day on Monday when units rose 17 percent to close at $94.12. One MLP investor characterized short sellers as the biggest losers in the deal.
"Nothing happened yesterday," Kaiser said in an interview. There was no value created. All they did was move around some deck chairs."
Kaiser, who is an active social media user, took a beating on Twitter on Monday and was even singled out by CNBC financial personality Jim Cramer in a column on the Street.com.
Still, analysts at Moody's plan to give the combined company an investment grade rating characterized as "weak" due to a high debt level and planned high dividend payout ratio.
Moody's calculates that Kinder Morgan as a consolidated company will have a net debt-to-earnings ratio of 6 times before EBITDA (earnings before interest, taxes, depreciation, and amortization), leaving it "more leveraged than all of its peers," the rating agency said in a note on Monday.
Kinder Morgan declined to specifically comment on Kaiser's assertions. But on a conference call with analysts on Monday, Chief Executive Officer Rich Kinder said the deal would add "immediate and significant value uplift" to its investors.
Kinder also said its debt to EBITDA ratio would move lower over time.
(Reporting by Anna Driver; Editing by Terry Wade and Richard Chang)