Kinder Morgan Incorporation Case Solution
The overall conflicts are; hurdles in project expansion, downfall in share price, because of these the management of the company and Kinder faced many problems such as financial shortage for business. They tried many alternatives such as repurchase of shares, credit rating analysis for debt financing, IPOs (initial public offering) to general public and offer unofficial auction for valuation however, the economic downturn affected the corporate image and financial health of the organization.
Time to sell or Not:
As a board member according to me, it is not the good time to sell out the company as the company has strong financial background and three diversified businesses, which are also in financially sound position. The economic downturn and financial crisis affected the financial position of the company however, it is expected that the management of the company is performing well and financial position of the company is improving as profit margin is increasing continuously from year to year. The discounted cash flow to profit increasing 25% to 47%.According to other competitors, the company has high share price and the value of the company is higher than other competitors.
 The overall financial position is satisfied by the management, shareholders, and other stakeholders.
In addition to this, it is also considered that it is not the right time to sell the shares as the share price of the company’s share is declining continuously, hence a mainstream of the stockholders can consent the value with a lesser premium. As the company’s financial performance is improving therefore, it is expected that after some time the company will achieve a significant growth as the economic conditions are becoming favorable.Due to this,it would be better to sell on the company later on, which could help the company and the management in order to generate more cash.
Therefore it should be backed by other investors or they should have contingency plan for emergency situation. This is because largeorganizations make contingency plans for future uncertainty. It could expand next year;however, Mr. Richard sold out his ownership within a year or same year in 2006. As per me, I think he should have resisted with hisdiversifiedoperations and in the same year he should analyze or rectify the factors that affect the performance of the company.
It is expected that in order to overcome the current situation, IPO would bethe best solution to increase the capital for the company for daily operations which could help the company. Due to the capital, investing into the business for operation or expansion of business revenue will ultimately increase profit, as well as fixed assets will increase and equity will increase. When these factors will increase, then as a result the cash flows will increase which will help the company in order to grow.
It should analyze the industry’s performance as it is alreadyin a strong position therefore, according to me it is nota good time to sell out Kinder Morgan Inc.
Valuation:
The valuation of the company shows the strength or weakness of the company’s performance. In this situation, the company has positive cash flows, which are increasing continuously from year to year. Ultimately, FCF is also increasing continuously in a positive manner.In addition to this, assets have increased from $40 Million to $35 Billion.Furthermore,operating profit has increased by 17% and continuously increasing every year.The weighted average cost of capital (WACC) is 7.47%, which is calculated with the help of capital asset pricing model and by using this cost of capital, the valuation of the company is performed by discounting the free cash flows at this rate. In addition to identify the net present value of the company, the valuation of the company is also performed with the help of EBITDA multiple method, which shows that the value of the company under EBITDA multiple approach is less…………………
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