Public Company M&A: A Sell-Side Perspective

1. Public Company M&A:A Sell-Side Perspective David Bryson Stephen Swaffield Josh Pekarsky October 5, 2006

2. Overview • Introductions • Pre-deal preparation • Managing the process • Communications • Conclusions

3. Introductions • David Bryson • Former Terasen Treasurer and IRO • Data room preparation, documentation and investor communications • Steve Swaffield • Former Terasen SVP, Corporate Development • Overall responsibility for coordination and execution • Josh Pekarsky • President, Longview Communications • Development and execution of communications plan, both before and after announcement

4. About Terasen • 3rd largest public pipeline & utility company in Canada (after TCPL and ENB) • Three core business segments • Natural gas distribution in almost all of B.C. • Crude oil transportation from the Alberta oil sands to the West Coast and U.S. midwest • Water and utility services • 2004 revenues: $2.0 bn; Dec/04 assets: $5.0 bn • 10-year annualized total shareholder return to Dec/04: 17.5%

5. Pre-Deal Preparation

6. Pre-Deal Preparation • Deal success was influenced by several factors: • Takeover defence preparedness planning • Data room preparation • Well-established communications and investor relations program

7. Defence Preparedness • Terasen had an updated plan in place well prior to KMI’s approach • Developed in conjunction with lead investment bank and outside counsel • Focus was mainly on a hostile bid • Main benefits were to: • Raise awareness of key issues as a target • Initiate data room preparations

8. Data Room • A small project to scan key corporate documents to pdf format was initiated as a result of defence preparedness planning • Utilized various junior staff with available time (e.g. summer intern) • Characterized to employees as an effort to make key documents more readily accessible

9. Data Room • All board materials (e.g. minutes, presentations) were also available electronically • Result was that ~80% of the data room had been assembled and organized quietly by one person prior to CA execution • The alternative – having to assemble thousands of pages for scanning in a few days – would have jeopardized confidentiality

10. Data Room • An electronic data room was used to facilitate web-based access • Several providers are available; Terasen used Intralinks • Security is very strong, and documents can be flagged to restrict access in a variety of ways • Usage statistics provide intelligence on what the bidder is doing • Result was that data room was live before KMI staff were ready to view it

11. IR Program • Senior management credibility facilitated shareholder acceptance of potentially controversial deal terms • e.g. no auction process • Although many holders sold out to arbs after announcement, some key shareholders retained their positions through the approval vote

12. Managing the Process

13. The Process Preparation Know your value Control the timetable Negotiation and confidentiality Due-diligence and announcement The Stakeholders Board and Special Committee Employees Shareholders (pre/post announcement) Regulator Politicians Managing the Process

14. BOD’s most difficult and important decision Need a “value framework” Accurate corporate model DCF/share Sum-of-the-parts Recap alternatives Ability to pay Analyst estimates Trading analysis Precedent transactions Negotiate, but don’t lose the bid ZOPA Negotiate hard Thanks, but no thanks Know your Value $/share

15. Chronology of Events Initial introductory discussions May 17th 2005 Face to Face CEO’s meeting June 13th 2005 Initial Offer June 20th 2005 Final Offer, LOI and CA July 20th 2005 Public Announcement August 1st 2005 6 weeks Insider Knowledge SVP inform CEO CEO, SVP, inform Chair Full BOD, advisors, CFO, Treasurer Business unit mgmt. n/a Control the Timeline

16. Negotiation and Confidentiality • Widely held regulated public company • Key VariablesStakeholders • Price • Consideration (cash/shares/ exchangeables?) • Deal protection • Break Fee vs ability to solicit • Caps and collars vs simple • Currency hedges • Constraints on the Business • MACs BOD pp shareholders Management and employees

17. Due Diligence and Announcement Shareholders

18. The Deal • $6.9 billion (35% KMI shares, 65% cash) • 24.6x P/E multiple, 11x EV/EBITDA multiple • Premium of 19% to prior 20-day average price (near record high) • Both stocks traded up on announcement • Break Fee of 1.8% of equity value ($75 MM) • Plan of Arrangement (75% shareholder approval) • Subject to regulatory approval • Closed Nov 30th 2005

19. Communications

20. Role Of Communications • Effective communications and investor relations in the normal course… • Builds trust and credibility • Raises awareness of core values, plans and priorities • Helps ensure a proper valuation • Creates informed, if not supportive, stakeholders • …that become critical in M&A transactions • Provides credibility to sell a friendly deal • Strengthens a company’s ability to defend against a hostile bid

21. Planning • Primary objective - Get the deal done • What approvals are necessary? • What can derail them? • Establish core messages • Sell the deal / Recommendation • Address stakeholder concerns • Anticipate the issues • Prioritize audiences • Timing • Prepare, prepare, prepare • Draft, organize, coordinate and anticipate • Time accelerates once a deal is announced

22. Common Deal Issues • Fear • Jobs will be lost • New management • Loss of corporate headquarters • Impact on local economy(ies) • Regulatory hurdles • Competitor response • Greed • Valuation concerns • Process • Unknown & unknowable • Acts of God • Acts of interlopers • Politics

23. US company acquiring Canadian Loss of local head office Enron connection Bush Administration connection Timing (BC Day) Perceived loss of former crown corporation Fear of rate hikes Perceived loss of Canadian natural resources Safety and environmental concerns 19% premium on top of all-time high stock price High level of ownership by Canadians Promise to keep local operating management No job impacts (outside the corporate suite) KMI’s ability to accelerate pipeline investments Terasen board and management credibility KMI ranked a “Most Admired company in America” by Fortune Magazine Terasen/KMI Issues Liabilities Assets

24. Reaction “The proposed takeover of Terasen…is a sweetheart deal for Canadians because they all own a chunk of the Vancouver-based company.” Vancouver Sun editorial “I see little to dislike in Kinder Morgan’s offer to buy Terasen Gas…If the deal goes ahead, the impact will be nil for customers, almost nil for employees, and potentially sizeable, favourably so, for the pipeline operation.” Don Cayo, Vancouver Sun “This is a terrible way to celebrate BC Day, by seeing a former Crown Corporation and an important BC-owned and based company move to Houston, Texas.” Andy Ross, President COPE Local 378 “If Kinder Morgan, the new American owner, had better markets for the use of its pipeline than serving the BC market, what’s to stop them from cutting us off….” Rafe Mair, AM 600

25. Communications Tactics • Deal became politicized • Council of Canadians & Raging Grannies • Investment Canada • BCUC • Communications tactics • Public meetings • Advertising • Op-ed submissions • Strategic media interviews • Third party advocacy • Special meeting of shareholders • Outcome

26. Conclusions • Basic preparation prior to an approach pays off • Know your value – before an approach • Control the timetable (when possible) • A strong communications program, both before and after announcement, can make a significant difference to deal success

27. Questions