By Chris Lane
By Jeff Balke
By Aaron Reiss
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By Dianna Wray
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By Craig Malisow
The analyst conference had gone perfectly. The main ballroom of the Four Seasons Hotel had been filled with money managers, hedge fund whizzes, equity analysts and other high-strung overachievers. Kinder, Park Shaper and other honchos from energy giant Kinder Morgan had methodically plowed through every facet of the company's numbers and operations. By 3 p.m., the presentations were over and the room began to empty as analysts from across the country headed for the airport.
Kinder, dressed in black slacks, black-and-white-checked blazer, black tassel loafers and a starched blue button-down shirt, was still hanging around, talking to the last few money men. Kinder had plenty of reasons to answer their questions. His three New York Stock Exchange-listed entities are the hottest stocks in Houston -- or anywhere else, for that matter. In a roller-coaster market that's battered nearly every company, investors have found islands of stability -- and real profits -- in his Kinder Morgan Inc., Kinder Morgan Energy Partners and Kinder Morgan Management. Between the market swoon of late October and the analyst meeting in late January, the three companies had appreciated in value from 13 to 27 percent.
He was fully confident that they could keep growing at a 15 percent clip for the next several years. Kinder wasn't smug about it. He was confident. That attitude was reflected on the spiral-bound, 200-page Kinder Morgan notebook that each analyst received. On the cover was written: "Same Old Boring Stuff: Real Assets, Real Earnings, Real Cash, January 2003."
The time and locale of the analyst meeting had more than passing significance. Almost exactly two years earlier, Jeff Skilling, Kinder's successor as president and chief operating officer at Enron, had stood in that same ballroom talking in just the same way with the Wall Street money guys.
At that now infamous gathering, Skilling, with company chairman Ken Lay at his side, had exhorted analysts with his contention that they should value Enron at precisely $126 per share -- far above the $82 or so the stock was then fetching. The session marked the acme of Skilling's ego trip as well as the beginning of the end for Enron. Seven months later, Skilling suddenly and inexplicably quit the company. Four months after that, in December 2001, Enron filed for what was then the biggest U.S. bankruptcy ever ($63.4 billion).
Today, Enron is a smoldering ruin. Skilling and Lay await subpoenas and possibly indictments. Meanwhile, no one has emerged from the Enron wreckage looking smarter than Rich Kinder.
Lots of oilmen in Houston have built empires in a big hurry, making tens or hundreds of millions in a decade or two. Kinder has outdone all of them. In just six years, he's built three companies with a total market capitalization -- the value of all of their stock -- of $13.5 billion. And those companies are critically important links in the American economy. Kinder Morgan's facilities carry about 15 percent of the natural gas and gasoline used in America every day.
Since early 1997, Kinder has parlayed his $30 million retirement package from Enron into a $1.2 billion fortune. He's done it under the noses of the smartest energy people in the world and he's done it with an easily understood business model and a hard-assets-are-the-only-way approach. Plus, he's done it quietly, without a whiff of impropriety, self-dealing, executive excess or dot-com shenanigans.
Throughout the '90s Ken Lay was the undisputed king of Houston's Energy Alley. Rich Kinder now wears that crown. And, at age 58, he has vaulted to the throne more quickly than perhaps any other man in Houston's history. Throw in his friendship with the Bushes (both 41 and 43) and his plans to give away his vast fortune, and Kinder is, without a doubt, the man of the moment in Houston.
Richard Dan Kinder was attending the University of Missouri when he met two other students who would play critical roles in his life: Ken Lay, his future boss at Enron, and Bill Morgan, who would become his partner at Kinder Morgan.
Kinder was born and raised in Cape Girardeau, a Missouri hamlet on the banks of the Mississippi that has gained fame as the hometown of conservative bloviator Rush Limbaugh. Kinder's father was a life insurance salesman, his mother an English teacher. His brother is now a surgeon in their hometown.
At the University of Missouri, Kinder was president of his Sigma Nu fraternity during his senior year. Richard Brownlee, a frat brother a couple of years younger than Kinder, remembers him as a "brilliant, brilliant guy." "He was a serious student at a time when a lot of us were just listening to the Beatles." He recalls that Kinder dated an equally mature sorority girl named Anne Lamkin. "They were adults when a lot of us weren't."
Kinder was remarkable for another reason: He didn't own a pair of blue jeans. "Back then, we wore jeans and Weejuns all the time," recalls Brownlee, "and he had slacks on all the time."
When Kinder finished law school in 1968, the Vietnam War was raging. So he entered the JAG Corps as a lawyer for the U.S. military. After a four-year hitch, he went into private practice. But in 1980, former classmate Morgan told him about a job opening for a lawyer at Florida Gas, a pipeline company based in Winter Park, Florida. So Kinder moved to Florida, where he was reunited with Morgan.
By that time, Ken Lay had already been at Florida Gas for several years. But in 1980, Lay left to work for another pipeline company, Transco. Four years later, when Lay took the top job at Houston Natural Gas, one of his first acquisitions was Florida Gas, a move that brought Kinder, Morgan and Lay back together.
After the 1985 merger between HNG and Internorth, which created Enron, Kinder began a steady rise within the new pipeline giant. He quickly became general counsel and chief of staff. In late 1988, he was named vice chairman of the board of directors. Enron's news release announcing the promotion said Kinder's duties included almost everything but making coffee and refilling the copy machine. Kinder was handling "finance and accounting, law, administration, human resources, management information systems, corporate development and corporate affairs," the release said, adding that he "will retain these responsibilities in his new post."
In 1990, Kinder ascended to president and chief operating officer. While almost universally admired at Enron as a shrewd, tough manager, he had his share of bad deals.
The executive was involved in the J-Block gas purchase, which committed Enron to buy North Sea gas for a long term at a high price. Shortly after the agreement, gas prices fell below the price Enron had committed to pay. In 1997, Enron agreed to shell out $440 million to a group of oil companies to settle litigation over the contracts.
Kinder also had a hand in the decision to set up Enron Global Power & Pipelines (EPP), an independent company designed by Enron to move underperforming foreign assets off its books. One former executive has called EPP a "dumping ground" for Enron's bad projects. In 1997, however, Enron bought back all of the EPP shares and replaced them with about $400 million worth of Enron common stock. Although the actual cash costs to Enron of the EPP mess are difficult to discern, the deals caused consternation among Enron's financial personnel, who believed the company was cutting corners.
Even worse was the Dabhol project, negotiated during Kinder's tenure. Engineered by Enron's glamorous deal maker Rebecca Mark (see "Diva of the Deal," October 10), Enron sank about $900 million into the power plant south of Bombay, but it closed in May 2001 after the Indian government quit paying for the hyperexpensive electricity it generated.
While Kinder shares the blame for those deals, many who worked at Enron believe the energy giant never would have failed if he had stayed on. "Kinder made everybody accountable for every penny," says one senior finance person. "When Skilling came in, there were no budgets."
That transition from Kinder to Skilling marked the beginning of the end for Enron. Skilling lacked Kinder's discipline and focus. He also never understood the importance of cash and cash flow. But in retrospect, Kinder's departure from Enron in late 1996 allowed him to really prove his worth.
Ed Randall III, 76, a high-profile Houston investment banker and investor who is now on Kinder Morgan Inc.'s board of directors, calls Kinder "one of the smartest, most capable executives" he's ever known. "In fact," he says, "he may be the smartest."
There are two conflicting stories about why Rich Kinder left Enron. The first one is rather simple: In 1992, Kinder and Lay agreed that Kinder would ascend to the CEO job in five years. Under the plan, Lay would remain chairman but Kinder would be in control of all real decision-making. But by late 1996, Lay and Enron's board of directors reneged and agreed that Lay would remain CEO for another five years.
When informed of the decision, Kinder tendered his resignation. He told another Enron executive that he had no choice, adding, "If you aren't the lead dog, the scenery never changes."
The second version is more entertaining, with a background tied to Lay's tenure at Florida Gas. In about 1980, Lay divorced his wife Judie and moved to Houston to take his new job -- and a new wife, Linda Phillips, who had been his secretary in Florida. She helped him hire a new executive assistant, a petite, smart, ambitious woman named Nancy McNeil.
According to several executives who worked with Lay and Kinder, sometime in 1996 Lay discovered that Kinder, who was married at the time, was having an affair with McNeil. Lay considered it a problem, so McNeil was moved off the 50th floor to get her away from Kinder and Lay's executive offices. One source says they made up excuses about the move, "but everybody knew it was because she was sleeping with Rich." Kinder's wife, Anne, sued him for divorce in 1996. He and McNeil married a short time later.
Kinder left the company and began remaking his life with his new wife, and he also went back to the Big Iron assets that had made Enron successful. He returned to what he once called an "unsexy, dirty business."
At the same time that investors were swooning over Web sites, page views and all the other cyberjargon that came with them, Kinder and partner Bill Morgan focused on businesses that produced cash. Their first acquisition was a small natural gas liquids pipeline bought from Enron for $40 million in 1997. (Sources at Enron say that the pipeline was not part of Kinder's retirement package.) They spent the next several years buying the big tanks, big pipes and big wharves needed to transport the most critical commodities in the U.S. economy: gasoline, natural gas and jet fuel.
Every time Kinder Morgan loads a barge in the Houston Ship Channel with petroleum products, sends gas through a pipeline or stores a few tons of coal or salt, it gets paid. Kinder Morgan operates more than 35,000 miles of pipeline that reach from Mexico to Canada and nearly coast to coast.
It relies on a business structure as uncomplicated as the company's strategies. Kinder Morgan uses master limited partnerships that are Big Oil's equivalent to a real estate investment trust, or REIT. That gives Kinder Morgan a significant tax advantage over corporations because the limited partnerships are exempt from corporate income taxes as long as almost all profits are distributed to investors. Two of Kinder Morgan's three companies pay hefty cash dividends, giving them an effective annual yield of about 7 percent.
The company's top executives are limited to annual base salaries of $200,000, and their bonuses are tied to the company's ability to achieve its published growth targets. Kinder's salary is precisely $1. He gets no bonuses or stock options. But he's no pauper. This year, his holdings will pay him about $15.2 million in cash dividends. If President George Bush succeeds in eliminating the tax on dividends, Kinder could have an extra $5.8 million in his pocket this year.
He's already the third-richest man in Houston. His fortune is exceeded only by those of savvy money manager Fayez Sarofim, who Forbes estimates is worth $1.6 billion (Sarofim is also a big investor in Kinder Morgan), and oilman George Mitchell, who is worth about $1.4 billion.
Yet for all of Kinder's wealth, his companies are known for more than their ability to generate money -- they're also remarkably cheap.
In the six years since leaving the Enron building at 1400 Smith Street, Kinder's headquarters have moved only two blocks. But the corporate philosophy has moved light-years away from the days of Lay.
None of the trappings of the ultrarich can be found in Kinder's nice but hardly spectacular corner office on the tenth floor of One Allen Center. There's no private bathroom or attached conference room. His personal effects consist of a few photos of his wife and family. Rather than a chunky gold Rolex, he wears a plain Swiss Army watch that might have cost $200, tops.
Indeed, when it comes to billionaires, Kinder is a trifle disappointing. As one of his former Enron co-workers put it, "He's basically a boring guy."
The same exec says that Kinder is notoriously punctilious. Wherever Kinder went at Enron, he took a legal pad, which had his to-do list for the day. "It always had a one-page list -- one page only -- and he wouldn't go anywhere until he got that list done. He'd carry that yellow pad everywhere."
Kinder hasn't put any baubles on his yellow pad. Despite his astonishing wealth, he hasn't bought any Caribbean islands, taken up yacht racing or acquired a professional sports franchise. He delights in reminding people that he's tighter than bark on a tree, and nothing shows that penchant more than his attitude toward corporate airplanes.
"Airplanes were Ken Lay's weakness," says Mary Wyatt, who worked at Enron for 14 years and managed the company's aviation department. "Rich always managed to talk Ken out of getting bigger airplanes." Under Kinder, Enron relied heavily on a pair of small relatively inexpensive Cessna Citations. When Kinder left, Lay went on an aircraft buying binge, grabbing up a pair of $10 million planes.
"His seat wasn't cold before we sold the Citations [for $4 million] and bought two Hawker 800s." By the time of Enron's bankruptcy, the fleet was up to six jets, crowned by an ultraluxury Gulfstream V, with a list price of $41.6 million.
Wyatt says that shortly after Kinder left Enron, she jokingly asked if he and Morgan had bought a company plane yet. "I will never have a corporate aircraft," Kinder told her. So far, he's stuck to his pledge.
Even Kinder Morgan executives fly coach unless they want to use frequent flyer miles for first class. During an interview, Kinder told about his commercial flight back from Denver with five other Kinder Morgan executives. Half got upgrades to first class.
"I was one of the three that didn't," said Kinder. "You think that doesn't send a positive signal when you walk through first class and you see three of the people who work for you upgraded and you go and sit your butt down in the back of the plane? You think that wasn't all over the company by Monday morning? 'Hey, Kinder was sitting in the back.' "
Although Kinder abhors the kind of free spending that occurred under Ken Lay at Enron, he has emulated his college pal's approach to political donations. Few businessmen -- in Texas or elsewhere -- have better political connections than Kinder. He's personal friends with George W. Bush's political Einstein, Karl Rove. The two share an interest in history and have been pals since W.'s first race for governor in 1994.
"I was dubious as to whether he could win," Kinder says of Bush's gubernatorial bid. "But I thought, 'What the heck.' " He and other Enron executives donated $146,500 to Bush in that race.
And ever since, Rove hasn't let Kinder sit on his wallet. Through January 2000, Kinder was the tenth-largest individual contributor to Bush's campaigns for governor and president, giving his friend a total of $119,409, according to figures compiled by Texans for Public Justice. Over the past 30 months or so, Kinder has become one of the Republican National Committee's biggest donors, giving nearly half a million dollars to the party.
He and wife Nancy have pumped in many thousands more to GOP candidates in Texas and elsewhere. In addition, during the Florida recount, Nancy Kinder was one of 149 Texans who gave the George W. Bush campaign the maximum donation of $5,000.
Her connections with the Bushes go back further than her husband's. As Lay's primary assistant, she spearheaded two key Houston events for George H.W. Bush: the 1990 Economic Summit of Industrialized Nations and the 1992 Republican National Convention.
Enron donated $250,000 to the convention effort, with Nancy riding herd on the festivities to make sure the corporation got its money's worth. "She was quite a presence," says one source who worked closely with Lay. "She was extremely capable. She had a bossy streak and tended to run things with an iron fist."
The Kinders continue to be key contributors for the Bushes. Early last year, they hosted a fund-raiser at their house in River Oaks for Florida Governor Jeb Bush.
Kinder insists his donations have not given him special access or influence over federal energy policy. "I expected nothing," he says, "and I got nothing."
Closer to home, it's harder for local politicians to determine Kinder's political agenda. "I always thought Kinder was a reluctant political guy. It's Nancy who's interested in that," says George Strong, a political consultant and former Enron lobbyist. "She got that from hanging around with Ken and being his political person. She enjoys hobnobbing with senators and presidents and so forth. They make a great combination."
Although Kinder hasn't been a big giver to local candidates, that could change. In mid-January, he was one of a handful of Republicans who showed up in the River Oaks garage of fellow oilman Michael Zilkha to hear a pitch from mayoral hopeful Bill White, a Democrat and former assistant secretary of energy in the Clinton administration. Kinder calls White a good friend and says, "Nancy and I will help support him."
Kinder's status as a political insider reflects what may be his biggest accomplishment of the last few years: He and his wife have completely escaped the shadow of Enron.
While Ken and Linda Lay have become social lepers, the Kinders are fixtures on the city's social scene. In 2001, they chaired the Museum of Fine Arts' Grand Gala Ball. And like many others of Houston's upper crust, they are among Aspen's elite. (The Kinders have a vacation home on the Roaring Fork River a few miles outside of the upscale resort town.) Last summer, they hosted a cocktail party for bigwigs from the M.D. Anderson Cancer Center, a favorite charity of the Kinders.
Part of Kinder's vast fortune has been put into a foundation headed by him and his wife. He says he plans to leave the bulk of his estate to fund philanthropic endeavors, particularly those involving children and education.
According to documents filed with the IRS, the Kinder Foundation had nearly $23 million in assets as of May 2001. That year, it donated a total of $1.5 million to 68 organizations, most of them in Houston. The biggest recipients were the DePelchin Children's Center, which got $606,800, and M.D. Anderson, which received $216,866. Among the other gifts was $48,350 to a cause near and dear to the Bushes, the Barbara Bush Foundation for Family Literacy.
If Kinder follows through with his pledge to leave his money to the foundation, he could become Houston's biggest philanthropist. If he quit now and gave all his money to the Kinder Foundation, its assets would be equal to those held by the city's traditional philanthropic powerhouse, the Houston Endowment, which was funded by another former king of Houston, Jesse Jones.
Since 1997, Rich and Nancy Kinder have been living in the heart of River Oaks, in a $2.8 million home containing almost 10,000 square feet of living space. It's on Del Monte Drive, just a few doors down from the home built (but never occupied) by former Enron chief financial officer Andy Fastow.
But the Kinders won't be staying there much longer. In early 2001, they bought a lot on Lazy Lane, some 3.5 acres valued at more than $4 million, and began constructing a gargantuan residence.
During a recent interview, Kinder appeared to be taken aback only once, when he was asked the obvious question: A man who has shunned fancy jets and fleets of Ferraris, a man who prides himself as being Mr. Practicality -- how is it that he's now building such an enormous house?
Kinder went silent before eventually replying, "It's a good question." After another pause of nearly ten seconds, he said, "It's a lovely site, and we wanted to build something we could live in for the rest of our lives."
For all of Kinder's aw-shucks behavior and I-don't-really-need-a-lot-of-stuff attitude, he's made it into the leagues of the Big Rich. In Houston, nothing shows you've made it better than having a mammoth house in the 77019 zip code.
The house lines the city's most prestigious street: Lazy Lane. It features a pair of two-story wings joined by a 30-foot-high rotunda. Lush grass and tall pine trees surround what will probably be about 20,000 square feet. Kinder insists he doesn't know how many square feet it contains. "It'll be a nice house," he says. "We'll enjoy it, I'm sure."
Real estate people estimate the cost of building the mansion, to be finished around the end of the year, at $10 million to $12 million. It's almost directly across the street from the entrance to Bayou Bend, the swankienda built on the banks of Buffalo Bayou by heiress Ima Hogg.
The land the Kinders will soon occupy was once owned by former county judge Roy Hofheinz, the legendary real estate magnate and promoter best known as the driving force behind the building of the Astrodome.
Kinder himself is a promoter, a man who thinks big and has brought a different business model to Houston. And like Hofheinz, he's erecting a giant monument to his own success, a fillip to his ego. It's been largely forgotten that in 1975, ten years after the Astrodome was finished, Hofheinz lost control of his empire and was forced to sell out.
Today, Rich Kinder sits atop his own empire. His palace is nearly complete. It only remains to be seen how long his reign will last.