initial public offerings (IPOs) trading on American exchanges

Saturday, February 5, 2011

Pipeline giant Kinder Morgan readies IPO

Shareholders selling $2 billion in stock; firm went private in 2007

(MarketWatch) — Kinder Morgan Inc. plans to return as a publicly traded company late next week in a $2 billion initial public offering, with the pipeline stakeholder looking at opportunities to deliver domestic oil and natural gas to market.

With energy companies ramping up their U.S. drilling efforts to produce shale gas and extract pockets of oil, Kinder Morgan and other pipeline firms plan to expand. It’s these prospects for growth and access to the regular dividends offered by the pipeline business that may attract investors to the deal.

Private-equity shareholders are getting ready to sell 80 million shares of Kinder Morgan at an expected price of $26 to $29 a share, for proceeds of about $2.2 billion. Underwriters of the IPO also have the right to exercise the sale of 12 million additional shares, worth an additional $330 million in proceeds.

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In assessing the offering, John Fitzgibbon of rated the Kinder Morgan IPO two stars out of a possible five, with a projected premium of 50 cents to $1 a share in the stock’s first day of trading.

The stock is expected to debut on Feb. 11 on the New York Stock Exchange, under the symbol “KMI.”

Citing the “quiet period” required of companies going public, a Kinder Morgan representative declined to comment on the deal and referred inquiries to the company‘s IPO prospectus.

Park Shaper, 42, director and president of Kinder Morgan, said in an interview published on Jan. 1 by Oil & Gas Financial Journal that the company hopes to capitalize on growth in domestic natural-gas production from shale.

“We have a presence in the Haynesville, Eagle Ford and Marcellus” shale fields, Shaper commented. “We see opportunities in each one, but especially Eagle Ford, as it’s on top of existing assets that we currently own that move natural gas out of south Texas. … Clearly there is a lot of activity around shale. There will be need for incremental infrastructure development around it, and we think our existing asset base leaves us very well positioned to participate in that.”

As partial owner of one of the largest networks of crude and natural-gas pipelines throughout the United States, Kinder Morgan plans to offer stockholders an estimated dividend of 29 cents a share per quarter in 2011. All told, Kinder Morgan said it’ll pay $820 million in dividends in 2011 to shareholders, up from $700 million in 2010.

“Our business objective is to increase dividends to our stockholders,” the company said in its IPO prospectus.

Kinder Morgan reported $133.4 million in net income in the first nine months of 2010, down from $583.4 million in the year-ago period. Revenue rose to $6.24 billion from $5.24 billion. The company ended Sept. 30 with total assets of nearly $29 billion.

The debt total is listed as $11.7 billion and Kinder Morgan said its large amount of variable-rate debt makes it “vulnerable to increases in interest rates.”

Other pipeline companies in the energy industry include Enterprise Products Partners LP (NYSE: EPD) , TransMontaigne Inc. (NYSE:TLP) , Plains All American Pipeline LP (NYSE:PAA) , TransCanda Inc. (NYSE:TRP) and El Paso Corp. (NYSE: EP)

With 707 million shares outstanding after the IPO, Kinder Morgan will carry a total market capitalization of $19.4 billion.

That’s about $3 billion less than the announced transaction price of $22 billion in 2006, when Kinder Morgan first set plans to go private.

At the time, the deal was the largest U.S. leveraged buyout in 17 years, with the pipeline firm’s top executives teaming up with Goldman Sachs Group Inc., Carlyle Group, Riverstone Holdings and American International Group Inc. (NYSE:AIG)

Since going private, Kinder Morgan sold assets to cover debt and renamed the company Knight Inc. between June 2007 and July 2009. After that, Knight Holdco LLC was renamed Kinder Morgan Holdco LLC.

Private investors

In the upcoming IPO, private-equity funds managed by Goldman Sachs will sell 31.8 million shares, while investment funds associated with Carlyle/Riverstone Global Energy and Power Fund III will sell 14 million shares; Highstar Capital will sell 20.1 million shares.

Goldman Sachs (NYSE:GS) is also a lead underwriter for the IPO, along with Barclays Capital.

Richard Kinder, 66, director, chairman and chief executive of Kinder Morgan, won’t sell any stock in the IPO, but will hold 216.5 million shares worth about $595 million after the company goes public.

Kinder Morgan owns the general-partner interest and approximately 11% of the limited-partner interests of Kinder Morgan Energy Partners LP (NYSE: KMP) , a pipeline limited partnership, known as KMP.

Formed in 1992, the partnership ranks as one of the largest energy transportation and storage companies in North America. Its market cap is now $22.5 billion.

In addition, Kinder Morgan Management LLC (NYSE: KMR) , a subsidiary that manages the partnership, carries a market cap of $5.9 billion.

KMP operates about 8,400 miles of refined petroleum-product pipelines that deliver gasoline, diesel fuel, jet fuel and natural-gas liquids, as well as 60 associated product terminals across the United States.

The partnership also operates about 15,000 miles of natural-gas transmission pipelines and gathering lines, plus natural-gas storage, treating and processing facilities.

Kinder Morgan Energy Partners traces its roots to 1997, when a group of investors led by Richard Kinder and former Kinder Morgan Vice Chairman William Morgan acquired the general partner of a publicly traded pipeline limited partnership called Enron Liquids Pipeline LP, according to Kinder Morgan’s website.

KMP now ranks as the largest publicly traded master limited partnership in the United States, with an enterprise value of more than $30 billion and approximately 8,000 employees, the company said.

In 1999, Kinder Morgan took over KN Energy, a natural-gas pipeline company based in Lakewood, Colo. Following the transaction, KN became Kinder Morgan Inc., Kinder Morgan’s second publicly traded company, which then went private.

Kinder Morgan Management LLC was formed in 2001, “to facilitate institutional ownership of KMP equity,” the company said.

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