Kinder Morgan Files IPO to Raise $1.5 Billion, Backed by Goldman, Carlyle

Kinder Morgan Inc., the Houston- based pipeline company taken private in a $22 billion leveraged buyout three years ago, plans to raise as much as $1.5 billion in an initial public offering.

Kinder Morgan will convert its parent, Kinder Morgan Holdco LLC, into a corporation from a limited liability company and rename it Kinder Morgan Inc., the company said in a statement. Kinder Morgan Holdco’s unitholders will become stockholders in the new Kinder Morgan Inc.

The company currently named Kinder Morgan Inc., which is registered in Kansas, will change its name to Kinder Morgan Kansas Inc.

“It seems like the market has been pretty receptive for IPOs, so that would be a good sign for Kinder Morgan,” said Jack Ablin, chief investment officer at Chicago-based Harris Private Bank, which oversees $55 billion.

All of the common stock in the offering will be sold by current investors, including funds advised by or affiliated with Goldman Sachs Group Inc., Highstar Capital LP, Carlyle Group and Riverstone Holdings LLC. Kinder Morgan said it will not receive any proceeds from the offering. Those companies helped finance the transaction that took the company private in 2007.

“You’ve got private equity who have owned their interest for a number of years and this is their way to exit,” said Mark Reichman, an analyst with Madison Williams & Co. in Houston, who has an “accumulate” on Kinder Morgan Energy Partners LP units and doesn’t own any.

Board Structure

Kinder Morgan operates the second-biggest U.S. pipeline network by volume through its control of Kinder Morgan Energy Partners LP, which has a market value of $21.5 billion. Kinder Morgan operates or owns interests in 37,000 miles (59,546 kilometers) of pipelines and about 180 terminals, handling natural gas and other hydrocarbons.

Billionaire Chief Executive Officer Richard Kinder owns about a third of the company. Kinder will have the right to nominate five of the company’s 13 board members and will keep his 31 percent share, according to a U.S. Securities and Exchange Commission filing. Goldman owns 25.2 percent of the company, Highstar owns 16 percent and Riverstone and Carlyle own 11.2 percent each. The rest of the company is owned by managers or original stockholders, according to the SEC filing.

Company history

Richard Kinder formed Kinder Morgan in 1997 with a group of investors after he was passed over for the top job at Enron Corp. Started with an initial investment of $40 million, the company has grown to one of the biggest pipeline firms in the U.S. Forbes Magazine estimates Richard Kinder’s personal wealth at about $3.6 billion.

Kinder and the private equity firms paid $107.50 per share for the company in 2007. The group also assumed $7 billion in debt, bringing the total value of the buyout to $22 billion.

Carlyle Partners IV’s $840.7 million investment in Kinder was worth $1.3 billion at the end of the first quarter, according to an investor letter updating clients on the fund’s performance.

The company said it intends to raise its dividend over time by increasing the partnership’s cash that can be distributed to unitholders, according to a filing with the Securities and Exchange Commission. The first dividend may be paid in May 2011.

The company did not disclose the offering price of the initial shares, or the date of the potential sale.

“This had very strong investor interest when he took it private in the first place,” John Edwards, an analyst with Morgan Keegan & Co. in Houston, who has an “outperform” on Kinder Morgan Energy Partners and doesn’t own any, said in a telephone interview. “My expectation is that it will be very strong coming out. They’re a well-run company.”

IPO Market Improves

Mutual funds can also invest in stocks more easily than in master limited partnerships, making the initial public offering appealing to a wider range of investors, Edwards said.

Kinder Morgan’s filing comes after the biggest week for U.S. initial sales since March 2008, according to data compiled by Bloomberg. The IPO market has stabilized after 61 offerings were postponed or withdrawn this year, with companies from General Motors Co. to LPL Investment Holdings Inc. raising more than $17 billion combined last week as the Standard & Poor’s 500 Index traded near a two-year high.

A 15 percent gain in U.S. stocks since the end of June has helped leveraged-buyout firms complete IPOs for a dozen of their companies, data compiled by Bloomberg show. More than 80 percent of those companies backed by private-equity firms are trading above their IPO price, compared with less than half of those that went public in the first six months of 2010.

To contact the reporters on this story: Mike Lee in Dallas at Mlee326@blooomberg.net, Noah Buhayar in New York at nbuhayar@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net.

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