Kinder Morgan Plans Largest U.S. Energy IPO Since 1998

Kinder Morgan Inc., the pipeline company taken private in 2007, is proposing to sell shares for as much as $29 in what would be the largest initial public offering by a U.S. oil and natural-gas company since 1998.

The offering would raise as much as $2.3 billion by selling 80 million shares, according to a filing with the U.S. Securities and Exchange Commission today. The share sale will be the biggest by a U.S. oil and gas company since Conoco Inc. raised $4.4 billion in 1998, according to data compiled by Bloomberg.

At the midpoint of its offer range, the sale values Houston-based Kinder Morgan at $19.4 billion, according to Bloomberg calculations. The offering is for as much as 13 percent of the parent company if underwriters exercise options to buy 12 million additional shares.

Given that Kinder’s largest asset is its stake in Kinder Morgan Energy Partners LP, a $22 billion pipeline partnership, the total valuation “does seem a tad high,” Andy DeVries, an analyst with New York-based CreditSights Inc., said in an e- mail.

“It could be they’re just trying to price aggressively and create buzz,” said Jack Ablin, chief investment officer with Harris Private Bank of Chicago, which oversees $55 billion. This is an "ideal" time to bring such an IPO, because the market has been receptive this year, he said.

Goldman’s Stake

The stake in Kinder is being sold by the four companies that helped take the company private in 2007, Goldman Sachs Group Inc., Highstar Capital LP, Carlyle Group and Riverstone Holdings LLC, own about 64 percent of the stock and will retain ownership of about half the company.

Their original investment was worth $7.8 billion, DeVries said.

At the midpoint of the $26 to $29 share range, Goldman Sachs’ 25 percent stake before the offering is worth $4.9 billion. Highstar’s 16 percent stake is worth $3.1 billion, and the 11 percent stakes owned by Carlyle and Riverstone are each worth $2.2 billion.

Goldman’s stake may drop as low as 20 percent if the offering’s underwriters exercise an option to buy the additional shares, according to the filing. Highstar Capital’s stake would then drop to about 13 percent. Carlyle Group’s and Riverstone Holdings’ stake would fall to about 9 percent each.

Kinder’s Shares

Goldman and Barclays Plc are acting as joint book-running managers for the offering. Bank of America Merrill Lynch, Citigroup, Credit Suisse Group AG, Deutsche Bank, JPMorgan Chase & Co., Wells Fargo & Co., Madison Williams & Co., Morgan Keegan Inc., Raymond James Financial Inc., RBC Capital Markets and Simmons & Co. International are acting as co-managers for the offering.

Kinder Morgan’s Chief Executive Officer, Houston billionaire Richard Kinder, will keep 31 percent of the stock. No member of the company’s management is selling shares.

Based on nine-month net earnings data from the filing, Kinder Morgan earned $177 million in profit last year. At the midpoint price, that would mean a price-to-earnings ratio of 25. Enterprise Products Partners LP, the biggest U.S. pipeline company, traded at 21.56 times earnings yesterday, according to Bloomberg data. Plains All American Pipeline LP traded at 28.09 times earnings and Energy Transfer Partners LP traded at 33.09.

The company will pay its first dividend of about 29 cents a share in May, Kinder Morgan said in a Securities and Exchange Commission filing on Jan. 26. Total dividends this year are expected to be $820 million, according to that filing.

Kinder Morgan is the second-biggest U.S. pipeline operator by volume, with 37,000 miles (60,000 kilometers) of pipelines and about 180 terminals.

Kinder Morgan is currently controlled by parent Kinder Morgan Holdco. After the public offering, Kinder Morgan Holdco will be converted to a corporation from a limited liability company, according to last week’s filing.

It will be renamed Kinder Morgan Inc. and the unitholders of Kinder Morgan Holdco will become stockholders in the new company. The company currently named Kinder Morgan Inc., which is registered in Kansas, will change its name to Kinder Morgan Kansas Inc.

To contact the reporter on this story: Mike Lee in Dallas at Mlee326@blooomberg.net

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

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