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Kinder Morgan Rises After Biggest LBO-Backed U.S. IPO

Kinder Morgan Raises $2.9 Billion in Biggest LBO-Backed IPO
A sign hangs from a fence at a Kinder Morgan facility at the harbor in Los Angeles, California. Photographer: Tim Rue/Bloomberg

Kinder Morgan Inc., the energy-pipeline company whose owners include the Carlyle Group and Goldman Sachs Group Inc., gained 3.5 percent in its first day of trading after expanding its initial public offering.

The company, which is trading again after it was taken private in 2007, raised $2.9 billion or 23 percent more than it sought in the biggest U.S. IPO backed by leveraged-buyout firms. Kinder Morgan’s shares closed at $31.05 in trading on the New York Stock Exchange, after advancing as much as 7.1 percent.

Kinder Morgan completed its offering after Nielsen Holdings NV’s initial sale last month set the previous U.S. record for a private equity-backed IPO. The deals are a boost to leveraged buyout firms betting the Standard & Poor’s 500 Index’s rally to the highest level since June 2008 will increase demand for sales of debt-fueled acquisitions completed as credit markets started to freeze four years ago.

“Now that people are seeing deals that are really coming out and doing well, they’re willing to come back to the table,” said Daniel Genter, president of RNC Genter Capital Management in Los Angeles, which oversees about $3.7 billion. “People are willing to come back into the market with liquidity and extend their risk profile. It’s the perfect time for private equity to unwind deals.”

Most of Kinder Morgan’s assets are owned by Kinder Morgan Energy Partners LP, a master-limited partnership whose units are publicly traded. The partnership structure has tax benefits for individual unit holders, though some institutional investors avoid the structure because of tax issues and liquidity, said Kevin Gallagher, a vice president at Dallas-based Swank Capital LLC, which owns a group of funds that invest in MLPs.

Biggest Sale

Kinder Morgan sold 95.5 million shares, a 13.5 percent stake, to investors at $30 each, according to a company statement yesterday. It had proposed to raise $2.3 billion selling 80 million shares at $26 to $29 apiece, according to a Feb. 3 filing with the U.S. Securities and Exchange Commission.

The price indicates “a ton of demand for this deal,” Gallagher said. Selling shares as a corporation rather than an MLP “opens up the potential universe of investors,” he said.

The share sale was the biggest by a U.S. oil and natural-gas company since Conoco Inc. raised $4.4 billion in 1998, according to Bloomberg data.

All of the shares offered were owned by Carlyle, Goldman Sachs, New York-based Highstar Capital LP and Riverstone Holdings LLC, leaving them with a combined ownership of 50.1 percent, according to an SEC filing today. Co-founder Richard Kinder’s stake remained unchanged at 30.6 percent, the filing said.


Kinder Morgan plans to pay annual dividends of $1.16 in 2011, or 3.9 percent of the offering price, today’s filing said. Targa Resources Corp., the Houston-based gas pipeline company that completed an IPO on Dec. 6, planned a quarterly dividend payout of about 26 cents a share, or an annualized 3.3 percent of yesterday’s closing share price of $30.98, its prospectus and data compiled by Bloomberg showed.

“Kinder Morgan is still attractive to investors because it has a good history of dividend-payout increases,” said Francis Gaskins, president of in Marina del Rey, California. “People are buying the potential of future dividend increases.”

Underwriter Options

The offering price valued the pipeline owner at $21.2 billion. Carlyle’s stake before the IPO was worth about $2.4 billion based on that figure, more than double the initial investment of $882 million that the Washington-based firm disclosed in a March 31 investor letter.

Kinder Morgan’s underwriters, led by Goldman Sachs of New York and London-based Barclays Plc, have the option to buy an additional 14.3 million shares within 30 days after the offering, according to the statement.

Nielsen, the New York-based television-ratings company, raised $1.64 billion from its Jan. 25 IPO, which two days later expanded to $1.89 billion after underwriters led by JPMorgan Chase & Co. and Morgan Stanley opted to buy more shares, according to Bloomberg data.

Kips Bay, Wave2Wave

Kips Bay Medical Inc. slipped 0.9 percent to close at $7.93 in its first day of trading on the Nasdaq Stock Market after the developer of supports for blood vessels yesterday raised $16.5 million in its IPO.

The Minneapolis-based company sold 2 million shares at $8 apiece after slashing the size of its offering by as much as 40 percent, according to data compiled by Bloomberg. The company’s shares had gained as much as 2.8 percent.

Kips Bay’s offering was led by Rodman & Renshaw LLC of New York and Fort Lauderdale, Florida-based Newbridge Securities Corp.

AcelRx Pharmaceuticals Inc. tumbled 9 percent to close at $4.55 in its first day of trading on the Nasdaq after the developer of treatment therapies for post-operative pain yesterday raised $40 million in its initial offering. The company’s shares had gained as much as 1.8 percent.

The Redwood City, California-based company, which had initially sought as much as $81 million, sold 8 million shares at $5 each after slashing the size of its IPO by 50 percent on Feb. 9, according to data compiled by Bloomberg.

Wave2Wave Communications Inc., the Hackensack, New Jersey-based broadband service provider that had sought $14 million, yesterday withdrew its IPO, according to an SEC filing.

The company, which first filed for an initial sale in February 2010, had previously postponed its offering twice and had originally sought to raise as much as $91 million, Bloomberg data show.

Clarus Therapeutics Inc., the Northbrook, Illinois-based developer of an experimental testosterone pill for men that had sought $65 million this week, postponed its offering, according to data compiled by Bloomberg.

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