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July 25 (Bloomberg) -- Oneok Inc., the Oklahoma-based operator of natural gas pipelines, said it will spin off its utility business, sending shares up the most in more than four years to lead the Standard & Poor’s 500 Index today.

The new gas distribution company, to be called One Gas Inc., will deliver the heating and power plant fuel to 2 million homes and businesses in Oklahoma, Kansas and Texas, Tulsa-based Oneok said in a statement today. Oneok will remain the parent of Oneok Partners LP, a master-limited partnership.

The spinoff will appeal to shareholders seeking higher payouts, the company said. Oneok expects to raise its dividend afterward to compete with other parents of pipeline partnerships, and said One Gas will pay a dividend competitive with local fuel distributors. The number of utility shares to be distributed will be determined by the time the spinoff is completed, which is anticipated in the first quarter.

“Shareholders will receive stock in a pure, 2 million customer strong gas utility,” Carl Kirst, Houston-based analyst for BMO Capital Markets, wrote today in a note to clients. One Gas “is not being loaded up with debt,” he said.

Oneok has traded at a discount to rival companies that control pipeline partnerships in part because of the utility business, he wrote.

Oneok increased 26 percent to $53.77 at the close in New York, the biggest intraday gain since Oct. 13, 2008.

Reducing Debt

The spinoff will free excess cash flow that had been funding the utility, the company said. Oneok will reduce its debt with proceeds from a one-time cash distribution payment from One Gas, estimated at $1.1 billion to $1.2 billion.

One Gas is expected to have a market capitalization between $1.7 billion and $2 billion, Pierce Norton II, executive vice president, commercial for Oneok, who will become chief executive officer of One Gas, said on a call with reporters.

Morgan Stanley is financial adviser to Oneok for the spinoff, Spinnaker Strategic Advisory Services LLC is strategic adviser and Skadden, Arps, Slate, Meagher & Flom LLP is legal counsel.

(Oneok will hold a conference call to discuss the transaction at 10 a.m. New York time tomorrow, accessible on LIVE <GO>.)

To contact the reporters on this story: Tina Davis in New York at; Jim Polson in New York at

To contact the editor responsible for this story: Susan Warren at

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