IPO Preview: Western Gas Equity Partners, LP

| About: Western Gas (WGP)

Based in The Woodlands, TX, Western Gas Equity Partners, LP (NYSE:WGP) scheduled a $300 million IPO with a market capitalization of $4.2 billion at a price range midpoint of $20, for Friday, December 7, 2012.

Six IPOs are scheduled for next week. The full IPO calendar is here.

S-1 filed December 3, 2012.

Manager, Joint Managers: Barclays; Citigroup; Deutsche Bank; Morgan Stanley. Co Managers: Goldman; RBC; UBS; Wells Fargo; BMO; Global Hunter; Janney Montgomery Scott; Ladenburg Thalmann; Tudor, Pickering, Holt.

WGP was formed to own three types of partnership interests in Western Gas Partners, LP (NYSE: WES). WES is a growth-oriented Delaware master limited partnership organized by Anadarko Petroleum Corporation (NYSE: APC) to own, operate, acquire and develop midstream energy assets.

WGP owns no operating assets.

WGP's only cash-generating assets consist of its partnership interests in WES, which post-IPO will consist of the following:

• 2,080,302 WES general partner units, representing a 2.0% general partner interest in WES;

all of the incentive distribution rights in WES, which entitle us to receive increasing percentages, up to the maximum level of 48.0%, of any incremental cash distributed by WES as certain target distribution levels are reached in any quarter; and

• 46,570,413 WES common units, representing a 44.8% limited partner interest in WES.

Western Gas Partners was spun out of the energy midstream business of Anadarko Petroleum in May of 2008. WES has a $4.6 billion market capitalization. APC has a $37 billion market capitalization.

WES's IPO price was $16.50 in May, 2008. Recently WES traded at $47.18, up 186% from the IPO price. Since January 2011 APC has declined from $79.48 to $75.85.

APC, dividend rate: .49%
WES, dividend rate: 4.25%
WGP, initial dividend rate: 3.3%

WGP is currently receiving WES distributions at the highest level on the incentive distribution rights. WGP receives 48.0% of the cash that WES distributes in excess of $0.450 per common unit.

WGP has been informed WES plans to approve an increase in WES's distribution with respect to the fourth quarter of 2012 to $0.52 per WES common unit.

As a result, the cash distributions WGP receives from WES (with respect to the incentive distribution rights) will increase more rapidly than those with respect to WES common and general partner units.

WGP was set up as a public vehicle to participate in expected incentive distribution growth from WES.

WGP's organizational chart, post-IPO, is here.

WGP's IPO should appeal to current Anadarko and Western Gas Partners' shareholders, because the dividend growth rate should be higher (because of 100% ownership of incentive distribution rights), although it is starting at a lower initial dividend rate (3.3%) than WES, which currently pays 4.25%.

Therefore, IPOdesktop believes WGP will edge up post IPO and is a buy on the IPO.

Western Gas Partners, LP (NYSE: ) is a growth-oriented Delaware master limited partnership formed by Anadarko to own, operate, acquire and develop midstream energy assets

As of December 31, 2011, the Company's assets consist of 11 gathering systems, seven natural gas treating facilities, seven natural gas processing facilities, one NGL pipeline, one interstate pipeline, and interests in a gas gathering system and a crude oil pipeline. On January 13, 2012, the Partnership completed the acquisition of Anadarko's 100% ownership interest in Mountain Gas Resources, LLC. In August 2012, it acquired an additional 24% membership interest in Chipeta Processing LLC

Public unitholders will own 15,000,000 common units, representing a 7.2% limited partner interest in WGP;

Anadarko will own 193,531,973 common units, representing a 92.8% limited partner interest in WGP.

WGP expects to receive net proceeds of $281.5 million from the IPO. Proceeds are allocated as follows:

To purchase from WES 5,997,174 common units representing limited partner interests in WES for $275.9 million; and

To make a capital contribution to WES on behalf of WES GP of $5.6 million in exchange for 122,391 WES general partner units in order to maintain WES GP's 2.0% general partner interest in WES.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

About this article:

Tagged: , , , Oil & Gas Equipment & Services, Alternative Investing, SA Submit
Problem with this article? Please tell us. Disagree with this article? .