Kinder Morgan Inc. (KMI: NYSE) priced their much anticipated IPO of 95.5 million shares at $30 per share (original terms were for 80M shares @ $26-29). The $2.87B raised in this offering makes KMI the largest energy IPO in over a decade. On the heels of a successful $1.64B IPO of Nielsen Holdings N.V. (NLSN: NYSE), KMI represents the second large private equity backed IPO in the last few weeks to receive solid market interest. A strong debut from KMI would surely be a boon to private equity firms that reportedly have a large backlog of deals to bring public, including a few other high profile names that have already filed in 2010 such as HCA and Toys R Us.
KMI owns the general partner and approximately 11% of the limited partner interests in Kinder Morgan Energy Partners, LP. (a publicly traded pipeline limited partnership: KMP: NYSE). The general partnership interest drives the majority of the cash flow to KMI, approximately 86%. The underlying entity, KMP (from the prospectus): Is one of the largest energy transport and storage companies in North America based on market cap; they are the largest independent transporter of petroleum products in the U.S. (by barrels transported = approx 1.9M per day); they are the 2nd largest transporter of natural gas in the U.S.; the largest transporter of carbon dioxide in the U.S.; and the second largest crude producer in Texas.
The offering is being led by underwriters Goldman Sachs and Barclays. All of the shares in the offering are being sold by selling shareholders including: Goldman Sachs, Carlyle Group, Riverstone and Highstar. Post offering the public will own 11% of KMI, the sponsors will own 52%, and the management/original shareholders will own 37%.
Despite none of the proceeds going to the company there has been strong investor interest in the offering from the start, which can typically point to the fact that the offering was upsized and priced above the range. Kinder Morgan Inc. offers many investors an opportunity to invest in a company like Kinder Morgan Energy Partners LP that typically do not have the opportunity because of the MLP structure and tax related issues. KMP has had a solid track record of cash distribution growth at a 40% CAGR from 1996 to 2011 (estimate), from $17M in 1996 to $2.63B. This has translated into a 52% CAGR for the cash distribution received by KMI. Based on the $30 pricing, the KMI is estimating a 3.87% forward dividend yield.
Friday’s trading of KMI will be the tell-tale sign of how successful the offering turns out, but the early view looks positive, and the private equity firms are chomping at the bit.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in KMI over the next 72 hours.