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Kinder Morgan Shares Rise After Biggest LBO-Backed U.S. IPO

Friday, 11 Feb 2011 10:16 AM

Kinder Morgan Inc., the energy- pipeline company whose owners include the Carlyle Group and Goldman Sachs Group Inc., rose as much as 6.7 percent in its first day of trading in New York.

The company, which is trading again after it was taken private in 2007, raised $2.9 billion selling a 13.5 percent stake in the biggest U.S. initial public offering backed by leveraged-buyout firms. The shares rose $2.02 to $32.02 at 10:05 a.m. in New York Stock Exchange composite trading.

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 unitholders, 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, 23 percent more than proposed, to investors at $30 each, according to a company statement yesterday. It had proposed to sell 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, and New York-based Highstar Capital LP and Riverstone Holdings LLC, according to the statement. Combined, they sold 13.5 percent of the company’s interest, it said.

Underwriter Options

Co-founder Richard Kinder’s 31 percent stake remained unchanged, according to an SEC filing today.

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.

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