Kinder Morgan raises $2.86 billion in market debut

NEW YORK -- Another sign that the IPO market is getting hotter: The pipeline company Kinder Morgan raised $2.86 billion in the biggest ever initial public offering for a U.S. company backed by private equity firms.

Kinder Morgan was able to sell more shares at a higher price than it anticipated. Investors pushed shares more than 3 percent above their $30 offering price in afternoon trading.

The size of the deal and the market's positive response are encouraging signals to companies eager to access the public markets.

"IPO market activity has been steadily improving over the past couple of years and we've had some very strong performance lately," said Nick Einhorn, an analyst at Renaissance Capital. "We're going to see a continuation of this trend."

Last month Nielsen Holdings NV's IPO raised $1.9 billion, then a record for a private equity-backed company.

Kinder Morgan, based in Houston, moves gas, oil and other fuels through 37,000 miles of pipeline and 180 terminals. Investors hope the company will benefit from increasing production from newly unlocked natural gas and oil in shale formations across the U.S.

All of the proceeds from the offering will go to the owners, Goldman Sachs, Highstar Capital LP, The Carlyle Group and Riverstone Holdings, which took Kinder private in 2007.

Private equity firms that bought companies in 2005 and 2006 have been itching to take them public, but have been waiting for market conditions to improve.

Both the pace and size of deals have picked up sharply. So far this year 21 firms have raised $6.7 billion in initial public offerings in the U.S., up from 14 deals worth $1.3 billion during the same period last year, according to Dealogic.

Offerings worth an estimated $22.7 billion are pending. Half of those are for companies owned by private equity firms. Of last year's $44.5 billion worth of completed IPOs, 34 percent were backed by private equity firms.

Freescale Semiconductor, a maker of processors and microcontrollers based in Austin, Texas, taken private in 2006, announced Friday it would seek to raise $1.5 billion in an IPO.

Other big private equity deals are expected soon, including HCA Healthcare, the Nashville-based owner of 164 hospitals in 20 states, which was taken private in 2006 and Toys "R" Us, based in Wayne, N.J., which has been private since 2005.

While conditions have improved, the market still won't go for companies with uncertain futures, according to Francis Gaskins, President of IPOdesktop. For an IPO to succeed, Gaskins says, the company must be profitable, growing, and have name recognition.

"Kinder Morgan is an instant blue chip," he said.

Kinder's stable cash flow and prospect for growing its dividend helped draw investors to the offering. Its dividend yield stands at 3.7 percent. "Investors are looking for yield and there aren't a ton of places you can find it," said Einhorn.

Targa Resources, a natural gas services company similar to Kinder, had a well-received IPO in December. At $32.94, its shares are up about 50 percent from the offering price.

Goldman Sachs, Highstar Capital LP, The Carlyle Group and Riverstone Holdings, sold 95.5 million shares for $30 each. That's about 20% of the firms' stake in the company. Kinder Morgan had previously expected to sell 80 million shares for $26 to $29 apiece.

Shares traded at $31, up $1, on the New York Stock Exchange Friday under the symbol "KMI."

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Associated Press Business Writer Tali Arbel contributed to this report.