Lone Pine Capital Files 13G on Kinder Morgan: A Quick Look at the Warrants ~ market folly

Friday, October 19, 2012

Lone Pine Capital Files 13G on Kinder Morgan: A Quick Look at the Warrants

Steve Mandel's hedge fund firm Lone Pine Capital recently filed an amended 13G with the SEC on shares of Kinder Morgan (KMI).  Per the filing, Lone Pine has disclosed a 9.1% ownership stake in KMI with 71,780,836 shares.

Their ownership stake is actually comprised of just over 17.6 million shares of common stock and over 54.1 million Kinder Morgan warrants (explained below).  This means that their actual position size remains unchanged since the end of the second quarter when they filed their 13F with these same totals.
It's worth noting that their stake in Kinder Morgan came by way of the El Paso merger.  Lone Pine originally had a large stake in EP and when the company completed its deal, Mandel's firm received KMI shares, cash and KMI warrants (KMI-WS or KMIIV depending on broker).

Due to the deal, KMI now expects its dividend per share to grow at an average annual rate of 12.5% through 2015, according to their recent announcement.

Kinder Morgan Warrants

Lone Pine owns just over 54.1 million warrants as of this most recent disclosure and this is the same amount of warrants they've owned since the second quarter.

Since completion of the merger between EP and KMI, the warrants have doubled in value to $3.86 while KMI shares are up around 7%.  A warrant gives the owner the right to buy 1 share of KMI at $40 and they expire in May 2017 (KMI currently trades just over $35).

Kinder Morgan in the past announced they were buying back $250 million in warrants.  In their Q3 conference call, they mentioned they have bought back $138 million worth of warrants and will continue to buy up until the $250 million mark.

At the end of Q2, Lone Pine was the largest institutional holder of these warrants.  Other large owners at the time include Brookside Capital, Soroban Capital, Hound Partners, Hutchin Hill Capital, Tiger Management, King Street Capital, Eton Park Capital, and Farallon Capital among many more. 

Lone Pine is also the sixth largest institutional holder of KMI common stock as well.  So, it will be interesting to see what Lone Pine does with their various KMI positions in the future and whether or not other major hedge funds continued to hold in Q3.

About Kinder Morgan

Per Google Finance, Kinder Morgan "owns and manages a diversified portfolio of energy transportation and storage assets. The Company operates in five business segments: Products Pipelines-KPM, Natural Gas Pipelines-KMP, CO2-KMP, Terminals-KMP and Kinder Morgan Canada-KMP."

For more from this hedge fund, we've detailed Lone Pine's portfolio activity here.

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