Carl Icahn, who failed to find a buyer for oil processor CVR Energy Inc. (CVI:US) after taking over the company last year, is poised to almost double his $2 billion investment with the initial public offering of the company’s refineries today.
CVR Refining LP (CVRR:US), which is seeking as much as $520 million in the IPO, would become at least the third refiner in the past year to sell its plants to the public and distribute operating profits to investors. CVR Refining, a master-limited partnership, is scheduled to offer 20 million units today for $24 to $26 each, the Sugar Land, Texas-based partnership said in a regulatory filing.
The IPO plan and an extended rally in the past year for refiners have fueled record gains for CVR Energy and for Icahn, who acquired 82 percent of CVR Energy when most of the company’s investors tendered their shares to him for $30 in May. The shares, which have more than doubled in the past year, rose 2.9 percent to $53.19 yesterday in New York.
The value of Icahn’s 82 percent holding in CVR Energy is now worth $3.79 billion, an 88 percent increase from the $2 billion he paid to acquire CVR shares last year, according to data compiled by Bloomberg.
“A lot of times the guy’s got a good idea, but sometimes he gets lucky, too,” said Louis Meyer, a New York-based special situations analyst at Oscar Gruss & Son Inc. “This time he was smart and lucky.”
An abundance of cheap U.S. oil was at the heart of record profits in 2012 for CVR and some other U.S. refiners. Profits at refiners vary based on the margin between the cost of crude and the price of refined fuels such as gasoline. Based on U.S. benchmark oil prices, the so-called crack spread averaged $29.34 a barrel last year, an all-time record.
CVR Refining plans to use that margin to pay an estimated 19 percent yield to unit holders in 2013, a rate similar to that paid by Northern Tier Energy LP (NTI:US) and Alon USA Partners LP (ALDW:US), which were formed as refining MLPs in 2012, said Sam Margolin, a New York analyst with Dahlman Rose & Co.
Refining partnerships have to pay higher yields to attract traditional MLP investors who are accustomed to the stable payments from pipeline-related businesses that derive from long- term contracts for shipping fees, Margolin said.
“MLP investors are conservative,” he said yesterday in a telephone interview. “They don’t like a lot of variability in the dividend.”
MLPs don’t pay corporate income tax, leaving more cash for payments to holders.
CVR Refining, which will be listed under the symbol CVRR on the New York Stock Exchange, may make no cash distribution in some quarters and business performance is expected to be “less stable” than other publicly traded partnerships, according to the company’s IPO prospectus.
A group of refiners on the Standard & Poor’s 500 Index rose 81 percent last year, although the shares of companies such as Valero Energy Inc. are less than half of the peaks reached in 2007 as rising crude prices and falling gasoline demand crimped margins.
The offering values the company at as much as $3.84 billion, according to Bloomberg calculations.
CVR Energy, which also controls a partnership (UAN:US) that makes fertilizer, will own 86 percent of CVR Refining and control it as its general partner after the IPO. The partnership owns refineries in Coffeyville, Kansas and Wynnewood, Oklahoma that together can process 185,000 barrels a day, as well as oil pipelines, tanks and a fuel-sales business.
Icahn Enterprises LP (IEP:US) said in the filing it may buy as much as $100 million of the refining units. Gross proceeds may reach $598 million if banks underwriting the sale exercise options to buy another 3 million shares. The unit sale will be used to buy back $255 million of debt and fund some maintenance and equipment expenses through 2014, according to the filing.
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