IPO Watch: Tesoro Logistics On Deck (TSO, TLLP, VLO, KMI)

Tesoro Corporation (NYSE: TSO) is set to have its Initial Public Offering this week for its Tesoro Logistics LP (NYSE: TLLP).  Tesoro is looking to move to a more of a pure-play and moving to unlock shareholder value.

Tesoro Logistics LP (NYSE: TLLP) was formed by Tesoro as a play that owns crude oil and refined products logistics assets, with initial assets being a crude gathering in the Bakken shale as well as terminals for refined products and several pipelines.

The most recent data showed that the company planned to raise approximately $250 million.  The 12.5 million shares offering has an expected price range of $19.00 to $21.00.  The market cap is now expected to be more than $600 million on a fully diluted basis.

Tesoro Logistics LP is expected to have a distribution rate (dividend yield alternative) of about 6.75%.  The parent Tesoro will continue to hold the 2% general partner interest and will also continue to hold a majority stake in the units after the offering.  For a new offering, it will have a higher payout than many of the current LP’s that have risen so much in value.

Effectively, this gets Tesoro closer to looking more like a pure-play in the refining sector and much more similar to Valero Energy Corporation (NYSE: VLO).  The lead underwriters are Citi, Bank of America Merrill Lynch, and Wells Fargo.

We admit that the comparison may be like comparing a mole hill to a mountain and that Tesoro Logistics LP IPO would be considered an inverse relationship in comparison…  Kinder Morgan Inc. (NYSE: KMI) was very well received in its IPO this year, got a premium pricing, and investor demand was strong.  Unfortunately, its shares were fully priced after opening and they have fallen back to under $29.00.  Those shares have even hit a post-IPO low of $28.23 today.

Tesoro’s shares were at $18.00 less than three-months ago and shares hit $28.00 just a couple of weeks ago.  After a 2.3% drop mid-Monday, shares are trading just under $26.00.  Valero shares peaked north of $30.00 in recent weeks and its stock is now back under $26.00.

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JON C. OGG