KKR Feels Poised to Benefit from Alternate Investment Trends

By Jennifer Yousfi

Private-equity firm Kohlberg Kravis Roberts & Co. plans to go public by year-end as part of its plan to bail out the company’s struggling Euronext-listed investment fund.

KKR Private Equity Investors (KPEQF.PK), which has lost 40% of its value year-to-date and is currently listed on Euronext Amsterdam, will be dissolved as part of the deal, Kohlberg Kravis Roberts & Co. announced via a press release posted on its website. Current shareholders of the investment fund will receive shares of the newly formed entity, KKR & Co. LP (KKR), which will be listed on the New York Stock Exchange.

KKR made a name for itself as a leveraged-buyout [LBO] pioneer with its $30 billion takeover of RJR Nabisco Inc. in 1989. The firm first filed for an initial public offering in July 2007, but with the LBO market gutted by the freeze in the credit markets, KKR’s IPO plans got put on hold.

KKR relied on LBOs for 95% of its profit in 2007, Bloomberg News reported. As the credit crisis unfolded and easy credit all but disappeared, new LBO deals plunged 70% to $163.1 billion this year through July 25 from the same period in 2007, according to data compiled by Bloomberg. That has left KKR in a very vulnerable position.

"The timing of the IPO suggests that KKR is not expecting a significant recovery in the buyout market any time soon," Isabel Schauerte, an analyst with Celent, a Boston-based financial research and consulting firm, told Reuters.

"Otherwise, the company would have been willing to wait until the market picks up in order to get a better valuation."

KKR co-founder George Roberts insists now is the perfect time for the deal, despite the current lull in the LBO market.

"Today, many institutional investors are turning to alternate investments to balance their portfolio," Roberts said Monday on an investor’s conference call. "A leading alternative manager like KKR is poised to benefit from these trends."

In a unique twist to a traditional IPO, KKR will not be offering shares to the public. Instead, current shareholders of KKR Private Equity Investors will receive 21% of the newly formed entity, while 16% will be saved for future employee stock options. Current KKR executives and employees will hold the remainder of the shares.

"We’re not cashing out or selling any equity as part of this transaction," co-founder Henry Kravis said on Monday’s conference call. "This is different from any other alternative-asset IPOs. We’re long-term investors."

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Comments

[Amarendra B...:]

Anyway, I am very suspicious when a longstanding privately-held corporation decides its time to go public.It usually means they have wrung all the profits and growth prospects out of it and want to relieve themselves of holding the stock bag when the company goes public.

2008 Jul 29 06:56 AM