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KKR Aims for Listing on NYSE

28 July 2008 - Markets - Editor

New York City-based private equity investment firm, Kohlberg Kravis Roberts and Co (KKR), has announced that an agreement has been concluded for the acquisition of all of the assets, as well as the assumption of all liabilities, of KKR Private Equity Investors (KPE). Moreover, KKR aims to become a listed company on the New York Stock Exchange (NYSE) by the end of the year.

KPE is currently listed on Euronext Amsterdam, but under the terms of the new agreement KPE investors will receive equity interests in KKR, which will constitute 21 percent of the equity in the combined business. The remaining 79 percent will be retained by KKR executives. Once this has taken place, most likely in the 4th quarter of 2008, KPE will be dissolved and delisted from the Euronext Amsterdam stock exchange with the combined entity being listed on the NYSE. Senior partners of KKR, Henry Kravis and George Roberts see this public listing strategy as a way for KKR to continue growing companies around the world, which in turn will provide a larger platform and deeper capital base to generate solid returns for investors.

Last year KKR had planned to do an initial public offering (IPO), but before this could take place, the much publicized credit crunch took hold and the IPO market went cold. Although this was a blow to KKR at the time, the merger with KPE will give KKR the advantage of gaining access to public markets without having to do an IPO. It is estimated that the newly created company will be worth around $15-billion.

Kohlberg Kravis Roberts & Co was founded in 1976 by Jerome Kohlberg Jr. together with cousins George Roberts and Henry Kravis. All three had previously been employees of Bear Stearns. Jerome Kohlberg left the company in 1987 to start his own company, Kohlberg & Co.

It has been KKR’s strategy to focus primarily on late-stage leveraged buy-outs through limited partnerships. In a number of the leveraged buyouts undertaken by KKR, they have financed up to 25 percent of the acquisition price using their own capital, with the balance being financed either through bank loans or high-yield bonds. Through the use of high-yield bonds KKR endeavors to ensure that the management of the target company retains an equity interest, thereby creating an attractive personal financial incentive for the management to approve of the takeover and ensure its success. Once the targeted company has been acquired by KKR, it would be restructured, a process which may require selling off underperforming assets as well as the implementation of cost-cutting measures. The restructured, and more efficient, company would then be resold, often yielding a significant return on investment.

Since being founded KKR has built up a reputation for consistent performance in the field of leveraged buy-outs and as of December 2007 was managing $53.2 billion in assets. With the goal of transforming KKR into a broad asset manager, future plans include real estate, mezzanine debt investing and stock picking. Having historically specialized in leveraged buy-outs, KKR has little or no track record in these other investing arenas and investors will no doubt be interested to see how KKR will fare in future endeavors.

 


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