Private equity firm Kohlberg Kravis Roberts Co (KKR), which gained fame by taking RJ Reynolds private more than three decades ago and now controls hospital operator HCA and many other companies, said on Sunday it would go public on the New York Stock Exchange (NYSE) through a takeover of its Amsterdam-listed affiliate investment fund KKR Private Equity Investors LP.
The transaction is a big departure from the plans announced a year ago by founders Henry Kravis and George Roberts to tap equity markets for up to US$1.25 billion through an initial public offering. Credit market turmoil torpedoed that plan.
KKR principals would hold 79 percent of the combined company and KKR Private Equity shareholders would own 21 percent. No cash will change hands in the deal, which is expected to close in the fourth quarter, and no additional public stock sales are planned.
But by having the shares of the combined company trading on the NYSE, KKR said it should have enough cash needed to finance additional takeovers.
The value of the combined company would depend on how KKR Private Equity shares trade in the weeks and months ahead.
KKR Private Equity Investors said in an earnings release on Sunday it had 204.9 million units outstanding, giving it a market capitalization of US$2.15 billion at the current price of US$10.50 per unit. That would suggest a value for the combined company of US$10.25 billion.
But in its earnings statement, KKR Private Equity said its net asset value totaled US$4.56 billion, or US$22.25 per unit, at the end of the second quarter — nearly double its June 30 market price of US$12.75.
Therefore, KKR said it would make additional payments if KKR Private Equity shares don’t reach a level of at least US$22.25 each, which would suggest it values the entire enterprise at more than US$21 billion.
KKR Private Equity shares will continue to trade on Euronext Amsterdam until the merger is complete, forecast for sometime in the fourth quarter of this year. Then the stock would be delisted and listed on the NYSE.
The transaction was unanimously approved by the board of KPE’s general partner, with the deal now subject to approval by KKR Private Equity’s unitholders.
“For KKR, this transaction provides us with additional capital for our business,” Kravis and Roberts said in a statement.
“Moving forward with a public listing will allow KKR to do what we do best — grow companies around the world and produce solid returns for our investors from a larger platform and a deeper capital base,” the statement said.
KKR also said it expects its assets under management at June 30 to be about US$60.8 billion, up from US$53.2 billion on Dec. 31.
For investors, KKR’s IPO presents a rare opportunity to get in on the booming private equity industry — which buys struggling companies, turns them around, and cashes in by taking them public again or selling them to other firms.
But Blackstone’s IPO at US$31 a share, raising US$4.75 billion from new investors, has been mostly a bust. Its shares now trade at US$17.01, meaning investors have lost 45 percent of their initial investment.
KKR’s IPO isn’t looking to raise new capital, but the arrangement with KKR Private Equity gives it access to the fund’s investments at a much cheaper price.
And for investors in KKR Private Equity, who have watched shares fall from their initial listing price of US$25 to the US$10 range, the deal provides assurance that they will recoup some of their investment.
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