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KKR Looks For New Capital In Investment Fund Takeover

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The Associated Press

Published: July 29, 2008

NEW YORK - Private equity powerhouse Kohlberg Kravis Roberts & Co. said Monday a plan to go public through a takeover of its Amsterdam-listed investment fund gives it access to new markets to make acquisitions and provides European shareholders better value.

The transaction is a departure from plans announced a year ago by Henry R. Kravis and George R. Roberts to tap equity markets for up to $1.25 billion through an initial public offering. Those plans were hurt by the collapse of credit markets that significantly slowed mergers and acquisitions in the past year.

The deal's new structure won't give KKR a boost of cash like a regular IPO, but will provide it with access to new markets to raise capital. A public listing would allow KKR to either issue new shares in a takeover bid of another company or to sell shares and raise cash.

The transaction lets KKR avoid having to find investors and raise cash in a difficult credit environment for traditional public offerings, said Roy C. Smith, a professor of finance at New York University's Stern School of Business and a former partner at Goldman Sachs.

KKR also is using the transaction as part of a broader reorganizing of the company as it looks to expand and diversify its operations, Smith said.

"They are laying the groundwork for the next cycle," Smith said. "It's a sensible strategic move for them to do it."

Launched by Kravis and Roberts in 1976, the leveraged buyout giant is best known for its $25.1 billion purchase of RJR Nabisco. KKR has been one of the most prolific buyout shops, with deals including TXU and HCA.

Its 2006 launch of KKR Private Equity Investors struggled, though, as the value of its holdings have declined, and it has recently posted losses tied to the sale of certain assets.

KKR Private Equity's assets declined in value by $159.7 million during the year ending June 30. The company's net assets totaled $4.56 billion as of June 30.

The transfer of shares allows KKR to boost the struggling European investment fund while bringing back those investments into the parent company, Smith said.

The announcement of the deal sent shares of KKR Private Equity sharply higher in trading in Amsterdam on Monday. Shares rose by more than 32 percent to $13.90. KKR Private Equity shares will continue to trade on Euronext Amsterdam until the deal is completed.

Kravis said on a conference call Monday the company is disappointed in how KKR Private Equity shares have traded since the fund went public in 2006. Shares of KKR Private equity were initially sold at $25, but fell as low as $10.30 in recent weeks.

KKR executives said the deal allows KKR Private Equity shareholders to participate in all deals completed by KKR and provides them with better value than what is reflected in the stock's current trading price. It also removes fees and carry charges that reduced KKR Private Equity profit.

Having a publicly traded company listed on the New York Stock Exchange will allow KKR to tap new sources of capital to complete future acquisitions.

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