(Adds details about rival firms IPO comments in paragraph 13)
By Megan Davies
NEW YORK, July 27 (Reuters) - Kohlberg Kravis Roberts & Co [KKR.UL], one of the world’s most powerful private equity firms, plans to brave the turbulent equity markets and list on the New York Stock Exchange this year, joining rival Blackstone in bringing the famously secretive industry into public view.
KKR, co-founded by “buyout king” Henry Kravis, said on Sunday it plans to go public through a complicated transaction that involves buying its publicly listed Amsterdam investment fund, delisting it from Amsterdam and relisting the new company in New York.
A listing could value the combined KKR and fund at $15 billion to $19 billion, and KKR itself at $12 billion to $15 billion, a source familiar with the situation said.
The move, however, comes amid a drought for the private equity industry’s traditional business of leveraged buyouts. The mega-buyouts of the past few years dried up abruptly last summer, when the credit crunch shut off the cheap financing that sustained the multibillion dollar deals.
Blackstone Group LP (BX.N), which became the first big U.S. private equity firm to go public when it listed in June 2007, just before the credit crunch, has seen its earnings hit and its shares drop sharply from their $31 listing price. Shares closed Friday on the NYSE at $17.01.
KKR, which has investments in numerous household names such as Toys R Us, Sealy mattress maker and asset manager Legg Mason (LM.N), said adjusted economic net income for the first quarter of 2008 was a loss of $97 million, versus a $361 million profit a year ago.
That was partly due to a number of holdings that KKR has in publicly traded companies falling along with the turbulent markets, said a source familiar with the situation. Blackstone in May reported a first-quarter loss for the same reason -- it has to adjust the value of its investments every quarter for accounting purposes as if the assets were being sold that day.
KKR said a public listing would allow it to have a more permanent capital base, use stock to retain and attract staff and have a currency to make acquisitions.
“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,” KKR’s co-founders Henry Kravis and George Roberts said in a statement.
Unlike Blackstone’s initial public offering, however, the founders will not take any cash out of the company in the listing. Principals will be subject to 6-8 year vesting restrictions.
Founded in 1976, KKR rose to prominence during the debt-fueled leverage buyout (LBO) craze of the 1980s. The firm carried out its first $1 billion LBO in 1984 and was involved in dozens of deals building up to the decade-defining 1988-1989 buyout of RJR Nabisco -- at the time the largest ever buyout of a commercial company -- which was immortalized in the bestselling book “Barbarians at the Gate: The Fall of RJR Nabisco.”
In the buyout boom that ran from 2005 to 2007, KKR was involved in huge deals such as the $32 billion buyout of energy company TXU Corp. It now has $61 billion of assets under management, with three core businesses of private equity, fixed income and capital markets.
KKR’s move could put pressure on rivals to follow the same route. Carlyle Group [CYL.UL] founder and managing director David Rubenstein forecast in February that most of the larger buyout firms will probably be public once the markets recover. Providence Equity Partners’ chief executive Jonathan Nelson said in June he would consider an IPO if it would bring a strategic advantage.
Under KKR’s plan to go public, it will buy Amsterdam-listed fund, KKR Private Equity Investors (KPE) KKR.AS, a fund that made its debut on the public markets in May 2006 in a $5 billion, or $25 a share, offering. Shares have fallen since the credit turmoil hit and closed Friday at $10.50 a share.
For KPE shareholders, the deal has an implied value of $16 to $19.20 a share, according to a KKR presentation -- a premium of between about 50 and 80 percent over the current value.
KPE holders would own 21 percent of the combined company, with KKR holding the remaining 79 percent. KPE would be delisted from Euronext, and the new company would debut on the New York Stock Exchange under the ticker “KKR.”
The transaction is expected to go through in the fourth quarter, meaning KKR should be publicly traded on the NYSE before the end of 2008.
KKR initially signaled its plan to list in July 2007, when it filed a registration statement for an IPO. However, the credit crunch hit markets, and the prospects of going public for any company became tough. The July 2007 filing by KKR will be morphed into the Amsterdam/NYSE filing, a source said.
The deal also addresses a concern that KPE’s stock has traded with little liquidity. Under the deal, KKR is giving KPE stockholders an insurance policy that if the stock does not trade at specified levels, KKR will give up to an additional 6 percent ownership in the company.
Goldman Sachs (GS.N) and Morgan Stanley (MS.N) are advising KKR, Citi (C.N) is advising KPE, and Lazard (LAZ.N) is advising the independent directors of KPE, the statement said. (Additional reporting by Anupreeta Das in San Francisco and Jessica Hall in Philadelphia; editing by Maureen Bavdek, Jeffrey Benkoe and Lincoln Feast)