Private equity firm KKR & Co. LLP on Tuesday filed with the Securities and Exchange Commission to raise as much as $1.25 billion in an initial public offering, following in the footsteps of rival Blackstone Group.
The leveraged buyout powerhouse that’s best known for its $25.1 billion purchase of RJR Nabisco, hopes to trade on the New York Stock Exchange under the ticker symbol “KKR.” The firm, launched by Henry Kravis and George Roberts in 1976, said it expects to use the offering’s proceeds to grow its business.
The IPO will come amid fresh pressure on private-equity firms, especially after the 4.1 percent drop in rival Blackstone Group LP’s shares since its $4.75 billion offering June 21. Buyout shops are facing a standoff with Congress over plans to make the firms pay a higher tax rate, and scrutiny on Wall Street that funding might be drying up for the recent spate of mega-deals.
For many investors, Blackstone’s IPO presented 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. KKR has been one of the most prolific private-equity firms, scoring the two biggest deals in U.S. history with proposed buyouts of TXU Corp. and First Data Corp.
“We believe that our strong brand name in the financial services industry will support growth through acquisitions or combinations with similarly strong franchises that will complement our existing activities,” KKR’s filing said. “By adding our products and brand to the products of acquired companies, we believe we will be well positioned to create significant value for our stakeholders.”
Like with Blackstone, investors buying KKR units will have no control of the firm’s managing partner and will not vote in the election or removal of its directors.
Stephen Schwarzman and Peter G. Peterson, who started Blackstone, took home $2.56 billion in the much-hyped public offering of its management partnership. The company said in the run-up to its IPO that the management side would not show a profit for years, and that money made would be used for its founders and top management to unwind positions — a path that other private-equity firms, like KKR and Carlyle Group, are also expected to take.
Blackstone on Tuesday made its first deal since going public, saying it would buy Hilton Hotels Corp. in an $18.5 billion cash deal. Like other leveraged buyouts, this one gave investors a large payday — the offer price values Hilton shares at a 32 percent premium over Tuesday’s closing stock price.
KKR, which said it doesn’t have any current acquisition plans, had about $53.4 billion in assets under management as of March 31, up from $18.3 billion at the end of 2002. The firm boasts the first $1 billion-plus leveraged buyout among its achievements, and in 2006 earned $1.11 billion in full-year profit — up 12 percent from $941.5 million in 2005.
Among the risk factors KKR listed in its SEC filing for the IPO, it said its earnings and cash flow are highly variable, and that it doesn’t plan on providing any earnings guidance, which could make the price of its units volatile.
KKR didn’t disclose the number of shares it will offer, or their price. The $1.25 billion value was an estimate used to calculate the SEC registration fee. The firm’s existing owners will not sell any partnership units or receive any of the offering’s proceeds.
KKR said it expects to complete the proposed offering during the third or fourth quarter of 2007.
The offering’s underwriters include Morgan Stanley and Citigroup Global Markets, both among the 16 investment banks that also underwrote Blackstone’s IPO.