KKR Euronext in Sun PIPE(2)

In a deal that stretches the term ‘private equity’ and furthers a trend toward large PIPEs, the Euronext-listed affiliate of KKR will invest $700m in an atrophied Sun Microsystems through two convertible senior notes.

KKR Private Equity Investors, the Euronext-traded fund associated with  Kohlberg Kravis Roberts & Co., plans to invest in Sun Microsystems, a server and software provider. The investment will include $350 million (€267 million) in the form of convertible senior notes due in 2012 and $350 million through convertible senior notes due in 2014.

The private investment in a public entity (PIPE) transaction is expected to close on January 26.

The convertible notes due in 2012 will have a semi-annual return rate of .625 percent, and those due in 2014 will have one of 0.750 percent. All the notes will be convertible at a price of $7.21 per share. 

After hitting an all-time high on the Nasdaq above $60 per share in late 2000, Sun Microsystems’ value fell sharply over the next three years. Today it closed at $5.66. The firm replaced Scott McNealy, the firm’s co-founder, as chief executive officer with Jonathan Schwartz, in April of 2006.

KKR Private Equity Investors took the industry by storm when it raised $5 billion, mostly from hedge funds and mutual fund investors, and subsequently listed the vehicle on the Amsterdam Euronext exchange. The vehicle had as its stated investment strategy commitments to KKR-sponsored funds as well as direct investment alongside other KKR vehicles. But the fund’s prospectus reserved the right to make opportunistic investments, as well.

Last April, The Blackstone Group raised eyebrows when it drew from its private equity fund to acquire 4.5 percent of the registered share capital of European telecoms business Deutsche Telekom in a deal valued at €2.68 billion.

During the late 1990s and early 2000s, many private equity firms agreed to PIPE deals as fund sizes swelled and deal multiples went sky-high. Firms reasoned that PIPE deals were an effective way to deploy capital, but many of the private equity-backed PIPEs of this era led to total losses and bankruptcies. However, a large proportion of these deals were in infrastructure-heavy telecommunications startups at peak valuations.