Buyout giant Kohlberg Kravis Roberts has received approval from its independent directors to merge with its listed affiliate KKR Private Equity Investors (KPE), a precursor to an eventual listing of the combined entities on the New York Stock Exchange.
Under the arrangement shareholders in KPE, which is listed on Euronext in Amsterdam, will be allocated 30 percent of the equity in the combined entity, with the rest being owned by KKR’s existing shareholders.
The merger is scheduled to happen on October 1st, assuming it gains approval from the majority of KPE shareholders, 44 percent of whom have already agreed their consent, the firm said.
Following the merger, the combined entity will have the option to seek a future listing on the New York Stock Exchange (NYSE). Should KKR fail to do this within 12 months following the combination of the businesses, KPE has the right to cause the combined entity to seek a NYSE listing.
The management of KKR has coveted a public listing of its management company for some time. The intention to float the firm was first raised in 2007, shortly after rival firm The Blackstone Group went public. The subsequent problems in the debt markets caused the firm to shelve plans, which were then restated in July 2008. Once again turmoil in the financial markets caused the buyout giant to suspend its plans, which were resurrected again in June.
The plan to absorb KPE materialised in July 2008, following the firm’s disappointment with the vehicle’s deeply discounted stock price, low dividends and lack of trading.
KKR co-founders Henry Kravis and George Roberts said in a statement that a merger would provide a greater alignment of interests with those of their investors, as the management company would own more interests in its own funds and co-investments in its deals.
KKR also provided an updated earnings outlook this morning. The firm reported an expected profit for the second quarter, forecast to be between $345 million and $370 million. This follows a $1.2 billion full year loss for the firm in 2008.
Listed vehicle KPE expects to have a net asset value as of June 30th of approximately $3 billion, an uplift of 14 percent from the $2.6 billion reported for the end of March.