Private-equity firm KKR files for $1.25 billion IPO

By John Letzing, MarketWatch
Last Update: 7:08 PM ET Jul 3, 2007

SAN FRANCISCO (MarketWatch) -- Leveraged-buyout giant Kohlberg Kravis Roberts joined the growing list of private-equity firms hoping to be traded in the public market late Tuesday, with a widely anticipated filing to raise $1.25 billion through an initial public offering.
KKR's IPO would follow that of rival private-equity firm Blackstone Group (BX) , which offered a 12% stake on the New York Stock Exchange June 22, and raised $4.13 billion.

In a statement, KKR said that it expects to complete its IPO in the third or fourth quarter of 2007.

KKR's IPO filing comes as shares of other publicly traded private-equity firms, including Blackstone, have sagged amid concerns over possible tax increases. Congress is now debating possible new legislation to raise the tax rate for publicly traded private-equity funds, from 15% to as high as 35%.

Concerns about the possible legislation did not appear to immediately affect shares of Blackstone, which closed 13% higher after their first day of trading. But the shares have since fallen some 15%.

Fortress Investment Group (FIG ) , a private-equity and hedge-fund company that raised $634 million in a successful IPO in February, has seen its shares fall roughly 25% since then.

KKR said that its existing owners will not sell any common units or otherwise receive any of the net proceeds from the offering. Morgan Stanley and Citigroup Global Markets are serving as underwriters for the deal. KKR announced that it intends to list its shares on the New York Stock Exchange, under the symbol "KKR."

The firm is among the most prominent private-equity firms, which generally build portfolios made up of investments in various companies.

According to KKR's IPO filing, the firm had $53.4 billion worth of assets under management as of March 31. Blackstone, by comparison, had roughly $80 billion worth of assets under management at the time of its IPO.

In addition to tax concerns, private-equity firms selling shares to the general public have also drawn some unwelcome scrutiny due to the high degree of risk inherent in their business.
Just prior to Blackstone's IPO, House Oversight and Government Reform Committee Chairman Henry Waxman, D-Calif., raised concerns that the Blackstone offering could expose "unsophisticated investors to new risks."

Waxman made a last-minute, unsuccessful bid for the Securities and Exchange Commission to delay the Blackstone IPO until after Congress had a chance to hold hearings on the matter.
KKR was founded in 1976, and rose to prominence thanks to blockbuster deals such as the $25 billion buyout of RJR Nabisco in 1988.

The firm said in its IPO filing that it currently has 11 pending transactions expected to close in the second half of this year, with an "aggregate transaction value of $140 billion."
John Letzing is a MarketWatch reporter based in San Francisco.

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