KKR to merge with KPE; writes down European fund

01 July 2009

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Private equity giant KKR has announced that it will go through with a planned merger with its Amsterdam-listed fund KKR Private Equity (KPE), though a subsequent flotation on NYSE is still likely to be some way off.

Under the proposed deal, KKR plans to keep its listing in Amsterdam, with KPE owning a 30% stake in the combined business, an increase from the original 21% proposed to KPE shareholders.

KKR had originally planned a complicated transaction that would see the business de-list its Amsterdam-listed fund KPE, before listing the combined business in New York. The move was originally planned for July 2008, but has since been postponed twice due to ongoing stock market volatility.

According to reports, KPE cannot force KKR into an NYSE listing for a year after the deal closes. If KKR has not sought a listing by then, KPE has the right to demand the combined company list on the NYSE.

The deal, which is to be backed by Black River Asset Management, Lexington Partners, Putnam Investments, RS Investments and Templeton Global Advisors, is yet to be approved by all of KPE's shareholders.

Meanwhile, the firm has also reportedly written down the value of its second European fund, which includes in its portfolio Alliance Boots, by $2.8bn from $5.8bn.

It has been reported that the buyout house is expected to complete a $569m fundraising for an annex fund this month to support additional equity investments for the vehicle's portfolio companies. Investors in the annex fund will take the first 20% IRR on each deal.

However, some investors have already expressed concern over the proposal, as it will inevitably make it less likely that LPs in the original fund will receive any returns from the sale of companies into which the annex vehicle has invested.

KKR recorded a $1.2bn loss in 2008, compared with a profit of $815m in 2007.