Kohlberg Kravis Roberts's Amsterdam-listed fund jumped 27 percent during morning trade on Monday after the private equity group detailed plans to list in New York in a public offering.
Under public offering plans described by the investment group on Sunday, shares in the Amsterdam listed KKR Private Equity Investors (KPE) would be exchanged for newly issued New York Stock Exchange-listed shares and delisted.
In a conference call Monday, KKR co-founder George Roberts told analysts the proposed transaction would "unlock" value for KPE shareholders, saying that KPE trades at a significant discount to its net asset value.
KPE was among several affiliates of larger private equity funds to list in Amsterdam within the past few years.
Lehman Brothers Private Equity Partners Ltd, an affiliate of U.S. bank Lehman Brothers that listed in July 2007, has fund and buyout investments.
Buyout firms have listed such vehicles to open up their portfolio to retail investors and boost liquidity.
But despite the industry's reputation for high returns on its investments, not all such listed units have been success stories.
Most notably, Carlyle Capital, which was an affiliate of U.S.-based buyout firm Carlyle Group and mainly invested in mortgage-backed assets, went bankrupt in March and liquidated its assets as it could not meet margin calls from its lenders.
Even U.S. buyout giant the Blackstone Group , which became the first big U.S. private equity firm to go public when it listed in June 2007 just before the credit crunch, has seen its earnings hit and its shares drop sharply from their $31 listing price.
KKR initially signaled its plan to list in July 2007, when it filed a registration statement for an IPO.
However, the credit crunch hit markets, and the prospects of going public for any company dimmed. The July 2007 filing by KKR will be morphed into the Amsterdam/NYSE filing, a source familiar with the matter said.
The deal also addresses a concern that KPE's stock has traded with little liquidity.
Under the deal, KKR is giving KPE stockholders an insurance policy that if the stock does not trade at specified levels, KKR will give up to an additional 6 percent ownership in the company.
KPE went public in Amsterdam in May 2006 in a $5 billion, or $25 per share, offering.
Shares have fallen since the credit turmoil hit and closed on Friday at $10.50 a share.
The shares rallied to $13.31 by 0920 GMT, up 26.8 percent and a three-month high.
They had already been near a lifetime low of $10.30.
A NYSE listing could value the combined KKR and fund at $15 billion to $19 billion, and KKR itself at $12 billion to $15 billion, a source familiar with the situation said.
For KPE shareholders, the deal has an implied value of $16 to $19.20 per share, according to a KKR presentation -- a premium of between about 50 and 80 percent over the current value.
KPE holders would own 21 percent of the combined company, with KKR holding the remaining 79 percent.
Roberts, in the call, stressed the deal is a direct value transfer and will not dilute the value of shares held by KPE investors. The move comes amid a drought for the private equity industry's traditional business of leveraged buyouts.
The mega-buyouts of the past few years dried up abruptly last summer, when the credit crunch shut off the cheap financing that sustained multibillion-dollar deals.
The transaction is expected to be completed by late November, KKR said on its conference call.
Goldman Sachs and Morgan Stanley are advising KKR, Citi is advising KPE, and Lazard is advising the independent directors of KPE, the statement said.