KKR Share Transfer to End 3-Year Wait for PE Giant

Three years after the financial crisis caused it to shelve its initial public offering, shares of private equity firm Kohlberg Kravis Roberts will make their debut on the New York Stock Exchange Thursday.

But don't expect any hoopla to accompany the event—KKR is not selling any stock this week, just transferring shares that have been trading in the Netherlands on Euronext Amsterdam.

It's an unusual move, one that gives KKR access to the deeper pool of investors in the U.S. and a currency to expand its business.

Given that its shares have been trading overseas for nine months, it might also save the company from the fate of other private equity firms that went public. After initially soaring, shares of rivals Blackstone and Fortress Investment are down 70% and 89% respectively since their 2007 IPOs.

"This is not for the faint of heart," says David Menlow, president of IPOFinancial.com. He points out investors in the parent company should not expect returns like those generated by the funds it sets up to buy, and then sell, holdings that currently include hospital operator HCA, Toys R US and Legg Mason.

Instead, quarterly distributions for the stock's investors are based on management fees and a portion of the carry, or value of the companies, sold by the funds it operates.

Co-founded in 1976 by cousins Henry Kravis and George Roberts, KKR has since done 175 private equity deals for a total of $430 billion dollars, according to SEC filings. Its most famous deal was the $25 billion dollar leveraged buyout of RJR Nabisco in 1989, a battle immortalized in the book "Barbarians at the Gate."

At that time, KKR was known as Kohlberg Kravis Roberts, and while the RJR leveraged buyout ultimately proved to be a poor investment, it gave Kravis and Roberts a higher profile, allowing them to build a business that now boasts $55 billion dollars under management.

Both Kravis and Roberts are billionaires, though Thursday's transfer won't add to their net worth. The two men, like other KKR principals, will not be selling any shares in company, but instead will hold onto the 13 percent stakes both Kravis and Roberts own.

No additional shares will be offered intially—that will happen down the road, as KKR has filed to sell another $500 million dollars worth of stock.

Some may question the timing of Thursday's transfer. The environment for KKR's core private equity business is improving, though it is far from robust. People close to KKR say the transfer is being made now merely because it received SEC approval to do so. And so after waiting for three years to trade in the U.S., KKR doesn't plan to wait any longer.

Even in this lackluster environment, Sandler O'Neill analyst Michael Kim expects KKR's relisting to be well received, noting the private equity business is certainly better than it was 24 months ago.

"We've seen them do smaller LBOs, we've seen them take minority interest stakes in companies, we've seen them form partnerships with other firms," Kim says. "So I think they're putting the capacity or dry powder to work gradually and that should continue to reaccelerate going forward."

He believes this will translate into higher earnings in 2011, giving him a sum of the parts value for KKR's shares north of $14 each. That makes it cheap at current levels, as it's expected to debut in New York close to where it closes in Amsterdam on Wednesday, at around $9 a share.