NEW YORK (Reuters) – Henry Kravis is no stranger to the spotlight, but a listing of Kohlberg Kravis Roberts & Co will open him up to public scrutiny as never before.
KKR [KKR.UL] on Sunday said it plans to list on the New York Stock Exchange through a complicated transaction that involves buying its publicly listed Amsterdam investment fund KKR Private Equity Investors (KKR.AS: Quote, Profile, Research, Stock Buzz).
By doing so KKR, which has investments in iconic household brands such as Toys R Us and mattress maker Sealy, will finally join rival Blackstone Group LP (BX.N: Quote, Profile, Research, Stock Buzz) in bringing the famously secretive industry into public view.
KKR initially announced plans to go public last year after Blackstone raised $4.13 billion in a high-profile initial public offering in June 2007, just before the credit crunch took hold of the markets.
The listing is sure to thrust Kravis, whose net worth is estimated at $5.5 billion by Forbes, into the headlines anew. But the 64-year-old financier has evidently decided it's worth the price.
“They want to become more of a broad-based financial services concern than just a LBO shop,” said Joel Greenberg, co-chair of the corporate and finance department at law firm Kaye Scholer. “Now they are going to be disclosing more. That's the price of a public listing in this country.”
Blackstone, whose IPO showed some of the hazards of such an offering as its principal's spending habits came under scrutiny, also showed that it's possible to have only limited disclosure even after going public.
As a public company, KKR would have to tell investors more about its financial condition and operations than ever before. But a listing would also give the company a more permanent capital base, allow it to use stock to retain and attract staff and give it a currency to make acquisitions.
“All these firms have tried to keep the aura of privacy,” said Steve McLaughlin, founder of investment banking firm Financial Technology Partners.
“It's a trade-off. It strengthened Goldman, and it will strengthen these firms too,” said McLaughlin, a former Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz) banker, referring to the investment bank's decision to go public in 1999.
Experts said one of the more sensitive issues that come with a public listing is disclosure of executive compensation, which can be a tricky subject.
“You really have to disclose the way the senior people in the firm are compensated,” Greenberg said.
Blackstone co-founder Stephen Schwarzman became the subject of much publicity — some of it negative — as a result of the huge profits he and others received in the firm's IPO.
Schwarzman's 60th birthday party featuring a concert by Rod Stewart as well as his reported penchant for stone crabs that cost $40 per claw made him a poster child for the excesses of the private equity boom and he has since kept a much lower profile.
The big payoffs to Blackstone executives even helped fuel calls in the U.S. Congress for a tougher tax regime for private equity firms.
Kravis has established himself in New York's high society, serving as an arts patron, lending his name to an entire wing of the city's Metropolitan Museum of Art and landing on the city's society pages.
But unlike Blackstone's initial public offering, KKR's co-founders Kravis and George Roberts will not take any cash out of the company in the listing. Principals will be subject to 6-8 year vesting restrictions.
“They are not giving any immediate liquidity to the founders,” McLaughlin said. “So they have tried to fix the problem, which I think is smart.”
Blackstone also showed how private equity firms can go public as partnerships, exempting themselves from governance requirements of investment companies.
“I am very curious to see how this is structured and what the investors are going to be buying into,” said James Cox, a professor at the Duke University Law School. “It's not the nature of highly successful financiers to want to bring in widows, widowers and orphans, and share power with those people.”
KKR carried out its first $1 billion LBO in 1984 and was involved in dozens of deals building up to the decade-defining purchase of RJR Nabisco, which at the time was the largest ever buyout of a commercial company.
In the buyout boom that ran from 2005 to 2007, KKR was involved in huge deals such as the $32 billion buyout of energy company TXU Corp.
“Because they are such a high profile firm, they have always had a fair degree of public coverage by the media anyway,” Greenberg said.
KKR has also sought on its own to improve disclosure and transparency within the private equity industry, including implementing certain guidelines in the United Kingdom, according to the firm's website.
Experts said KKR and Kravis would know what to expect in life as a public company.
“He's obviously a very bright guy, very accomplished,” said Morton Pierce, chairman of Dewey & LeBoeuf's mergers and acquisitions group. “And I assume he understands what going public means in terms of disclosure.”
By Paritosh Bansal
(Editing by Phil Berlowitz)