UPDATE 1-KKR to acquire its specialty finance company for $2.6 bln

Mon Dec 16, 2013 5:46pm EST

NEW YORK Dec 16 (Reuters) - Investment firm KKR & Co LP said on Monday it would acquire KKR Financial Holdings LLC (KFN) in an all-stock deal that would value the specialty finance company it launched more than nine years ago at $2.6 billion.

Launched by KKR in 2004 to invest primarily in a variety of corporate loan and bond instruments, KFN now has a market value of $1.9 billion, a fraction of KKR's $17.7 billion market capitalization. But KKR said it saw many benefits in taking it over.

"Through this transaction, we are acquiring a business with a fully invested, complementary portfolio of assets while increasing the scale and diversity of KKR's balance sheet," KKR's co-founders and co-chief executives Henry Kravis and George Roberts said in a statement.

KKR said the transaction would immediately add to its earnings and boost its balance sheet, giving it more capital to expand its investment platform further and invest in its funds. KKR's book value per adjusted unit will grow by 13 percent from $10.07 to $11.34, the New York-based firm said.

KKR offered to pay KFN shareholders with 0.51 KKR shares for each of their KFN shares, equivalent to a 35 percent premium based on Monday's closing prices. The deal is subject to a vote by KFN shareholders.

As a KKR subsidiary, KFN is already managed by KKR staff and the two firms said there was very little integration risk involved. KKR said it expected the deal with KFN to be completed in the first half of 2014.

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