KKR to merge with Euronext fund

By Megan Davies

NEW YORK (Reuters) - Private equity firm Kohlberg Kravis Roberts announced plans on Wednesday to merge into its Amsterdam-listed fund, a roundabout way of gaining a European listing, while holding the door open for a possible move to the New York Stock Exchange.

KKR, one of the world's most powerful private equity firms, has been trying for two years to follow rival Blackstone Group (BX.N) and become a publicly traded company.

Under the deal proposed on Wednesday to merge with KKR Private Equity Investors (KKR.AS) (KPE), KKR plans to keep the Amsterdam fund listing -- a divergence from previous plans to delist it. KPE would own 30 percent of the combined business, an increase from the original 21 percent proposed to KPE shareholders.

"I view this as an in-between step," said Michael Kim, an analyst at Sandler O'Neill & Partners.

Kim thought the ultimate goal for KKR remains a NYSE listing.

KKR, which has investments in numerous household names such as Toys R Us TOY.UL, mattress maker Sealy (ZZ.N) and asset manager Legg Mason (LM.N), remains very eager to pursue a listing in New York, a source close to the company said on Wednesday. The source, who was not authorized to speak publicly, said the new proposal gives it more freedom on the timing.

At the earliest, an IPO in New York could come in spring 2010, that source said.

KPE has no ability to force KKR into an NYSE listing for a year after the close of the deal. After that, if KKR has not sought a listing within 12 months of the deal's closing, KPE has the right to require the combined company to list in New York.

New York-based KKR launched plans to list on the NYSE in July 2007, a month after Blackstone went public and just before the markets started to tumble.

The firm, co-founded by "buyout king" Henry Kravis, had planned a traditional initial public offering. But it later proposed a complex method to go public, by combining with KPE, delisting the fund from Amsterdam and listing in New York.

The original deal gave an implied value for KPE shareholders of $16 to $19.20 a share, according to a KKR presentation at the time. It is unclear what the implied value is under the new deal.

KPE's shares closed at $5.70 in Amsterdam on Wednesday.

The deal has to be approved by KPE's shareholders, and KKR said it has already secured support from institutional investors holding about 44 percent of outstanding shares.

Investors backing the deal include Black River Asset Management, Lexington Partners, Putnam Investments, RS Investments and Templeton Global Advisors, KKR said.

While the ownership for KPE increases to 30 percent, a previous offer of an additional 6 percent of equity if shares trade below a certain threshold is no longer included.