KKR says market slump good time for going public

By Jui Chakravorty Das and Megan Davies

NEW YORK (Reuters) - Kohlberg Kravis Roberts & Co's KKR.UL plan to merge with a struggling affiliate and then list on the New York Stock Exchange will help the giant buyout firm expand at an ideal time for making acquisitions, KKR executives said on Monday.

KKR, one of the world's most powerful private equity firms, on Sunday announced plans to brave the turbulent equity markets and list on the NYSE this year in a deal that a source familiar with the situation has said would value it at $12 billion to $15 billion.

KKR is aiming to go public through a complicated transaction that involves buying KKR Private Equity Partners (KKR.AS), its publicly listed Amsterdam investment fund, delisting it from Amsterdam and relisting the new company in New York.

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 fed the multibillion dollar deals.

On Monday, KKR co-founder George Roberts cited several factors for the timing of the deal.

He said KKR was disappointed with KPE's stock price and decided to unlock shareholder value through this deal.

He also said KKR had "tremendous confidence" in its portfolio of companies and believed that owning a bigger portion of those companies at this time provided "significant growth opportunities to KKR and KPE unit holders in the coming years.

"Today, many institutional investors are turning to alternate investments to balance their portfolio," Roberts said on a conference call. "A leading alternative manager like KKR is poised to benefit from these trends."

TIMING, VALUATION

Many analysts said the timing of the deal implies that the market is yet to bottom out.

"The timing of the IPO suggests that KKR is not expecting a significant recovery in the buyout market any time soon," said Isabel Schauerte, an analyst with Celent, a Boston-based financial research and consulting firm.

"Otherwise, the company would have been willing to wait until the market picks up in order to get a better valuation."

KKR said the value of the combined company would range between $15 billion and $19 billion, representing a 52 percent to 82 percent premium to KPE's closing stock price of $10.50 on Friday.

That range is based on a multiple of 10 to 12 times KKR's run-rate economic net income -- which excludes any benefit of incremental capital raised or invested -- and assumes a return on invested capital of 17.5 percent.