In line with its acquisition strategy, private equity firm Kohlberg Kravis Roberts & Co. L.P. (KKR - Snapshot Report) announced a deal to acquire KKR Financial Holdings LLC in an all-stock deal worth $2.6 billion. KKR Financial is currently managed by a subsidiary of KKR Asset Management, a subsidiary of Kohlberg Kravis.
According to the deal, shareholders of KKR Financial will receive 0.51 common units of Kohlberg Kravis for every common share of KKR Financial that they hold. The exchange ratio represents $12.79 per share of Kohlberg Kravis, reflecting a significant premium of 35% per share of KKR Financial, based on closing price of both the stocks as of Dec 16.
After the acquisition, KKR Financial will operate as a subsidiary of Kohlberg Kravis. However, Kohlberg Kravis will not alter KKR Financial’s funding structure.
The purchase will be funded from a proposed new issue of 100 million shares. The deal, which is subject to a vote by shareholders of KKR Financial, is expected to close by the first half of 2014.
Based in San Francisco, KKR Financial was founded in 2004 as a mortgage real estate investment trust (REIT) but later turned into an investor in corporate debt after being hit by the sub-prime mortgage crisis in 2007. Being a specialty finance company, it operates a wide range of asset portfolios and primarily invests in financial assets including private and public equity investments, high yield bonds and distressed securities.
According to Kohlberg Kravis, upon closure the deal is expected to pave the way for a 2% accretion on Kohlberg Kravis’ total distribution per unit basis while its balance sheet is expected to grow from $7.2 billion as of Sep 30,2013 to $9.3 billion. Further, it is expected that the acquisition will enhance liquidity, increase return to shareholders and build capital.
For Kohlberg Kravis, The Goldman Sachs Group, Inc. (GS - Analyst Report) and Simpson Thacher & Bartlett are representing the company, while Lazard Ltd. (LAZ - Analyst Report) and Cravath Swaine & Moore are acting as independent financial and legal advisors to the independent directors of the company. For KKR Financial, financial and legal advisors to the independent committee include Sandler O'Neill & Partners and Wachtell, Lipton, Rosen & Katz.
Kohlberg Kravis has a presence in 25 industries across the U.S., ranging from software to healthcare. In Oct 2013, the company proposed to acquire 10% stake in Qingdao Haier Co., Ltd. that specializes in home appliances and is a leader in the Chinese market for the same. Further, in Nov 2013, the company announced a deal to acquire The Brickman Group. Ltd. LLC for $1.6 billion from Leonard Green & Partners, L.P. and other shareholders.
Kohlberg Kravis currently carries a Zacks Rank #1 (Strong Buy).