* KKR, KPE mulling ‘advisability’ of takeover deal
* Analysis likely completed over next several weeks
* KKR’s IPO plans hinge on KPE takeover
* KPE’s portfolio value down 50 pct on year
* NAV $12.78 per unit vs $24.36 year ago
Kohlberg Kravis Roberts & Co’s Amsterdam-listed fund KPE said on Monday that KKR was re-evaluating a previously-announced deal to buy out the fund, throwing doubt on KKR’s plans for a U.S. stock listing.
KKR’s plans to become a publicly-traded company hinge on the deal to buy the fund, and if that transaction is scrapped, the listing would be thrown into question.
KKR made made no comment on its proposed listing in the KPE news release, which also reported a 50 percent drop in the value of KPE’s portfolio.
KKR in July announced the complicated transaction to buy KKR Private Equity Investors (KPE) , delist it from Euronext, and debut the new company on the New York Stock Exchange under the ticker “KKR.” KKR had previously considered a more conventional initial public offering.
But since the July announcement, the S&P 500 Index .SPX has slumped 40 percent and the private equity industry has been hit by the financial meltdown, which shut off the supply of leverage for new deals and made nearly impossible the sale of companies they already owned.
“The financial world and markets have changed dramatically since July 2008,” KPE said in the statement on Monday.
“KKR and the independent directors of KPE’s general partner are in the process of evaluating the impact of these changes on the continued advisability of the transaction and hope to complete their analysis over the next several weeks,” it said.
KKR took KPE public in May 2006 in a $5 billion, or $25 per share, offering but shares have slumped since the credit turmoil hit. They closed on Friday at $2.25 a share.
KKR announced plans to buy KPE in July for an implied value at the time of $16 to $19.20 a share, partly to address concerns that KPE’s shares traded with little liquidity.
Under that deal, KPE holders would own 21 percent of the combined company, with KKR holding the remaining 79 percent. KKR initially signaled its plan to list in July 2007, when it filed a registration statement for an IPO. But the credit crunch hit, and the prospects of going public for any company became tough.
Rival Blackstone LP, the only other major U.S. private equity firm to go public, is trading at a fraction of its June 2007 IPO value of $31 a share. Blackstone’s shares closed at $4.87 Friday on the New York Stock Exchange.
KPE, which has investments in a number of KKR’s funds, also announced fourth quarter results which showed a sharp fall in the reported value of its investments. Its net asset value, which tracks the worth of its investment portfolio, nearly halved to $12.78 per unit at the end of December from $24.36 the year before. Its NAV dropped 32 percent from the third quarter.
The value of its portfolio was $3 billion, 30 percent lower than the previous quarter and 50 percent below a year ago.
It wrote down the value of a number of its investments for the quarter, including pharmacy chain Alliance Boots by $128.2 million, information commerce firm First Data by $164.6 million and hospital company HCA by $121.2 million.
But it wrote up the value of U.S. discount retailer Dollar General Corp by $32.5 million.
Private equity firms are obliged for the first time this year to value their companies as if they were to sell them today, rather than years in the future when they may be sold, although KPE has been doing this from the fund’s inception.
“We believe that the valuations of KPE’s underlying private equity investments are more reflective of broader global macroeconomic conditions and mark-to-market considerations than they are of the fundamentals of KPE,” Henry Kravis, KKR’s co-founder said in a statement.
“KKR has full confidence that KPE’s portfolio will ultimately produce realizations which will accrue to the benefit of KPE unitholders after the economy has stabilized.”
A source familiar with the fund said KPE is expected to also report on Monday that nearly 69 percent of its portfolio companies grew or maintained their profits during the year.
The fund is also expected to say that 88 percent of the portfolio company’s debt matures after 2012, that source said.
KPE said it expected world economies and capital markets would remain under stress for the foreseeable future, adding that sources of liquidity “may be not only more difficult, but also impossible to obtain in the current market environment”.
Rival private equity firm Blackstone reported a deep quarterly loss on Friday after writing down the value of its portfolio, and eliminated its fourth-quarter dividend.
American Capital Ltd and Allied Capital Corp — business development companies, which make loans to small and mid-sized businesses in return for equity stakes — are also scheduled to report on Monday.