RPT-DEALTALK-Wide investor audience awaits KKR

(Repeats story that ran on Thursday with no change to headline
or text)

(For more Reuters DEALTALKs, click [DEALTALK/])

* Some analysts view KKR as undervalued

* Investors eyeing listing, some cautious on sector

By Megan Davies and Aaron Pressman

NEW YORK/BOSTON, July 8 (BestGrowthStock) – Kohlberg Kravis Roberts &
Co’s (KKR.AS: ) long-awaited listing on the Big Board brings a wide
investor audience to the iconic private equity firm and could be a
bellwether for rivals looking to follow suit.

The buyout firm will switch from Amsterdam-based Euronext on
July 15 to the New York Stock Exchange, joining rival Blackstone
Group (BX.N: ), which went public in 2007.

For a story: [ID:nN06273579]

Some expect the move to result in a rise in KKR’s shares. A
NYSE-listing exposes the company to a highly liquid U.S. stock
marketplace in which investing is generally cheaper and easier
than in any other jurisdiction.

“I think there’s likely to be a fair amount of pent-up demand
for the shares once they relist,” said Michael Kim, analyst at
Sandler O’Neill. “We’ve seen examples of this type of relisting in
the past — where now that the stock is available to a much
broader, deeper pool of potential investors, you typically see a

But some see the listing as a yawn, arguing that investors
wanting exposure to private equity could have bought Blackstone’s

“I don’t think people are lining up to buy KKR at this time;
the bloom is off the rose,” said Francis Gaskins, president of
IPODesktop.com, an IPO research firm.

The move will be closely watched by others who are planning on
going public. Apollo Global Management [APOLO.UL] has also
announced plans to list on the NYSE.

David Rubenstein, co-founder of Washington, D.C.-based giant
private equity firm Carlyle Group [CYL.UL], has in the past
forecast that other private equity firms would follow the public
route and issue shares with which to attract and retain employees
and to use as currency to make acquisitions.

Carlyle said last year — in response to speculation it was
planning to list — that if it ever went public, such a move would
be a long way off.


Blackstone was the trailblazer in private equity firms going
public, launching an initial public offering in 2007 at $31 a
share, just before the credit crisis hit. Its shares are now
trading at about a third of the original value.

KKR, which went public last October on Euronext, is taking a
different tactic in listing without selling new shares, although
it has plans to sell $500 million of new units at some point after
it relists, subject to market conditions.

“If they’d done the equity offering at the same time that they
relisted, I think the new shares would have sopped up the pent-up
demand,” said Kim, who has a 12-month price target on the stock of
$14 and views it as undervalued.

Rabobank International analysts also view KKR as cheap,
estimating the total value at $9.2 billion, according to a
research note dated July 6.

KKR’s stock is little changed since it started trading as a
combined company on Euronext at the beginning of October at around
$9. The stock last traded at $10, valuing the company at around
$6.8 billion.

Blackstone is currently valued as a whole about $11.5 billion.
According to Thomson Reuters I/B/E/S, Blackstone is trading at
8.31 times expected 2010 earnings. KKR is trading at 4.33 times
2010 earnings, according to I/B/E/S.


Investors expressed some caution about private equity firms in
a fragile economic environment.

“Timing is everything,” said Anton Schutz, manager of the
Burnham Financial Industries Fund. “If we felt a lot better about
the strength of the recovery, I’d be more interested.”

“The last thing you want to own in a slow economy, even one
that’s recovering, is a leveraged portfolio,” Schutz said.

Buyout firms raise funds in order to use leverage to buy
companies, which they aim to sell later at a profit. Those firms
following a public route have tried to diversify to other areas
such as capital markets and hedge funds, so they are less
dependent on pure private equity profits.

Schutz, who didn’t invest in the 2007 Blackstone IPO, said he
will look into the KKR offering before it is priced. “I’ll look at
anything that fits in the financial bucket,” he said.

David Ellison, who runs the FBR Large and Small Cap Financial
Services Funds, said now is a better time to consider buying
private equity stocks than a few years back.

“This is the time to look at these companies because
valuations have come down so much,” said Ellison. “They’re going
to come public at a much better valuation.”

Still, Ellison said he is not planning to buy KKR shares,
seeing better opportunities for his funds in beaten down bank
shares trading at or below book value.

A key consideration for public shareholders in private equity
is that they might get less information than the investors in the
individual funds.

Fund investors, known as “limited partners,” are typically
provided with frequent updates on the particular funds they are
invested in, data not made publicly available.

Still, public shareholders are fairly well aligned with
principals at the firms, said Steven Kaplan, a finance professor
at the University of Chicago.

“The fact (they) are not disclosing everything at every point
in time is maybe not so great, but … at the end of the day, the
only way the principals get paid is by selling companies or
distributing shares,” Kaplan said.

(Reporting by Megan Davies in New York and Aaron Pressman in
Boston; Additional reporting by Jonathan Spicer in New York;
Editing by Phil Berlowitz)

RPT-DEALTALK-Wide investor audience awaits KKR