Kohlberg Kravis Roberts

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Kohlberg Kravis Roberts & Co.

Type	Partnership
Founded	1976
Headquarters	New York, New York 7 offices in 5 countries
Key people	Henry Kravis, Senior Partner George R. Roberts, Senior Partner
Industry	Private Equity
Revenue	N/A
Net income	N/A
Website	Kohlberg Kravis Roberts & Co.

Kohlberg Kravis Roberts & Co (commonly referred to as KKR) is a New York City-based private equity firm that focuses primarily on late-stage leveraged buyouts. It was founded in 1976 by Jerome Kohlberg, Jr., and cousins Henry Kravis and George R. Roberts, all of whom had previously worked together at Bear Stearns.

1 The KKR approach
2 Deals
3 Recent activities
4 Works about KKR
5 Notable current and former employees
- 5.1 Business
6 See also
7 References
8 External links

The KKR approach

KKR specializes in leveraged buyouts (LBO) and suggest that they developed the principle of creating a series of limited partnerships to acquire various corporations which they deemed to be underperforming. In most cases, KKR (often with management) financed up to twenty-five percent of the acquisition price with its own capital and borrowed the remainder through bank loans and by issuing high-yield bonds, while having a more favorable approach towards the latter. KKR would often ensure that the target company's management retained an equity interest to create a personal financial incentive for them to approve of the takeover and work diligently towards the success of the investment.

The bank loans and bonds used to finance the acquisition were collateralized by the tangible and intangible assets of the target company. Because the bondholders only received their interest and principal payments after the banks were repaid, these bonds were deemed riskier than investment grade bonds in the event of default or bankruptcy, and popularly became known as "junk bonds."

Investment banks such as Drexel Burnham Lambert, led by Michael Milken, helped raise money for leveraged buyouts. Once the targeted company was acquired, KKR would help restructure the company, usually selling off certain underperforming assets and implementing a series of cost-cutting measures. The new "leaner and more efficient" company could then be resold, often at significant return on investment.

Deals

KKR co-founders and cousins George R. Roberts (left) and Henry Kravis (right) on the cover of FORTUNE Magazine during the height of the 1980s buyout boom.

After the 1987 resignation of Jerome Kohlberg at age 61 (he later founded his own private equity firm, Kohlberg & Co.), Henry Kravis succeeded him as senior partner. Under Kravis and Roberts, the firm was responsible for the 1988 leveraged buyout of RJR Nabisco. At a cost of $31.4 billion including net debt of $6.3 billion, it was then the highest price ever paid for a commercial enterprise, financed with a combination of bank debt, high yield bonds, and a $3.6 billion equity investment by KKR. The deal was only rivaled in July 2006 by the $33 billion buyout of U.S. hospital operator Hospital Corporation of America, in which KKR also participated, though the RJR deal was larger, adjusted for inflation.

The publicity surrounding the RJR Nabisco buyout led to a book, Barbarians at the Gate: The Fall of RJR Nabisco and subsequent film. The initial equity injection by KKR was $1.5bn, in July 1990 they were forced to put in an additional $1.7 bn.

The RJR transaction benefited many of the parties involved. Investment bankers and lawyers who advised KKR walked away with over $1 billion in fees, and Henry Kravis and George Roberts attracted unprecedented amount of publicity that turned the cousins into instant celebrities.

However, KKR's investors, mainly public and private pension funds who provided KKR with the capital for this buyout, did not do so well. After over fifteen years of efforts that included taking RJR public, as well as exchanging shares of RJR for the ownership of Borden Foods, formerly chemicals-to-pasta conglomerate, KKR finally exited the investment in 2005, selling the remnants of its st in Borden's Chemical division to Apollo group at a significant loss.

In the recent years, KKR's track record has been mixed. Heavy losses on such investments as Regal Entertainment Group, Spalding, and Primedia were offset by successes in Willis Group, Wise Foods, Inc., Shoppers Drug Mart, Bell Canada Yellow Pages, Wincor Nixdorf, MTU Aero Engines and TXU, among others. KKR opened a successful office in London led by Johannes Huth, but it lost many of its original partners, including Saul Fox, Ted Ammon, Ned Gilhuly, Mike Tokarz and Scott Stuart who were instrumental in establishing KKR's reputation and track record in the 1980s. KKR remains tightly controlled by Kravis and Roberts. The issue of succession will likely continue to leave a large dark cloud over KKR's future.

Recent activities

On May 28, 2007, KKR announced it had withdrawn along with CVC from the consortium bidding for Australian retailer Coles Group.^[1]
On April 26, 2007, Harman International Industries announced it had entered an agreement to be acquired by KKR. ^[2] This will place a debt of US-$ 4.7 billion on Harman.^[3] For comparison: Sales were $ 3.5 billion, operating margin $ 382 mio. Total assets were $ 2.5 billion in FY 2007. ^[4]
On April 2, 2007 it was announced that KKR entered an agreement to acquire First Data(NYSE: FDC), one of the nation’s first and largest credit-card processing companies. ^[5]
On March 12, 2007 KKR announced the interest in the Nottingham, UK based retail and chemical company Alliance Boots, owner of Boots, the famous retail store on England's High Street. This interest culminated in an escalated, and unopposed, April 24, 2007 takeover offer for $22.2B.^[6] That same March day, KKR announced an effort to take over Dollar General (NYSE: DG), a Tennessee-based operator of variety stores that is currently listed on the S&P 500. KKR intends to take the company private.^[7] On July 25, it was widely reported that the banks which underwrote to syndicate the debt for this deal have been having difficulty getting buyers.
On February 26, 2007 Texas Pacific Group and KKR acquire TXU for about $45 billion, including debt, in the largest-ever leveraged buyout.^[8] The deal is also notable for a drastic change in environmental policy for the energy giant, in terms of its carbon emissions from coal power plants and funding alternative energy.^[9]
On January 23, 2007 it was announced KKR would invest $700 million in Sun Microsystems. ^[10]
On December 1, 2006 it was reported that KKR and Texas Pacific Group have been exploring the possibility of a record $100 billion leveraged buyout of the nation's second-largest retailer Home Depot.
On November 20, 2006 it was announced KKR would form a AUD4 billion partnership with the Seven Network of Australia ^[11]
In October 2006, KKR bought a 50% stake in Tarkett, a France-based distributor of flooring products, in a deal valued at about €1.4 billion ($1.8 billion).
Philips announced on August 3, 2006 that it was to sell a controlling 80.1% share of its semiconductor business for 6.4 billion EUR to a consortium led by KKR, Silver Lake Partners and AlpInvest Partners. The new company is called NXP Semiconductors. Johannes Huth of KKR is a member of the supervisory board of NXP Semiconductors.

(may 2006 : consortium to buy Nielsen (former VNU) ) (nov 2006 : buys French Yellow Pages)

In 2005 KKR bought the German company Duales System Deutschland, which has a monopoly on recycling the packaging of consumer goods.
According to Germany's Handelsblatt, KKR and financial investor Permira bought Germany's second largest private television chain ProSiebenSat.1 Media.
In 2007, after being hit by the US credit markets chaos, KKR had to postpone a $1.25 billion public offering after investors showed little interest.^[12]
In September 2007, KKR Financial Holdings, an affiliate, was bailed-out for $270 million by Henry Kravis and George Roberts. On February 20, 2008 it was reportedly once again forced to delay the repayment of billions of dollars of commercial paper, and was beginning a new round of talks with creditors. ^[13]

Works about KKR

Baker, George; Smith, George (1998). The New Financial Capitalists: KKR and the Creation of Corporate Value. New York: Cambridge University Press. ISBN 0-521-64260-4.
Anders, George (1992). Merchants of Debt: KKR and the Mortgaging of American Business. New York: BasicBooks. ISBN 0-465-04522-7.
Bartlett, Sarah (1991). The Money Machine: How KKR Manufactured Power & Profits. New York: Warner Books. ISBN 0-446-51608-2.

Notable current and former employees

As of 1996, general partners (as opposed to associates) included Henry Kravis, George R. Roberts, Paul E. Raether, Robert I. MacDonnell, Jose Gandarillas, Michael W. Michelson, Saul A. Fox, James H. Greene, Jr., Michael T. Tokarz, Clifton S. Robbins, Scott M. Stuart, Perry Golkin and Edward A. Gilhuly. Saul Fox and Clifton S. Robbins are among the very few KKR partners who decided to leave the firm voluntarily. Fox started Fox Paine, a small but successful private equity firm, while Robbins joined General Atlantic Partners in 2000 and later founded Blue Harbour Group, L.P., a private investment firm based in Greenwich, CT. Gilhuly was the Managing Partner of KKR's European operations, based in London until November 2004, when he returned back to the United States, and jointly with Scott Stuart, launched SageView Capital. Johannes Huth, then a 44 year old (now 46) German national, was appointed head of the London office. Along with these partners and employees is one of the investors and share owner, Robert Rosner.