Opening Bell: 7.05.07KKR Special Edition


KKR to Raise $1.25 Billion in IPO After Blackstone (Bloomberg)
Late on Tuesday—after DealBreaker and everyone else who loves America had departed for early Independence Day revelry—Kohlberg Kravis Roberts finally announced its plans to raise as much as $1.25 billion in an initial public offering. If you buy into this IPO, the redcoats win.
Good Times, Bad Times: Make a Deal (New York Times)
Is conservatism “creeping in” to the private equity world? That’s the conclusion drawn by Michael J. de la Merced writing in the Times this morning. It seems an odd assertion to make in wake of the KKR IPO announcement. MJdlM, however, points out that KKR plans to raise only $1.25 billion, an effort he says amounts to “almost humbleness.” But is it the attitude that’s changed or the economics? Rather than a sign of conservativism, it might be better to look at these equity offerings as a bet against the continuation of cheap money. In the nearish future, borrowing probably won’t be as cheap as it’s been in recent years. So the private equity guys are building an equity umbrella for rainy days ahead.
The Barbarians are through the gate (Telegraph)
Telegraph writer James Quinn details Henry Kravis’ last moments before the IPO. “The clock approached 5.30pm EDT (10.30pm BST). He glanced at the framed yellow slip detailing the $10,000 (£4,958) he and fellow founders Jerome Kohlberg and George Roberts had deposited with the Chemical Bank in 1976,” Quinn writes. It would just be spoiling it to ask how Quinn can possibly know this, since it’s pretty obvious he wasn’t in the room.
KKR aims for premium over Blackstone (Financial Times)
Should KKR’s stock trade at higher multiples than Blackstone’s? KKR certainly believes it should. One justification we're hearing is that since KKR is more focused on private equity than Blackstone, which some have said has all but become an investment bank, it has more exposure to pure private equity upsides. But that’s just another way of saying it has more risk should the takeover-and-turnaround business start to crumble. What’s more, it’s 300-page prospectus mentions plans to “expand into new related businesses” which might mean more diversification. That’s usually a good thing but seems to undermine the pure PE multiple justification. So maybe it's the long-term investment lock-ups and revenue streams of its portfolio businesses?
KKR and Blackstone (Financial Times)
Wasn’t there some sort of bill in the Senate that was supposed to have the effect of discouraging private equity firms from going public? Our sources in Washington, DC say that rumors have started to fly around Capitol Hill that this bill won’t get passed—and if it did pass, it wouldn’t get signed by the president. One reason we’ve heard for the lack of enthusiasm for the bill among even some top Democrats is the fear of upsetting the electoral balance before the 2008 presidential election. Some Democrats think they gain from “soak the rich” rhetoric and politics, while others (*cough* Hillary *cough*) worry that the threat of raising taxes on private equity might be exactly what the Republicans need to spur on their laggard fund raising and unite a fractured financial community to stave off the Democrats.
KKR float threatens investment bank fees (Telegraph)
So why did KKR make their big announcement on the eve of Independence Day? What exactly is KKR planning on becoming independent from? Perhaps the answer is: they were declaring independence from investment banks. The prospectus indicates that KKR will use money from the IPO to reduce its "reliance on third party sources of capital." That phrase—“third party sources of capital”—roughly translates into “investment bank debt underwriting and syndication.” It might seem surprising that KKR—which notoriously pushes around its lenders when it makes deals—wants to free itself from the banks which have helped it grow into the giant that it is. But no matter how loose you can convince a bank to make its covenants, you still have to pay its fees. From the prospective of a lot of private equity folks, the fees from investment bank debt syndication and bond underwriting are pure dead weight costs, and the folks “earning” those fees are simply making money from having money to hand out. And after the triumph over debt covenants by private equity, the investment banks aren’t even acting as the cautionary conservatives in the takeover business anymore. If there is one thing that could put a smile on Henry Kravis’s face, it would be freedom from those fees.


Opening Bell: 2.29.16...Leap Day Edition!

BofA printing up fat stack of plink slips; "Spotlight" takes home Best Picture; Trump won't disavow the Klan; American Airlines first class seats soaked in urine; and more!

Opening Bell: 11.30.15

Wells Fargo sales culture probed; Going public out, getting bought in; World's biggest pension fund loses $64 billion; "Brazilian police hunt Santa Claus who stole Sao Paulo helicopter"; and more.

Opening Bell: 04.09.13

KPMG Fires L.A. Partner Over Alleged Insider-Trading Tips (WSJ) KPMG LLP has fired a senior partner in its Los Angeles office, saying the unidentified partner had provided inside information about its clients to someone who had used that information in stock trading. In a statement late Monday night, the Big Four accounting firm also said it had resigned as the outside auditor of two of its clients because of the actions of the partner, who it described as the partner in charge of its audit practice in its Los Angeles business unit. KPMG said the partner "was involved in providing nonpublic client information to a third party, who then used that information in stock trades involving several West Coast companies." The firm didn't identify the third party or any of the companies involved. KPMG Said to Resign as Herbalife’s Auditor Over Investigation (Dealbook) Herbalife is poised to disclose on Tuesday that KPMG will have to resign as the company’s auditor, after the accounting firm fired a senior partner, according to a person briefed on the matter. JPMorgan Leads Job Cuts as Banks Seek to Bolster Profit (Bloomberg) Even after the industry posted its best results since 2006, the six largest U.S. banks announced plans in the first three months of this year to eliminate about 21,000 positions, or 1.8 percent of their combined workforce, according to data compiled by Bloomberg. That’s the most since 2011’s third quarter. JPMorgan Chase, whose 259,000 people produced three straight years of record profit, topped the list with 17,000 reductions scheduled by the end of 2014. Fed Warned To Reign In QE (FT) Rick Rieder, who oversees $763 billion in fixed income investments for BlackRock, spoke out as the Fed debates how long to persist with the unorthodox measures it has used to stimulate the U.S. economy. His comments add BlackRock to the growing list of Fed critics who are warning of trouble ahead for the bond market. Fitch Cuts China Debt Rating (WSJ) The credit-rating firm Tuesday lowered China's long-term local currency rating to A-plus from AA-minus, with a stable outlook. It kept the foreign-currency rating unchanged at A+, saying it is well supported by China's massive foreign exchange reserves, worth $3.387 trillion at the end of 2012. KKR, Others In Mega-Deal (NYP) Private-equity titans Henry Kravis and Steven Schwarzman are teaming up on what is likely the biggest leveraged buyout in several years. KKR has joined an investor group of Blackstone, Carlyle, TPG Capital and Temasek to bid more than $12 billion for Life Technologies, a source said. SeaWorld IPO Could Raise $621 Million (Deal Journal) SeaWorld Entertainment plans to sell 10 million shares and Blackstone Group plans to sell the other 10 million, giving each up to $270 million a piece. Following the sale, Blackstone will continue to be the company’s majority shareholder, and would hold about 70.5% of the stock if the underwriter’s sold their full option. Trip to Cuba by Beyoncé and Jay-Z Is Investigated (NYT) The United States Treasury Department has begun investigating whether Jay-Z and Beyoncé — music’s royal couple — violated the trade embargo against Cuba by traveling to the island two weeks ago during their wedding anniversary, according to officials and a person who helped arrange their visit...Questions about the megastars’ trip have been swirling for days, with some Cuban exile bloggers describing the trip as a propaganda mission “carefully planned and controlled by the Castro dictatorship.” Putin Squeezing Out UBS to Deutsche Bank Using Oligarchs (Bloomberg) OAO Sberbank, Russias’s biggest lender, and VTB Group have increased investment-banking fee income more than fivefold since 2005, according to data compiled by Freeman & Co., a New York-based consulting firm. European financial institutions including UBS, Deutsche Bank and Royal Bank of Scotland lost almost half their market share during the period. EU Launches Probe Into MasterCard (WSJ) The European Union has opened an antitrust investigation into MasterCard, following concerns that some of the credit-card company's interbank fees are anticompetitive. Citigroup To Cut Senior Posts In Streamlining (WSJ) Under Mr. Forese's plan, there no longer will be a head of securities and banking, a post that Mr. Forese had held until his elevation to his new position. Also expected to go is the head of transaction services, currently occupied by Francesco Vanni d'Archirafi. Clarence man with frog phobia wins $1.6 million verdict (Buffalo News) “I’m petrified of the little creatures,” said Marinaccio, 65. If that sounds bizarre or far-fetched, consider one of Marinaccio’s childhood memories. He traces his deep-seated fear of frogs to when he was a child in an Italian vineyard, where his parents worked. He remembers wandering to a nearby property for figs and being chased away by a man holding bullfrogs. Decades later, frogs again have Marinaccio on the run. In the spring and summer months, they show up on his driveway and lawn – keeping him inside his home. Marinaccio sued the Town of Clarence and the developer of a nearby subdivision for diverting runoff onto his land and won a $1.6 million award...Neither side knows for sure how Marinaccio’s frog phobia affected the case. But jurors who returned the verdict in his favor heard his startling testimony on the witness stand in 2009. “You people don’t understand,” Marinaccio said in court. “I am petrified. I go home at night, and I can’t get in my garage because of the frogs. They’re right in front of the damn door, OK?” He talked about how he had to call his grown daughter, who lives a few miles away, two or three nights a week to come over and shoo away the frogs. “In the winter, it’s OK, because I know there’s no frogs,” he said. “But in the summertime, I mean I’m a damn prisoner in my own home.”