Expected to Increase Scale, Diversification, Liquidity and Yield
Profile of KKR's Balance Sheet
KKR Plans to Distribute 100% of KFN's Realized Earnings
Transaction to be Immediately Accretive to Total Distributable
Earnings per Unit, Distribution per Unit and Book Value per Unit
Exchange Ratio Represents 35% Premium to KFN Share Price
NEW YORK & SAN FRANCISCO--(BUSINESS WIRE)--
KKR & Co. L.P. (NYSE:KKR) and KKR Financial Holdings LLC (NYSE:KFN)
today announced the signing of a definitive merger agreement where KKR
will acquire KFN through a stock-for-stock merger that values KFN at
KFN is a specialty finance company with a portfolio of assets spanning a
complementary range of strategies, principally leveraged credit through
ownership of subordinated and mezzanine notes across a number of CLOs;
special situations; and Private Markets strategies including natural
resources, commercial real estate and private equity. KFN is externally
managed by KKR.
Under the agreement, which has been approved by the boards of directors
of both KKR and KFN, in KFN's case based on the unanimous recommendation
of a committee of independent directors of KFN, shareholders of KFN will
receive 0.51 common units of KKR for each common share of KFN. Based on
KKR's closing price as of December 16, 2013, the exchange ratio equates
to a value of $12.79 per common share of KFN, implying a 35% premium to
KFN's closing price on December 16, 2013, or $2.6 billion in total
common equity value.
Based on the volume-weighted average closing price of KKR common units
over the 30 trading days ended December 16, 2013, the exchange ratio
implies a 27% premium to the volume-weighted average closing price of
KFN common shares over the same time period.
Kravis and George
Roberts, Co-Chairmen and Co-Chief Executive Officers of KKR, stated:
"Through this transaction, we are acquiring a business with a fully
invested, complementary portfolio of assets while increasing the scale
and diversity of KKR's balance sheet. Furthermore, through the
distribution of KFN's realized earnings, the transaction is expected to
provide a meaningfully greater recurring component to KKR's distribution
and also be immediately accretive on a total distribution per unit
Paul Hazen, Chairman of the board of directors of KFN, said: "KFN has
built a strong business with a diversified portfolio of assets. This
transaction offers KFN shareholders a substantial premium for that
business, with an implied value in excess of the company's trading price
over the last five years, while enhancing holders' liquidity.
Furthermore, through the ownership of KKR common units, KFN common
shareholders will gain access to the performance of the entire KKR
platform, including asset management, capital markets and the KKR
balance sheet, in addition to participating in KFN's legacy portfolio."
Acquisition of a finance business with a complementary and known
portfolio of assets and an attractive capital structure. KFN is a
specialty finance company with a $2.9 billion portfolio invested in a
complementary set of strategies, which KKR currently manages. In
addition, KKR will preserve KFN's attractive funding structure,
including $1 billion of long-term, largely fixed-rate debt and
perpetual preferred securities, all of which will remain obligations
of KFN without recourse to any other KKR entity.
Additional balance sheet scale to support KKR's growth initiatives. Since
acquiring its balance sheet through the combination with KKR Private
Equity Investors L.P. in 2009, KKR has committed over $2.5 billion of
capital across strategies including private equity, real estate,
energy, leveraged credit and special situations. Pro forma for the
transaction, KKR's permanent capital base will increase further: book
value as of September 30, 2013 is expected to rise from $7.2 billion
to $9.3 billion, while book value per adjusted unit will grow by 13%
from $10.07 to $11.34. This additional scale and financial flexibility
will support the continued growth of KKR's business by providing:
Significant capital to support the further build-out of KKR's
investment management strategies;
Potential for increased exposure to capital market transactions
that KKR sources;
Accelerated growth of KKR's new businesses; and
Incremental capital for pursuit of inorganic growth opportunities.
Acceleration of KKR's balance sheet objectives. The acquisition
of KFN will accelerate the diversification of KKR's balance sheet
holdings, in addition to increasing their liquidity and yield profile.
Accretive to size and quality of distribution. Through the
distribution of KFN's realized earnings, the transaction is expected
to meaningfully increase the more predictable and recurring component
of future KKR distributions. It is also expected to increase KKR's
total distributable earnings per unit and total distribution per unit.
Minimal integration risk. Integration risk is minimal as KFN's
assets are already managed by KKR.
KFN Common Shareholders
Significant premium. The transaction offers a significant
premium to KFN shareholders based on closing prices as of December 16,
2013 as well as on a trailing 30-day volume-weighted average closing
price basis. In addition, the implied transaction value reflects a
multiple of 1.15x KFN's GAAP book value per common share of $10.42 as
of September 30, 2013.
Materially enhanced trading liquidity. Over the last 12 months,
KKR's average trading volume has been over $40 million per day versus
approximately $10 million per day for KFN.
Ability to participate in value enhancement across KKR's businesses.
Through the ownership of KKR common units, KFN common shareholders
will have the opportunity to participate in the performance of all KKR
businesses, including alternative asset management, capital markets
and the KKR balance sheet.
The transaction is subject to approval by KFN's shareholders as well as
customary regulatory approvals and other customary closing conditions.
Upon closing of the transaction, which is expected in the first half of
2014, KFN will become a subsidiary of KKR. KFN's perpetual preferred
shares as well as its junior subordinated and senior notes will remain
outstanding securities of KFN.
Goldman, Sachs & Co. and Simpson Thacher & Bartlett LLP are representing
KKR, and Lazard and Cravath Swaine & Moore LLP are serving as
independent financial and legal advisors to the independent directors of
KKR. Sandler O'Neill + Partners, L.P. and Wachtell, Lipton, Rosen & Katz
are serving as independent financial and legal advisors to the
independent committee of the KFN board of directors.
Additional Information for KFN Common Shareholders
In connection with the proposed transaction, KKR & Co. L.P. currently
intends to file a Registration Statement on Form S-4 that will include a
proxy statement/prospectus of KFN. KKR & Co. L.P. also plans to file
other relevant materials with the SEC. Shareholders of KKR Financial
Holdings LLC are urged to read the proxy statement/prospectus contained
in the Registration Statement and other relevant materials because these
materials will contain important information about the proposed
transaction. These materials will be made available to the shareholders
of KFN at no expense to them. The Registration Statement and other
relevant materials, including any documents incorporated by reference
therein, may be obtained free of charge at the SEC's website at www.sec.gov
or for free from KKR at http://ir.kkr.com/kkr_ir/kkr_sec.cfm
or by emailing firstname.lastname@example.org.
Such documents are not currently available. You may also read and copy
any reports, statements and other information filed by KKR & Co. L.P.
with the SEC at the SEC public reference room at 100 F Street N.E., Room
1580, Washington, D.C. 20549. Please call the SEC at (800) 732-0330 or
visit the SEC's website for further information or its public reference
This document shall not constitute an offer to sell or the solicitation
of an offer to buy any securities, nor shall there be any sale of
securities in any jurisdiction in which such offer, solicitation or sale
would be unlawful prior to the registration or qualification under the
securities laws of any such jurisdiction. No offering of securities
shall be made, except by means of a prospectus meeting the requirements
of Section 10 of the Securities Act of 1933, as amended.
KKR, KFN and their respective directors, executive officers and
employees may be deemed, under SEC rules, to be participants in the
solicitation of proxies from KFN's common shareholders in respect of the
proposed transaction. Information regarding KFN's directors and
executive officers is available in KFN's proxy statement for its 2013
annual meeting of shareholders, filed with the SEC on March 18, 2013.
Information regarding KKR's directors and executive officers is
available in KKR's Annual Report on Form 10-K for the fiscal year ended
December 31, 2012, filed with the SEC on February 22, 2013. Additional
information regarding the interests of such potential participants in
the proposed transaction will be included in the proxy
statement/prospectus to be filed with the SEC in connection with the
proposed transaction. These documents may be obtained free of charge
from the SEC's website at www.sec.gov
and KFN's website at http://ir.kkr.com/kfn_ir/kfn_sec.cfm.
Conference Call Information
A conference call to discuss the transaction will be held on Monday,
December 16 at 5:30 p.m. EST. The conference call may be accessed by
dialing (877) 303-2917 (U.S. callers) or +1 (253) 237-1135 (non-U.S.
callers); a pass code is not required. Additionally, the conference call
will be broadcast live over the Internet and may be accessed through the
Public Investors section of KKR's website at http://ir.kkr.com/kkr_ir/kkr_events.cfm.
Supplemental materials that will be discussed during the call will be
available at the same website location.
A replay of the live broadcast will be available on KKR's website or by
dialing (855) 859-2056 (U.S. callers) or +1 (404) 537-3406 (non-U.S.
callers), pass code 25775550 beginning approximately two hours after
completion of the broadcast.
Founded in 1976 and led by Henry
Kravis and George
Roberts, KKR is a leading global investment firm with $90.2 billion
in assets under management as of September 30, 2013. With offices around
the world, KKR manages assets through a variety of investment funds and
accounts covering multiple asset classes. KKR seeks to create value by
bringing operational expertise to its portfolio companies and through
active oversight and monitoring of its investments. KKR complements its
investment expertise and strengthens interactions with fund investors
through its client relationships and capital markets platform. KKR & Co.
L.P. is publicly traded on the New York Stock Exchange (NYSE: KKR) and
"KKR", as used in this release, includes its subsidiaries, their managed
investment funds and accounts, and/or their affiliated investment
vehicles, as appropriate. For additional information, please visit KKR's
website at www.kkr.com.
KKR Financial Holdings LLC is a specialty finance company with expertise
in a range of asset classes. KFN's core business strategy is to leverage
the proprietary resources of its manager with the objective of
generating both current income and capital appreciation. KFN executes
its core business strategy through its majority-owned subsidiaries. KFN
is externally managed by KKR Financial Advisors LLC, a wholly-owned
subsidiary of KKR Asset Management LLC, which is a wholly-owned
subsidiary of Kohlberg Kravis Roberts & Co. L.P. Additional information
regarding KFN is available at http://www.kkr.com.
Some of the matters discussed in this document may constitute
forward-looking statements within the meaning of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements relate to expectations, beliefs, projections,
future plans and strategies, anticipated events or trends and similar
expressions concerning matters that are not historical facts. The
forward-looking statements are based on KKR's and KFN's beliefs,
assumptions and expectations of its future performance, taking into
account all information currently available to it. These beliefs,
assumptions and expectations can change as a result of many possible
events or factors, not all of which are known to KKR or KFN or are
within either of their control. The following factors, among others,
could cause actual results to vary from the forward-looking statements:
the ability of the parties to satisfy the conditions precedent and
consummate the proposed merger, the timing of consummation of the
proposed merger, the ability of the parties to secure any required
shareholder or regulatory approvals in a timely manner or on the terms
desired or anticipated, the ability to achieve anticipated benefits and
savings, risks related to disruption of management's attention due to
the pending merger, operating results and businesses generally, the
outcome of any legal proceedings related to the proposed merger and the
general risks associated with the respective businesses of KKR and KFN,
including the general volatility of the capital markets, terms and
deployment of capital, volatility of the KKR or KFN share prices,
changes in the asset management industry, interest rates or the general
economy, underperformance of KKR's and KFN's assets and investments and
decreased ability to raise funds and the degree and nature of KKR's and
KFN's competition. KKR does not undertake any obligation to update any
forward-looking statements to reflect circumstances or events that occur
after the date on which such statements were made except as required by
law. Additional information about factors affecting KKR is available in
KKR & Co. L.P.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 2012, filed with the SEC on February 22, 2013, and other
filings with the SEC, which are available at www.sec.gov.
Additional information about risk factors affecting KFN is available in
KFN's Annual Report on Form 10-K for the fiscal year ended December 31,
2012, filed with the SEC on February 28, 2013, and other filings with
the SEC, which are available at www.sec.gov.
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KKR Investor Relations
877-610-4910 (U.S.) / +1 212-230-9410
+1 855-374-5411 (US) / +1
Source: KKR & Co. L.P. and KKR Financial Holdings LLC
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