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Analyst expects KKR stock to trade high

KKR's long-awaited NYSE listing, set for Thursday, is expected to be met with enthusiasm from US investors with 'pent up demand'.

Investor interest is expected to be strong for shares of Kohlberg Kravis Roberts, the alternatives giant that as of Thursday lists on the New York Stock Exchange under the symbol “KKR”.  
 
The long-awaited transition from the Amsterdam Euronext, where the company was listed following its 2009 merger with its affiliate KKR Private Equity Investors (now known as KKR Guernsey), is expected to be welcomed by US investors who have been anticipating the move since rival firm The Blackstone Group listed on the NYSE in 2007.

“I think there’s a fair amount of pent up demand from US investors who can now go out and buy the stock, whereas previously there may have been some technical or administrative issues with buying a non-US listed company,” said Michael Kim, an analyst at investment banking firm Sandler O’Neill who will be covering the stock in New York. “I think the shares will do well. They’ve now got a public currency, which they can use to go out and continue to build out the franchise, diversify into other businesses, use stock to attract and retain employees, so I think these are all favorable factors in terms of this relisting.”

KKR’s initial plans to float the firm have been consistently delayed as the markets turned against the company. KKR resurrected the plans in June 2009.

“I think the trend is in the direction of a lot of these [private equity] firms coming public. I think some of them that aren’t public may be at somewhat of a competitive disadvantage as it relates to having that public currency to grow the franchise.”

Michael Kim

According to the firm’s filing with the Securities and Exchange commission, KKR is listing 204.9 million shares, valued at roughly $2.21 billion and representing 30 percent of the firm. KKR’s principles with ownership stakes will continue to hold 70 percent of the firm. In addition to registering the shares, KKR announced in early May it would sell additional shares valued at a maximum of $500 million.

In a 11 May pre-IPO note on KKR by investment research firm Morningstar, analyst Greggory Warren wrote: “With few KKR units likely to actually trade following the firm’s listing on the NYSE, we expect the firm’s stock price to be somewhat volatile until more units are actually freed up and publicly traded.”  Warren also wrote that Morningstar expected KKR’s common stock to trade at $12 per share, roughly the same price as units of KKR Guernsey, which at the time were trading at $11.50 per share.

Sandler O’Neill’s Kim also touched on the additional offering’s potential to dilute the price of KKR’s shares. “You’re going to have a fair amount of stock coming to market, which could be a bit of an overhang,” he said. 

Kim did state that KKR’s listing could inspire other private equity firms to go public.

“I think the trend is in the direction of a lot of these [private equity] firms coming public,” he said. “I think some of them that aren’t public may be at somewhat of a competitive disadvantage as it relates to having that public currency to grow the franchise.”
 
Other firms that have gone public, like The Blackstone Group and Fortress Investment Group, have experienced declines in their shares from their initial IPOs. Shares of Blackstone, for example, which began trading in November 2008 at $31, closed at $10.28 at the close of the market Wednesday.