There are some moments where you just know that Wall Street will never be the same. Black Thursday. Black Monday. The repeal of Glass-Steagal. The deaths of Lehman Brothers and Bear Stearns. Goldman Sachs going public.
July 1, 2018, will provide just such a moment, when Kohlberg Kravis Roberts abandons its more than four-decade-old partnership structure to become a plain-vanilla corporation. It seems a lot like the Goldman IPO, what with this oldest, toughest and smartest of private-equity shops giving up a key tradition that helped make it so. But it’s actually bigger, as if Goldman, instead of being the last big Wall Street house to go public, had been the first; to date, only Ares Management has taken the plunge among publicly-trading p.e. firms. The other big boys—Apollo, Blackstone, Carlyle and the rest—are playing it safe, for now. As Apollo founder Josh Harris noted, “converting… is essentially a one-time decision and permanent.”
To which Henry Kravis would undoubtedly say, “pussies.” Have Harris and the rest not heard of President Shit-for-Brains’ great giveaway to people like themselves? That converting to a corporation may involve a higher tax rate but may also come with a gigantic motherfucking windfall in terms of soaring stock prices to go along with the gigantic motherfucking windfall they’ve already got? It’s a new world, and Henry Kravis and the other old men of p.e. aren’t gonna live forever. Time to squeeze all they can out of this thing. For if nothing else, Henry Kravis knows how to make money for Henry Kravis.
KKR hopes the change will make the stock more attractive to mutual funds and other institutional investors, which mostly don’t invest in publicly traded partnerships. This lack of demand has depressed KKR’s stock price, said Scott Nuttall, KKR’s co-president and co-chief operating officer.
“It became clear to us that we’ve been fishing in a small pond with a slow leak and wondering why we weren’t catching anything,” he said on a conference call Thursday to discuss the firm’s first-quarter financial results….
William Janetschek, KKR’s chief financial officer, said the conversion will eventually raise the firm’s effective tax rate to about 22% from roughly 7%…. The driving rationale for a conversion is that making shares accessible to a broader group of investors, including potentially being included in indexes, will help lead to higher valuations.
You’d better bet that the backs of Janetschek’s and Kravis’ envelopes show some seriously higher valuations, because there’s no other way the latter would ever agree to make pissant upstart Jeff Ubben as happy as this move can’t help but make him.