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Boston College Law School

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Thursday, July 5, 2007

Shareholder Rights: Comparing KKR, Blackstone et al.

The day before Independence Day, KKR & Co. LP filed its registration statement to go public in a $1.5 billion offering.  Another day another fund adviser ipo.  Anyway, out of curiosity, I've prepared a chart comparing the two ipos on key shareholder measures:

KKR

Blackstone

Amount of Offering

$1.5 billion

$4.133 billion

Amount Sold by Current Partners in Offerng

$0

$4.57 billion with greenshoe exercise (it is more than the offering amount due to the concurrent sale of $3 billion in Blackstone non-voting units to the Chinese government)

Voting Rights

Only limited voting rights relating to certain matters affecting the units.  No right to elect or remove the Managing Partner or its directors.

In addition, KKR’s current partners generally will have sufficient voting power to determine the outcome of any matter that may be submitted to a unitholder vote.

Same. 

Cash Distributions

Quarterly cash distributions to unitholders in amounts that in the aggregate are expected to constitute substantially all of our adjusted cash flow from operations each year in excess of amounts determined by the Managing Partner.

Same.

Priority of Cash Distributions

First, so that unitholders receive $______   per common unit on an annualized basis for such year;

Second, to the other holders of Group Partnership units until an equivalent amount on a per unit basis has been distributed to such other holders for such year; and

Thereafter, pro rata to all partners.

After ______, priority allocation ends and all partners receive pro rata distributions. 

First, so that common unitholders receive $1.20 per common unit on an annualized basis for such year;

 

Second, to the other partners of the Blackstone Holdings partnerships until an equivalent amount of income on a partnership interest basis has been allocated to such other partners for such year; and

Thereafter, pro rata to all partners.

 

After December 31, 2009, priority allocation ends and all partners receive pro rata distributions.   

Pre-ipo Partner Distributions

Distributions of $______       million.

Distributions estimated at $610.4 million.

Highlighted Return of Selected Underlying Funds

20.2%

22.6%

(Blanks in the KKR column are figures KKR will fill in in subsequent registration statement amendments)

So, there is not much difference between the two in terms of shareholder voting and distribution rights.  Both equally disenfranchise investors and both have the same distribution policies giving priorty distribution to investors through a set period of time.  KKR has yet to disclose this period but it will likely be similar to Blackstone's and end on December 31, 2009.  If I were aninvestor I'd be a little worried about the quantity of distributions thereafter as it will likely be well past the current private equity boom and the funds' new partners will likely be chomping for market-rate compensation by then.  Ultimately, the only significant difference on the above chart is that the KKR partners are not selling in the ipo which is a good sign, but they may be effectively making a sale through a significantly large pre-ipo cash distribution -- the KKR registration statement has yet to disclose the exact amount of the distribution.

So, ultimately, in terms of shareholder and distribution rights they both appear to be equally troublesome.  Also, for those who are wondering, the Fortress and Och-Ziff ipos are a bit different in terms than KKR and Blackstone but effectively accomplish the same shareholder disenfranchisement and distribution policies. 

(Source:  Blackstone Prospectus; KKR Registration Statement)

http://lawprofessors.typepad.com/mergers/2007/07/shareholder-rig.html

Hedge Funds, Private Equity | Permalink

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