KKR Files For IPO of $1.25 Billion

Blackstone Ups Buyout Ante In Bid to Acquire Hilton Hotels

Kohlberg Kravis Roberts, one of the kings of the buyout world, filed for a $1.25 billion initial public offering yesterday, following the precedent set two weeks ago by its long-standing rival, Blackstone Group.

Minutes after KKR's IPO filing, Blackstone said it was acquiring Hilton Hotels, one of the most recognized brand names in American business. The deal is among the biggest buyouts in history, with Blackstone paying $18.5 billion in cash, or $47.50 a share, and assuming $7.5 billion in debt.

KKR's announcement established that Blackstone's IPO was not a singular event and suggested that the top buyout firms in the country, including Carlyle Group of the District, TPG Capital of Fort Worth and Madison Dearborn Partners of Chicago, could become public companies in the near future.

"I think it's a way to leverage the current bull market in private equity into creating enduring franchises," said Mark D. Ein, a Washington venture capitalist who worked at Carlyle Group. "Anyone who thought the Blackstone offering would have been a one-off situation, or that the political issues around it would have discouraged others from going public, can see now that it looks like an irreversible trend."

KKR and Blackstone are the most aggressive and biggest dealmakers in a private-equity world that has grown tenfold in three years. These buyout shops completed deals worth a half trillion dollars last year and are on track to nearly double that total this year.

KKR is going public despite proposals in Congress that would dramatically increase taxes paid by private-equity firms. The firm said it expects its shares to begin trading under the symbol "KKR" sometime in the fall or winter. In the past few months, KKR has accounted for five of the eight largest buyouts in the United States and, as of March 31, had about $53.4 billion under management.

In its IPO filing, KKR said it decided to go public so it could continue its rapid growth. But true to the secretive nature of private equity, KKR said it would not provide any earnings guidance and warned that shareholders would have almost no control over management decisions.

Unlike Blackstone, whose partners sold stock worth more than $1 billion in its offering, KKR said its owners would not sell shares in the IPO.

With its record-setting $31.4 billion acquisition of RJR Nabisco in 1988, KKR held the record for the biggest leveraged buyout in history for more than a decade. The size of that takeover was so extraordinary at the time that it became the subject of a best-selling book, "Barbarians at the Gate," which detailed the corporate egos and excesses surrounding the deal. Now multibillion-dollar buyouts barely raise eyebrows on Wall Street.

Blackstone is one of the few firms to rival KKR's hegemony in the private-equity world. In January, Blackstone set a new record for a single transaction by buying Equity Office Properties Trust for $39 billion. A few weeks later, KKR took back the crown by buying TXU, the largest power company in Texas, for $45 billion.

Henry Kravis, one of the founders of KKR, and Stephen Schwarzman, chief executive of Blackstone, are more than just business rivals and two of the wealthiest men in the world. Both are A-list names on the New York social and philanthropic scene, giving away millions of dollars and turning up regularly in the society pages.

By taking Hilton private, Blackstone is acquiring one of the most valuable brands in American business. The hospitality company dates to 1919, when Conrad Hilton bought his first hotel in Cisco, Tex. The company has grown to more than 2,800 hotels around the world, including flagships like the Waldorf-Astoria in New York, the New York Hilton and the Cavalieri Hilton in Rome. Blackstone already owns more than 100,000 hotel rooms in the United States and Europe, including La Quinta Inns and Suites.

"This will make Blackstone the absolute powerhouse in the hotel industry with the strongest representation and brands across every segment of the lodging industry," said Frederic V. Malek, chairman of Thayer Capital Partners and former president of Marriott Hotels and Resorts. "Hilton is a fabulous franchise, has outstanding management and will undoubtedly be a crown jewel in the Blackstone galaxy."

Blackstone began trading under the symbol "BX" on June 22 at $31 a share in what was one of the biggest and most highly anticipated IPOs of the past five years. After shooting up to about $38 a share during its first day of trading, the stock has since fallen below its IPO price, closing yesterday at $29.72 per share, up 45 cents.

In the days leading up to the IPO, lawmakers proposed a slew of tax bills aimed at Blackstone and other big private-equity firms. These companies organize themselves as partnerships and pay taxes at the capital gains rate of 15 percent.

Bipartisan legislation proposed in Senate last month would force private-equity firms that sell shares to the public to pay at the 35 percent corporate tax rate.