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KKR Announces KFN Deal

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KKR Announces KFN Deal

After the broad market raced higher by more than 100 points, we had a prominent deal announced after the market close on Monday. KKR & Co. (NYSE:KKR) and KKR Financial Holdings LLC (NYSE:KFN) announced the signing of a definitive merger agreement where KKR will acquire KFN through a stock-for-stock merger that values KFN at $2.6 billion. The lesser known KKR Financial Holdings is a specialty finance company with a range of assets around an array of strategies, principally leveraged credit through ownership of subordinated and mezzanine notes across a number of CLOs. The company also is known to play within many private markets including natural resources, commercial real estate and private equity. At the end of the day, KFN is externally managed by KKR.

Under the agreement, which has been approved by the boards of directors of both KKR and 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. Following the announcement, shares of KFN were sent soaring higher in the after hours session. At the time of this writing, shares of the company were up by more than 28 percent to $12.15 per share. Prior to the deal, shares of KFN had greatly underperformed the broad market averages. Shares of the company had been lower by 10 percent on the year alone.

Shares of KKR were largely unchanged after the deal, down by $0.08 in the after hours session. Shares of KKR have done especially well this year as investors have poured into the name. KKR investors are up by an astonishing 64 percent this year alone. Going forward, it will be interesting to see if the newly formed KKR can keep up these hefty returns in 2014.

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