KKR is a private equity company, which became famous in 1988 for the unprecedented takeover of RJR Nabisco for $ 29 billion. A week ago, the company has announced that it will change its structure to a classic “corporate” structure at the beginning of this July, which allows them shares to be traded on stock exchange.
Advantages of classic stocks
So far, the shares of this company are traded under the “Business Development Companies” regime. Today, these shares have a P / E 10 and a dividend yield of 3.2%. While these companies benefit from tax benefits, they are subject to numerous restrictions. Thanks to Trump’s tax reform, corporate tax benefits for Business Development Companies will drop sharply compared to standard companies. The advantages of a “corporate” structure for KKR will be more significant, for example, when stabilizing the dividend pay-outs.
KKR’s advantage over a number of competitors, including the Blackstone Group, is bigger revenue predictability – thanks to a lower share of the “success fee” in total revenue. Companies with a small share of fixed income cannot afford it – they would have extremely volatile results. Volatility of results is not a problem for “Business Development Companies”, but for classic companies it represents a significant problem.
Switching to a corporate model thanks to Donald Trump
After Ares Management, it is the second private equity company that, thanks to Trump’s tax reform, switches from a partner model to a corporate one. KKR’s goal is to become a member of stock indices, which would raise the company’s prestige and consequently share prices.
Other companies are waiting and perceiving the KKR mostly as a test balloon.