July 4 (Bloomberg) -- Kohlberg Kravis Roberts & Co., the leader in leveraged buyouts this year, plans to raise as much as $1.25 billion in an initial public offering to help finance its appetite for the biggest takeovers.

The 31-year-old firm will use the money for investments and to ``expand into new related businesses,'' according to a filing yesterday with the U.S. Securities and Exchange Commission. Founders Henry Kravis and George Roberts won't sell any shares, unlike Blackstone Group LP founders Stephen Schwarzman and Peter G. Peterson, who raised $2.56 billion between them from their firm's IPO last month.

KKR, whose funds owns 40 companies that have 560,000 employees, led $200 billion of leveraged buyouts in the past 12 months, more than the combined total by Blackstone or Carlyle Group, their two biggest competitors, according to data compiled by Bloomberg. The 63-year-old cousins are taking their New York- based firm public as a record number of companies go private in $618 billion of leveraged buyouts this year.

``Fund-raising is a time drain,'' said Paul Schaye, managing director of New York-based Chestnut Hill Partners, which finds deals for private-equity firms. ``This means they don't have to go back to the market so much.''

KKR is going public amid a rush of IPOs by private-equity firms and hedge funds. Apollo Management LP, based in New York, and Washington-based Carlyle have said they are weighing public offerings. Och-Ziff Capital Management Group LLC, the investment firm run by former Goldman Sachs Group Inc. trader Daniel Och, filed July 2 to raise $2 billion in the largest IPO by a U.S. hedge-fund manager.

RJR Takeover

While KKR pushed LBOs into the spotlight with the hostile takeover of RJR Nabisco Inc. in 1989, a deal chronicled in the book ``Barbarians at the Gate,'' its profits trail those of Blackstone Group.

KKR's net income rose 12 percent last year to $1.11 billion, compared with $2.27 billion for New York-based Blackstone, which was established 10 years later and expanded into money management, distressed debt and investment banking advice in addition to buyouts. Profits at Blackstone rose 70 percent from 2005.

Blackstone shares trade at 14 times earnings, giving the company a market value of $32.2 billion. On that basis, KKR would be worth about $15.8 billion.

Millennium Fund

KKR didn't disclose the number of shares it would sell or their anticipated price. The $1.25 billion value given in the filing was an estimate used to calculate the SEC registration fee. The company will be renamed KKR & Co. LP and trade on the New York Stock Exchange under the symbol KKR.

The company invests 83 percent of its $53.4 billion of funds in leveraged buyouts, compared with 37 percent of Blackstone's $88.4 billion of assets. That strategy has helped Blackstone's funds grow at a 41 percent compound annual rate in the past six years, compared with 29 percent for KKR over the past five.

The firm's Millennium Fund, closed in 2002, has delivered a net internal rate of return of 41 percent to investors, according to the filing, making it KKR's best-returning pool.

Blackstone shares dropped 4.1 percent since the company's $4.75 billion offering amid concern that the leveraged buyout boom has peaked. The shares rose 45 cents to $29.72 in New York Stock Exchange composite trading yesterday. Fortress shares have fallen 30 percent since reaching a high on April 19 and closed at $23.17 yesterday, up 15 cents.

TXU Buyout

KKR's deals this year include the second- and third-largest LBOs ever. The company is leading investors in the pending $45 billion purchase of Dallas based electricity producer TXU Corp. and the $25.6 acquisition of payments processor First Data Corp. in Greenwood Village, Colorado.

The pace may slow as investors start to cut back on the bonds and loans that takeover firms rely on to finance about two- thirds of their deals. U.S. Foodservice, a Columbia, Maryland- based unit of Dutch supermarket company Royal Ahold NV, agreed to be bought by KKR and Clayton Dubilier & Rice Inc. for $7.1 billion in May. The transaction closed yesterday, after bankers on the deal postponed a planned debt offering June 26.

``There are some difficulties beginning to emerge in the debt markets,'' Jon Moulton, who runs London-based private equity firm Alchemy Partners, said yesterday at a meeting with a committee of the U.K. Parliament. ``At some stage no one will be willing to underwrite fresh debt.''

Kravis and Roberts started the firm with Jerome Kohlberg, their colleague from Bear Stearns Cos., in 1976. Kohlberg left in 1987 and started his own buyout group, Kohlberg & Co. LLC.

Tax Status

KKR, like Blackstone and Fortress, plans to organize as a partnership, which would allow income to flow directly to shareholders without an additional layer of corporate taxes. Investors could pay taxes as low as the 15 percent capital-gains rate. Blackstone's IPO boosted efforts by lawmakers to propose bills that would require some hedge-fund managers and most private-equity firms to pay tax rates as high as 35 percent as corporations do.

KKR's principals will control the company and investors will have little say in how it's run, according to the SEC filing.

Kravis and Roberts hired Morgan Stanley and Citigroup Inc. to manage the offering. The New York-based firms also underwrote Blackstone's IPO. Simpson Thacher & Bartlett LLP is providing legal counsel.

The company paid Wall Street firms $757.9 million in 2006 for takeover advice and financing, the most of any private-equity company, according to estimates by industry consultants at New York-based Freeman & Co. Last year, it raised $5 billion by selling shares in a fund that trades in Amsterdam.

Private-equity firms raised a record $210 billion in 2006, a 57 percent increase from the previous year, and the larger pools have pushed them to do larger deals.

To contact the reporters on this story: Elizabeth Hester in New York at ehester@bloomberg.net; Jason Kelly in New York at jkelly14@bloomberg.net.

Last Updated: July 4, 2007 08:49 EDT