July 28 (Bloomberg) -- KKR & Co., the leveraged-buyout firm run by Henry Kravis and George Roberts, plans to convert to a public company by the end of the year in a transaction that may give it a market value of as much as $15 billion.

KKR will abort the initial public offering it announced a year ago, before the buyout market collapsed, and instead go public through a takeover of the Amsterdam-listed buyout fund it created in May 2006. KKR Private Equity Investors LP has left investors who bought shares in its May 2006 IPO with losses of almost 60 percent, the only fund to post a loss in KKR's 32-year history. When the deal is completed by December, the shares will trade on the New York Stock Exchange, KKR said.

Kravis and Roberts won't raise new capital in the deal, a goal of the original IPO, though they will get the buyout fund's $4.56 billion of assets and can issue more new stock to make acquisitions and attract and retain employees. The cousins, who started the firm in 1976, consider going public as key to expanding KKR's fixed-income and capital-markets units and reducing their reliance on LBOs.

``Having a public security is sufficiently attractive that a firm will do a complex deal like this is order to have it,'' said Colin Blaydon, director of the Center for Private Equity and Entrepreneurship at Dartmouth College's Tuck School of Business in Hanover, New Hampshire.

After the acquisition, shareholders of KKR Private Equity Investors will own 21 percent of the public KKR. The firm will keep 79 percent, and principals including Kravis and Roberts, whose stock will vest over six to eight years, won't be able to start selling shares for 180 days.

`Not Cashing Out'

``We're not cashing out or selling any equity as part of this transaction,'' Kravis said on a conference call with investors today. ``This is different from any other alternative- asset IPO. We're long-term investors.''

The takeover values each share of KKR Private Equity Investors, or KPE, at $16 to $19.20, less than the fund's $22.25 net asset value at the end of June, the firm said in a presentation. The stock rose 32 percent to $13.90 in Amsterdam today. The shares, which were first sold to the public for $25, had dropped as low as $10.30 on July 18.

``We're all personally disappointed in KPE's stock price,'' Kravis said on the call. His partner, Roberts, cited the lack of trading in the stock, the low dividends the fund paid out, and the stock's decline.

LBO Pioneers

Kravis and Roberts, both 64, started the firm with their Bear Stearns Cos. colleague Jerome Kohlberg and helped pioneer the LBO business with deals such as the buyout of RJR Nabisco Inc. in 1989. Kohlberg left in 1987 to start Kohlberg & Co. The firm's investments today range from Alliance Boots, the British chain of drugstores, to HCA Inc., the U.S. hospital operator.

KKR plans to expand beyond the leveraged buyouts pioneered by founders Kravis and Roberts. Kravis cited ``opportunities'' in real estate, mezzanine loans, infrastructure assets and publicly traded shares.

In all, Kohlberg Kravis Roberts & Co., as the firm was previously known, owns stakes in 46 companies with $205 billion in sales and 855,000 employees, according to a presentation on its Web site. That includes the former TXU Corp., the Dallas- based power producer it bought with TPG Inc. for $45 billion including debt, the largest U.S. leveraged buyout.

In a leveraged buyout, the purchaser borrows money against the target company to fund the transaction. A two-year boom, fueled by low interest rates that allowed firms to seek ever- larger acquisitions, ended a year ago when rising losses on subprime mortgages scared investors away from all but the safest government debt, making financing scarce.

Net Loss

After earning $814.8 million in 2007, KKR had a net loss of $117.9 million in the first quarter as the value of the companies it owns fell, according to the statement released yesterday.

KKR forecasts a profit of about $1.2 billion in 2009, according to the presentation. It expects investors to value the company at 10 to 12 times earnings, or between $12 billion and $15 billion. At $15 billion, KKR Private Equity would have a value of about $3.9 billion, according to the presentation.

Blackstone Group LP, manager of the world's largest buyout fund, raised $4.75 billion in an IPO in June 2007. The New York- based company, whose stock has fallen 45 percent since, trades at 13 times estimated 2009 earnings and has a market value of $18.4 billion. Apollo Global Management LLC, the New York-based buyout firm run by Leon Black, initially sold stock to investors in a private placement, though it has filed to allow almost 30 million shares to trade publicly.

Deals Drop

Announced private-equity deals dropped more than 70 percent to $163.1 billion this year through July 25 from the same period in 2007, data compiled by Bloomberg show.

``You can't get bank debt right now, and KKR or any other private-equity firm can't get the returns they're looking for without bank debt,'' said Dan Veru, who helps manage $2.8 billion at Palisade Capital Management LLC in Fort Lee, New Jersey. ``They require more equity investment than leverage.''

KKR managed $60.8 billion of assets at June 30, 2008, according to the statement. Blackstone oversees $113.5 billion, and Washington-based Carlyle has about $81 billion under management. KKR's funds have returned an average of 26 percent to investors, according to the Web site.

Morgan Stanley and Goldman Sachs Group Inc. are advising KKR, while Citigroup Inc. is advising KKR Private Equity and Lazard is advising KKR Private Equity's independent directors.

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

Last Updated: July 28, 2008 12:25 EDT