KKR Profit Quadruples as Nine-Year Walgreens Boots Ride Endsby
Firm plans to increase dividend, expand buyback program
Rally in payment-processor First Data continued in quarter
The private equity firm’s economic net income, which reflects both unrealized and realized investment gains, was $339.2 million, or 40 cents a share, compared with $70.5 million a year earlier, New York-based KKR said in a statement Thursday. The result matched the average per-share estimate of analysts surveyed by Bloomberg.
KKR in November sold $1.8 billion of stock in retailer Walgreens Boots, exiting the company more than nine years after taking its predecessor private. The firm generated about $7 billion for fund investors on an investment of $2.1 billion, Chief Financial Officer Bill Janetschek said on a conference call with analysts Thursday.
The firm first bought U.K. drugstore chain Alliance Boots in 2007 in a $22.2 billion deal, and then nearly tripled its money when the company merged with U.S. peer Walgreen Co. in 2015. KKR has been selling shares of the publicly traded Walgreens Boots in recent quarters.
First Data Corp., KKR’s biggest public holding, continued its rally in the three months ended Dec. 31 by gaining 7.8 percent, after jumping in the third quarter and falling in the first half of the year. Shares of the company, which KKR took public in 2015 after weathering a downturn in consumer spending and installing several different chief executive officers, slid 11 percent in 2016.
KKR’s fourth-quarter result “reflects strong private equity performance as well as an active quarter” for asset sales, Jefferies Group LLC analysts led by Gerald O’Hara wrote in a note to clients Thursday.
KKR’s investment in First Data is unusual among private equity managers because in addition to investing client capital from its funds, it bet about $1 billion of its own money on the company from 2007 to 2014. The move, which the firm was able to do because it has the largest balance sheet among its peers, allows it to keep more of the investment’s gains while also being more exposed to its losses.
Shares of KKR fell 1.6 percent to $18.07 at 12:08 p.m. in New York, paring the stock’s gain this year to 17 percent.
The firm said it plans to boost its fixed dividend to 17 cents a share from 16 cents starting in the first quarter. It also expanded its share repurchase plan by $250 million, adding to a $500 million program started in October 2015.
In addition to Walgreens, the firm in the quarter sold French luxury retailer SMCP Group to China’s Shandong Ruyi Technology Group and disposed of German cookware and coffee-machine maker WMF to France’s SEB SA.
Distributable earnings, which reflect profits on asset sales and fund management fees, rose to $389.9 million in the quarter from $168.6 million a year earlier. KKR will draw on that pool to pay a dividend of 16 cents a share on March 7.
KKR had to write down its holding in the bankrupt oil and gas driller Samson Resources Corp., trimming distributed earnings by 31 cents a share, Janetschek said on the call. KKR had previously marked down the investment and it didn’t affect economic net income in the fourth quarter, he said.
KKR’s private equity portfolio appreciated 3.4 percent during the three months ended Dec. 31, compared with a 3.3 percent advance in the S&P 500 index of large U.S. companies. Blackstone Group LP reported a 4.5 percent gain in its portfolio, Apollo Global Management LLC’s jumped 5.9 percent, and Carlyle Group LP’s rose 4 percent.
Publicly traded private equity firms must mark their holdings to the market each quarter, even though their typical strategy is to hold assets for years. That makes economic net income, which in part reflects these unrealized changes in value, merely a snapshot of assets that may have a long runway before being sold.
KKR, led by billionaire cousins Henry Kravis and George Roberts, managed $129.6 billion in private equity holdings, credit assets, real estate and hedge funds as of Dec. 31. The firm raised $4.5 billion during the three months and distributed $7.1 billion to clients.
KKR agreed this week to combine its Prisma hedge fund-of-funds unit with Pacific Alternative Asset Management Co., creating an investment firm with about $34 billion in assets. Neither KKR nor Paamco is selling ownership interests in the businesses, and the combination is expected to be completed in the second quarter.
The deal with Paamco is offensive, not defensive, said Scott Nuttall, KKR’s head of global capital and asset management. Paamco Prisma Holdings will be the third-biggest hedge fund-of-funds manager, allowing it to better compete and serve clients, he said.