Nobody can question Eastman Kodak’s intention in raising some $700 million. Getting a commitment from private equity firm Kohlberg Kravis Roberts to buy up to $400 million of its debt is also a perfectly logical step for the old-economy stalwart as it lumbers into the digital age. What KKR is thinking is another matter.

KKR says the investment reflects its belief in Kodak’s strategy. They’re also getting warrants in Kodak to purchase up to 53 million shares of its common stock. The Wall Street Journal says KKR could end up owning close to 20 percent of the company.

The 24/7 Wall St blog notes that the fall in Kodak’s share price following the news shows the market isn’t blindly convinced of KKR’s intelligence. But Kodak’s bonds got a boost, if for no other reason than there’s a buyer out there.

Nobody has offered much in the way of explanation as to why KKR sees potential in Kodak. Boosters may say most of the company’s restructuring is behind it, but that doesn’t answer the more important question of what lies ahead. Any bright ideas?

A number of private equity firms in Europe are going back to investors for more money to fix over-extended balance sheets and fund add-on acquisitions for companies in their portfolio.

Private equity’s world has turned upside down since the start of the credit crisis. All the stats show that deal flow has dropped off a cliff and those deals that have got done are smaller and the equity cheques larger. At the same time,  restructuring situations are mounting as firms face the uneviable choice of injecting more equity or face losing their investments to the banks.

The upshot is that buyout funds raised in rosier times are no longer suited to the current environment, if indeed they have any capital left at all.

As I have discovered, Nordic Capital, Investindustrial - the Bonomi family’s southern European buyout firm - and Graphite Capital are all asking investors for more money as they look to adapt to the new climate.

Many investors are currently over-committed to the asset class, meaning that the reaction to requests for new capital is likely to be mixed.

One investor in KKR’s second European buyout fund refused to back a planned 750 million euro annex fund because he viewed it as “a good money after bad” situation.

Other top-up fund stories have a more positive spin.

Inflexion raised a 75 million pound top-up fund earlier this year for its 2006 fund to help it take advantage of what it saw as increased opportunities stemming from the financial crisis. Similarly, Graphite is asking for a modest 35 million pounds to enable it to do larger deals without over-commiting its existing buyout fund, which is so far only around 25 percent spent.

Investindustrial, meanwhile, has spent its 2005 buyout fund but wants more money to fund bolt-on deals for the strongest companies in the portfolio. Nordic Capital wants 150 million euros for some defensive portfolio work and some add-on deals but is asking to reuse money otherwise destined to be returned to investors.

Whatever the purpose of top-up fund, had buyout firms (in most cases) retained enough capital in their funds in the first place, they would not be knocking on doors now.

Investors expect to see more such top-up requests, and say they will consider all such requests on their individual merits. But they also hope firms will learn from the experience and make adequate provision in the future..

Read the Dealtalk, or go to the Graphite story.

peHUB’s Dan Primack will be covering the KKR Private Equity Investors Q2 earnings call live at 1 pm ET.

Bond sales are at a record, equity markets are at year-highs, private equity firms are sitting on huge cash piles -- Blackstone alone has $29 billion -- and banks are lending to each other again.

The ingredients should all be there for a resurgence of cash-driven mergers and acquisitions. But instead, the market is in hibernation.

So far the value of all M&A deals completed this year totals $990 billion. You have to go back to 2003 -- when the total for the year was $1.23 trillion -- to find a figure this low, according to Thomson Reuters data.

Of this, some $364 billion -- just 37 percent -- were cash deals, marking a dramatic shift in the mix of recent years when cash has dominated.

The main spanner in the works is the still dire state of banks' balance sheets and the crippled syndicated loan market. This has kept a tight lid on cash bids of any size, with the mega merger or takeover a distant memory.

Most banks are doing all they can to shrink their balance sheets, guard against problem exposures and to lend to their best clients. As a result, global syndicated loan volumes hit their lowest monthly volume since 1993 in July.

True, corporate bond issuance is booming and companies are raising equity, but this is not going to be enough to fill the void. And even if companies are confident of being able to fund their purchases with bonds, they first need to find a bank to give them a bridge loan.

The absence of debt finance has all but killed off fully-funded hostile cash bids. One consequence has been a shift to the type of bear hug Xstrata is attempting on Anglo American, where a attempts to win shareholder support for a deal before launching an offer.

Meanwhile, other companies are assembling warchests to give them the opportunity to move quickly when they spot a bargain. German chip-maker Infineon, for instance, recently raised equity to repay borrowings and prepare a stash of dry powder for acquisitions.

Another approach is to raise equity by partially listing subsidiaries. Spanish bank Santander is seeking to float part of its Brazilian unit and British insurer Aviva is doing the same with its Dutch operation, Delta Lloyd. Not only does this raise some fresh capital to bolster the parent's position, but gives the unit concerned an acquisition currency without drawing on its cash-strapped parent.

An alternative is to buddy up with a cash-rich financial investor. Germany's Bertelsmann, for example, teamed up with KKR to form a music rights management company designed to prey on distressed competitors.

One area where buyers don't always have to put up that much cash for control is in distressed companies. In some cases, banks are willing to hand over the keys so long as the acquirer is willing to inject some more cash into the company to put in on a stable footing. One example is the acquisition of Pearl by special purpose acquisition company Liberty International, where Liberty put in fresh cash, and the banks wrote down some of their debt.

Vulture investing isn't going to spur much of a recovery in overall volumes, however. That's probably a good thing. A great deal of the hyperactive M&A of recent years was wasteful and left businesses saddled with too much debt. Moreover, many businesses are more concerned about bolstering their balance sheets and steering a steady course through the recession rather than empire-building.

There remains another problem with distressed M&A: the relative shortage of targets. Banks have been reluctant to get too tough with troubled borrowers for fear of realising further losses -- so rather than foreclose they have often been prepared to amend debt terms and relax covenants. This has allowed many to ride out the storm so far. And for less distressed sellers, market volatility has made it harder to agree on value.

Like the banks, CEOs are being equally cautious about what they do with their cash. Those who have survived the financial crisis aren't about to be caught napping a second time. They may be tempted into share offers to grab assets they think worth acquiring if they see greater market and economic stability returning, but most will be keeping their cheque books deep in their inside pockets for now.

-- By Neil Unmack and Alexander Smith

Private equity giant KKR’s latest document on its lengthy route to becoming a publicly-traded company makes the intriguing suggestion that it could list on either the Nasdaq or the NYSE.  

The idea all along has been for KKR, after listing on Euronext through buying its Amsterdam-listed fund KPE, to potentially list on the NYSE, so switching to Nasdaq would be quite a suprise.

Press releases up to now have pinpointed the NYSE as KKR’s possible future home. However, today’s document is a filing to unitholders rather than a statement to the press, so it is more formal and looks at all possible eventualities (such as a long section on risk factors).

[extract] Following the consummation of the Combination Transaction, KPE and KKR will have the right to require that the other use its reasonable best efforts to cause interests in the Combined Business to be listed and traded on the New York Stock Exchange or The NASDAQ Stock Market at a future date. If such listing occurs, KPE would make an in-kind distribution of such interests to KPE unitholders, subject to applicable laws, rules and regulations, KPE units would cease to trade on Euronext Amsterdam and KPE would subsequently be dissolved and delisted from Euronext Amsterdam.

The NYSE and Nasdaq have been arch rivals for years and compete tooth and nail for listings. We’re betting this one won’t really be up for grabs though, and that KKR will settle next to rival Blackstone on the Big Board.

KKR’s next buyout fund will be a 2010 event, sources told us and peHUB – unless the market collapses again… While KKR hasn’t committed to a timeline or even started raising the fund (no documents are out), there had been an expectation it would start raising in 2009. (Private equity research group Preqin published this table in June (flip to page 13) of the funds they’re following as “on the road”. )   

However, KKR still has a sizeable chunk of its existing funds to spend (known as dry powder) – it finished raising a $17.6 billion to spend on buyouts in 2008.

Fundraising is a tough place to be right now. Blackstone is continuing to chip away raising for BCP VI, its sixth buyout fund, which according to Preqin has a $15 billion target.

Other research Preqin has done shows the average time taken to close a fund is 18.3 months. That’s not surprising, as LPs (the investors in private equity funds) are far more concerned that private equity funds don’t make capital calls on existing funds.

But some are managing to raise even first funds  – Huntsman Gay finished raising its first fund, totaling $1.1 billion this week.

Unnerved by sagging markets, storied private equity firm Kohlberg Kravis Roberts appears to be thinking of putting off its New York listing. The original plan was to buy its Amsterdam-listed fund and parlay it into a New York-listed entity.

Now, having watched Blackstone’s stock tumble a gut-wrenching 68 percent since it went public two years ago, we hear KKR is leaning toward buying out the Dutch fund, known as KPE, but putting off the NYSE listing.

Separating the two plans would give KKR, co-founded by “buyout king” Henry Kravis (pictured left), the option of buying its Amsterdam-listed fund without the pressure of having to list at a difficult time to go public. The company could later decide to list under a different method if it desired, Megan Davies reports.

The IPO market is so sickly that it twitches and jumps at the tiniest tech deals, and private equity has been in an equally soporific hibernation. But Mr. Kravis may want to take another look at Blackstone’s stock. Since hitting a March low under $4, it has more than doubled and hit a high above $14 in May.

Imagine the jolt the IPO market would get from a big, juicy KKR listing. Probably just a shade less dramatic than the boost to the egos at KKR if the firm was credited with engineering the pivot point of the financial markets recovery.

The rise in Blackstone shares since March could signal strong appetite for private equity stock, which is still a somewhat rare commodity and may command a reasonable premium. It may also imply investors see green shoots rising for leverage from the muck of markets soaked with liquidity. Then again, it could just be the sound of a dead cat bouncing down Wall Street.

Christopher Kaufman; DealZone Editor

A deal between KKR and Fidelity would give the mutual fund giant’s customers access to an IPO by the private equity firm itself – if KKR were to do one, a source familiar with KKR said. 
 
The source did not want to be identified because KKR is still studying the possibility of going public and has not said whether it would do an IPO or not.
 
KKR’s plans to become a publicly traded company hinge on a deal to buy an Amsterdam-listed fund, KPE. In April, it extended the deadline to buy the fund by four months.
 
KKR announced the complicated transaction last July, saying it would buy KPE, delist it from Euronext and launch the combined new company on the New York Stock Exchange under the stock symbol “KKR”. KKR had previously considered a more conventional IPO. 
 
Under the terms of the Fidelity deal, the mutual fund company will get the right to sell retail securities to its customers from IPOs of KKR companies. KKR has investments in 50 companies with a combined $200 billion of revenue.

Traditionally, retail customers had trouble getting IPO shares to buy through their brokers, since underwriters first look to wealthier customers and institutional investors to buy large numbers of the securities.

Private-equity firm KKR, which usually holds its cards close to its chest, gave investors a look at its portfolio on Sunday night. The New York firm disclosed the information, including its $1.2 billion loss in 2008, to update investors on its financial condition as it evaluates buying out its Amsterdam-listed fund, KKR Private Equity Investors LP.

Also in the presentation was the value of the firm’s 10 largest portfolio companies as of March 31. The fair values of these companies may not be particularly representative of where they’d be valued today — the S&P 500 is up nearly 20 percent since March 31 — but it is an interesting snapshot of how KKR has been performing.

The Good: French industrial conglomerate Legrand, which has a fair value that is more than double its December 2002 cost; Singapore-based technology company Avago,  up 70 percent from December 2005; Nordic telecom company TDC, up more than 30 percent from February 2006; retailer Dollar General, up 30 percent from July 2007; and health care company HCA; which has held a stable value since November 2006.

The Bad: British Health and beauty company Alliance Boots, down 35 percent since May 2007; US Foodservice and medical device manufacurer Biomet, both down 20 percent since July 2007.

The Ugly: Power company Energy Future Holdings, down 50 percent since October 2007, and First Data, down 40 percent since September 2007.

The full presentation is embeded below.

KKR Investor Presentation May 31

(From Acquisitions Monthly)

Alliance Boots, the UK pharmacy giant backed by US private-equity group KKR, is understood to have made an expression of interest for some of the chemists that Sweden’s state monopoly Apoteket is selling. The shops are believed to have revenues of close to SEK 20 billion (US$2.6 billion).

The information memoranda were finally sent out this week, with several potential bidders, including Germany’s Celesio, Finland’s Tamro (which is owned by Germany’s Phoenix), plus Oriola and other private equity groups, making expressions of interest.

Alliance Boots declined to comment on what it described as market speculation, but an informed source confirmed the bid interest.  “The idea is to get a good market.  All the big ones – Celesio, Alliance Boots, Tamro, Oriola – are interested, and also private equity firms are also interested,” the person said.

“We’re looking through the material,” a spokesperson for Tamro admitted. “Yes, we have an interest but we have not made any decisions yet.”

“These pharmacies are going to be sold in two big clusters,” explained the source.  “One in a 200-cluster and another in a 170, and a number of smaller clusters with 20 pharmacies in each.”  The person added: “The two big [clusters] are nationwide and the smaller are regional.”

The government will keep 330 branches out of the total 946 and remain a competitor in the market. The auction of the Swedish state’s 616 over-the-counter pharmacy branches is expected to start this summer.

As shown by the sale of Absolut to Pernod Ricard, Sweden’s centre-right party has been busy selling its interests in state-controlled companies to create more competition and boost the coffers.  The government also wants to increase the availability of pharmacies for the consumer.

The deal is not structured to maximise the sale price, but given the other goals, obviously price remains important. A successful auction would be good news for the M&A community, with Nordic deals plunging this year.  They are down a staggering 65 percent by value to $18.8 billion for the first few months of this year to May 7, while the number of deals is down almost 40 percent to 605 for the same period, according to Thomson Reuters data.

Reporting by Adam Durchslag