KKR Announces Succession and Reorganization Plans

Global investment firm KKR & Co. (KKR) announced that effective immediately, its co-founders Henry Kravis and George Roberts will step down as co-CEOs, but will remain as Executive Co-Chairmen of its Board of Directors. The company also announced a series of transformative structural and governance changes. Shares jumped as much as 3% on the news before closing the day flat at $65.43 on October 11.

Joe Bae and Scott Nuttall, Co-Presidents and Co-Chief Operating Officers since July 2017, have been appointed as KKR’s new co-CEOs. Both joined KKR in 1996 and have spent most of their careers at KKR, being trained by who they call “the world’s most innovative investors of all time”.

Mr. Bae has been instrumental in successfully expanding KKR’s operations in Asia and making it one of the firm’s largest markets. Mr. Nuttall’s contributions include leading KKR’s public listing, developing the firm’s balance sheet strategy, supervising the firm’s public markets businesses in the credit and hedge fund space, and creating the firm’s capital markets, capital raising, and insurance businesses. (See Insider’s Hot Stocks on TipRanks)

KKR was co-founded in 1976 by first cousins George Roberts and Henry Kravis together with Jerome Kohlberg. Over the years, KKR has transformed from a U.S.-focused private equity firm to a global financial services company that invests in a variety of asset classes, including leveraged and alternative credit, infrastructure, real estate, growth equity, impact, core, and energy. Also, the firm encompasses many areas of finance, including private equity, capital markets, retirement and life insurance, and hedge fund partnerships.

Commenting on the succession plans, the co-founder duo said, “There is such a huge need for private capital to support businesses, and KKR still has so much potential even 45 years later. We are looking forward to all that lies ahead and to working with Joe and Scott to fulfill our mission of fortifying companies and helping secure the retirements and livelihoods of the hundreds of millions of people around the world who depend on our support and investment expertise.”

In addition to the succession plans, KKR also announced several reorganization plans. To start with, in 2022, KKR will merge with KKR Holdings, L.P., in which certain current and former employees of KKR hold interests. On receiving regulatory approval, each KKR Holdings L.P. unitholder will receive one share of KKR common stock for every unit held, including a pro-rata share of an additional 8.5 million shares of KKR common stock. KKR will also eliminate its Series II preferred stock and end its tax receivable agreement for certain KKR Holdings L.P. units left unexchanged.

Additionally, KKR will eliminate its controlling Series I preferred stock and get control of KKR Associates Holdings L.P. on December 31, 2026, subject to regulatory approvals. Post the elimination of the Series I preferred stock, KKR’s common stockholders will receive the right to vote on a one vote per share basis on all matters which they were not entitled to before, including the election of directors. These transformational changes are aimed at increasing the rights of common shareholders, aligning the interests of KKR’s leadership with that of its common shareholders, establishing solid corporate governance, and streamlining the firm’s structure.

Recently, Jefferies analyst Gerald O’Hara resumed coverage of the stock with a Buy rating and lifted the price target to $74 (13.1% upside potential) from $66.

Ahead of the earnings season, O’Hara has increased his Q3 estimates by an average of 10% across the alternative asset manager group.

Overall, the stock commands a Strong Buy consensus rating based on 8 Buys and 1 Hold. The average KKR & Co. price target of $76.17 implies 16.4% upside potential to current levels. Shares have gained 80.4% over the past year.