New York: KKR & Co. said fourth-quarter profit more than quadrupled as it sold its final stake in Walgreens Boots Alliance Inc., closing ties to one of Europe’s biggest buyouts.
The private equity firm’s economic net income, which reflects both unrealized and realized investment gains, was $339.2m, or 40 cents a share, compared with $70.5m year earlier, New York-based KKR said in a statement yesterday. KKR in November sold $1.8bn of stock in retailer Walgreens Boots, exiting the company after nine years. The firm first bought UK drugstore chain Alliance Boots in 2007 for $22.2bn and then nearly tripled its money when the company merged with US 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 December 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 CEOs, 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 yesterday.
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 $1bn 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 1.7 percent to $18.06 at 9:34 a.m. in New York, paring the stock’s gain this year to 17 percent. During the quarter, the firm also 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 $389.9m in the quarter from $168.6m a year earlier. KKR will draw on that pool to pay a dividend of 16 cents a share on March 7.
The firm said it plans to boost its fixed dividend to 17 cents a share starting in the first quarter. It also expanded its share repurchase plan by $250m, adding to a $500m program started in October 2015. KKR’s private equity portfolio appreciated 3.4 percent during the three months ended December 31, compared with a 3.3 percent advance in the S&P 500 index of large US 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 $129.6bn in private equity holdings, credit assets, real estate and hedge funds as of December 31. The firm raised $4.5bn during the three months and distributed $7.1bn 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 $34bn 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.
