KKR in 2004: Looking for the Second Act

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Case Details:

Case Code : BSTA050
Case Length : 17 Pages
Period : 1976 - 2004
Organization : Kohlberg, Kravis, Roberts & Co (KKR)
Pub Date : 2004
Teaching Note :Not Available
Countries : Global
Industry : Finance

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Background Note

Three Bear Stearns veterans, Kohlberg, Kravis and Roberts, started KKR in 1976. The firm's rise on Wall Street was meteoric. By the 1990s, the businesses that KKR controlled would have placed it amongst the top ten US corporations, had it been an industrial company. The firm had mobilized more funds than the GNP of many small countries put together.

Early History
KKR's origins went back to the late 1960s. After graduating from Columbia Business School, Kravis joined Fahaerty & Swartwood, a brokerage firm, but later turned to his cousin Roberts, for exploring new opportunities.

Meanwhile, Roberts befriended Kohlberg, who had graduated from Harvard Business School and later become the head of Bear Stearns' corporate finance department...


The RJR deal, announced in November 1988, was a major turning point in the history of KKR. The acquisition valued at $31.4 billion, was the largest corporate transaction ever undertaken in corporate history. After being privately held for a period, RJR's common stock returned to the stock market in 1991. In early 1995, KKR divested its remaining holdings in RJR...

Recent Developments

Performance of LBO funds declined from an annualized return of 35% in 1989 to 20% in the first quarter of 2000. In the same period, venture-capital returns soared to over 50% from 5% . Soon investors became skeptical about investing in LBO funds. Two prominent examples were Oregon Investment Council (OIC) and Washington State Investment Board (WSIB), agencies responsible for investing the retirement assets of state teachers and public employees, which had been the foremost investors in KKR's takeover ventures during the period 1986 to 2002. The Oregon Treasury had committed $2.34 billion of retirees' pension money in various KKR takeovers. By and large, the pension fund had been handsomely rewarded...

Excerpts Contd...>>


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