KKR is required to make the payment under a tax claims agreement (TRA) signed with its founders more than a decade ago, according to the filings. The agreement, which was adopted separately by all major private equity firms upon their IPO, obliges KKR to pay 85% of the value of the tax benefits it has accumulated to its executives through goodwill, depreciation, amortization and related tax credits. The new “one share, one vote” rule would make executives` voting rights proportional to the shares they own, representing a combined 31.7% stake in KKR. This would be the last payment to KKR executives under the TRA, which will be abolished as part of the reorganization, the filing says. The $560 million distribution represents a 1% decrease in KKR`s adjusted distributable earnings per share in the first half of the year and represents a 4% decrease in adjusted book value per share as of June 30, according to a filing. Carlyle was the first of the largest publicly traded private equity firms to abolish special voting rights for its executives in 2019. The change triggered a cash payment of $346 million over five years for Carlyle executives as part of their TRA, according to submissions. Blackstone maintained its two-tiered stock structure, leaving CEO Stephen Schwarzman in charge. . The use of ARTs by private equity firms caught the attention of U.S. lawmakers in 2007 when Blackstone Group Inc (BX.
N) announced at its pope on the stock exchange that its executives could benefit from tax benefits totaling $863.7 million over the next 15 years under the agreement. Private equity firms are different from how most companies resilient two-class equity contracts. Food supplier Blue Apron Holdings Inc (APRN. N), for example, was converted to a class of common shares last month without a stroke of luck for its executives. Asset manager Victory Capital Holdings Inc (VCTR. O) also abolished its two-class structure last month. . For more information, see the SEC`s Privacy and Security Policy. Thank you for your interest in the U.S. Securities and Exchange Commission.
Nevertheless, he said some KKR investors might be happy because the executives had not exercised their right to demand the future payments they would receive from KKR under the TRA before agreeing to abolish them. Robert Willens, a tax expert and professor of finance at Columbia Business School, said KKR executives had the discretion to lose the payment due under the TRA. The exchange of KKR`s executives` special voting shares for common shares triggers payment under the TRA, the New York-based company said in a filing. A source familiar with the matter said the payment was worth only half the value of the accumulated tax benefits owed to the founders, who agreed to forego the other half in the interests of Apollo shareholders. KKR`s founders and executives, Apollo and Carlyle received payments of $560 million, $584 million and $346 million, respectively, in connection with the sale of special shares, according to filings. However, Congress has never passed a bill that would have taxed TRA payments as ordinary income. The use of TRAs has become increasingly popular, and some private equity firms have used them to extract value from holding companies that make them public. Unauthorized attempts to upload information and/or modify information to any part of this website are strictly prohibited and subject to prosecution under the Computer Fraud and Abuse Act of 1986 and the National Information Infrastructure Protection Act of 1996 (see Title 18 U.S.C §§ 1001 and 1030). A KKR spokeswoman pointed to a filing showing that a committee of independent members of KKR`s board of directors unanimously approved transactions to dissolve the two-tier share structure in order to “increase the rights of our common shareholders” and “improve corporate governance at KKR.” She declined to comment further. Apollo`s founders and executives secured a payment of at least $584 million over four years as part of their TRA when the company announced in March that it would abolish its two-tier structure, according to regulatory documents.
The executives chose to receive the payment in cash rather than in Apollo shares. “(KKR executives) have undoubtedly left money on the table,” Willens said. KKR announced on Monday that it would eliminate the two-tiered stock structure that gives its executives — including founders Henry Kravis and George Roberts — control of the votes to align “the interests” of its management with those of shareholders. Private equity firms have often turned to ARBs because they often participate in IPOs as part of their transactions, allowing private equity firms to pass on to themselves the value of the tax benefits of the companies they own and that are listed on the stock exchange. If a user or application submits more than 10 requests per second, other requests from the IP address may be limited for a short time. Once the request rate has fallen below the threshold for 10 minutes, the user can continue to access the content on SEC.gov. This SEC practice is designed to limit excessive automated searches to SEC.gov and is not intended or should not affect anyone browsing the site SEC.gov. Subscribe to our daily newsletter to receive the latest exclusive Reuters coverage in your inbox.
By using this website, you agree to security monitoring and auditing. For security reasons and to ensure that the public service remains accessible to users, this government computer system uses network traffic monitoring programs to identify unauthorized attempts to upload or modify information, or otherwise cause damage, including attempts to deny service to users. Note that this policy may change if the SEC manages to SEC.gov to ensure that the site operates efficiently and remains available to all users. Please report your traffic by updating your user agent to include company-specific information. However, as part of a complex network of corporate mergers aiming to abolish the dual-class share structure by 2026, KKR will give its executives 8.5 million newly issued shares, with a current value of approximately $560 million, according to regulatory filings. Our Standards: Thomson Reuters` Principles of Trust. .