Thoughts about the KKR investment in Sun
Private equity company have not the best reputation, especially in germany most people think of them as locusts, to rip out the best of the companies without ethics. Stories about Bosch/Tenovis or the deprivation of the Deutsche Telekom CEO weren´t useful to improve the reputation of private equite companies.
Now Sun got an 700 million US$ from such a private equity company. Obviously some to many people think (inside and outside of Sun): “Oh, my goodness. Locusts on board”. Perhaps it´s time to put thinks into perspective. I´m not a specialist for such financial deals like convertible debts, so correct me when i´m wrong.
What is the deal ?
Shares of Sun Microsystems (SUNW - commentary - Cramer's Take - Rating) surged 7% early Wednesday after the struggling tech company scored a $700 million private placement from private equity firm Kohlberg Kravis Roberts.
Sun said the investment will take the form of $350 million of convertible senior notes due in 2012, and $350 million of convertible senior notes due 2014. The notes will be convertible, at the holder's option during specified periods, at a price of $7.21 a share.
Sun gets 700 million US-$. KKR gets convertible debt. So we get money for giving KKR stocks in a few years (2012 and 2014) . The idea behind such an invest is somewhat similar to stock options: Get stocks in the future for a reduced price. The greater the difference is, the more KKR earns. Like my options. On the other side: We raise money for investments without going to the capital market. It´s nothing like other deals, where an private equity fund buys a private company, makes it beautyful and sells them im pieces. This isn´t an option, as we are already public. KKR gets an seat in the board, but this is only a minority investment, so the influence stays rather small. At the end, the immediate consequence of the deal will be a rise in confidence in SUNW. Private Equity never invest when they don´t expect profits. The surge in the stock yesterday should give an idea. They believe in our future (APL, Niagara II, Rock etc), so it´s easy money for them. And the upside for us: I assume, we bolster up our war chest for something. No idea, what Jonathan plans, but with all i know and assume as an employee, i assume, he plans something huge. Why else should we take this money and make debts. I really believe that there will be further big news in the future besides of further profitable quarters.