They buy companies from public shareholders, make a few cosmetic changes, and sell them back at a higher price. And now the granddaddy of private equity, Kohlberg Kravis Roberts (KKR), will be selling its own shares on the NYSE.

If the likes of KKR could reliably add value to companies and beat the market, they wouldn’t need to raise capital on a public exchange, says Bill. That’s why KKR’s last public offering in Amsterdam has lost 57% in value since 2006…

We have chuckled about it before, but we come back to it today because the granddaddy of private equity – Kohlberg Kravis Roberts – is preparing to sell shares to the public on the NYSE.

The idea of private equity is that a group of smart, well-financed, slick operators can get the better of the chumps in the public markets. The idea is probably right, but it makes nonsense of the whole premise of modern market theory – that the markets always know more than any individual or group of players. If the markets put a price of $100 on a stock – that’s what it is worth, no more, no less; at least, that’s the theory.

But the private equity hustlers nevertheless go into the public market, buy a company at a price set by the market, clean it up, cut it up, and then sell it back to the market at a higher price.

Supposedly, the private equity boys have “added value” by nipping and tucking on the corporate body before selling it back to the yahoos. But what do the financiers know about running a company? How is it possible that they are able to take a company out of the control of the people who know it best – founders, CEOs, managers – and improve it?

And even if they were to get lucky with one, what makes these dilettantes think they can do it 160 times – which is the number of buyouts completed by KKR? We don’t recall the details, but we remember a study showing that private equity surgeons had added no net value to the companies they sliced up… and that share prices tended to sink after the initial return to the market.

And then you have to wonder about the chutzpah of it. Public shareholders were getting smacked both coming and going – once when they sold a company to KKR for too little… and again when they bought it back for too much.

And now cometh KKR into the public markets to smack the poor lumpeninvestoriat again. This time, KKR says, in effect: we’re smarter than you are…  but we’re going to let you buy our shares anyway. Of course, if KKR really were smarter, why would they want to cut the little guys in? If they could reliably add value and produce above-market gains they could raise all the capital they could possibly need. Of course…they can’t. And now, with the chumps wising up, it’s getting harder for private equity players to raise money.

Nor is this the first time KKR has sold shares to the public. The IHT reports:

“KKR Private Equity Investors had its debut on the Amsterdam bourse at $25 on May 3, 2006, when KKR sold 200 million shares of the unit, valuing it at $5 billion. The shares have fallen more than 57% since then, to close Friday at $10.50.”

Source: The Daily Reckoning

National City was forced to take a $333 million fourth quarter loss due to an ill-timed push into the residential mortgage market with a heavy emphasis on subprime loans. The Cincinnati-based bank also recently expanded its retail branch network into Florida, an area that has been hit particularly hard by the slowdown in the real estate market.

Cleveland-based Fifth Third is the 12th-largest U.S. bank with $110 billion in assets. The two banks key market areas overlap and a merger could potentially offer a sizeable cost advantage.

KeyCorp (KEY), another Cleveland-based bank with about $100 billion in assets is also considering an offer for National City, with the backing of private equity firm Kohlberg Kravis Roberts & Co.

But KeyCorp has a sizeable portion of its business in the Northwest and Rocky Mountain region, potentially making it a less than perfect fit for a merger with National City. A Fifth Third/National City merger would prove a formidable rival.

“Both of those companies because of the overlap with National City would be able to cut costs,” Terry McEvoy, an analyst at Oppenheimer & Co. (OPY) told Reuters, referring to KeyCorp and Fifth Third. “Cutting costs would support a higher price should the one option National City decides be to sell out.”

Any potential merger would be complicated and a deal has yet to be reached.

“While we never comment on potential mergers, we have consistently said that we are focused on strategic opportunities for in-market consolidation,” a Fifth Third representative said, The Wall Street Journal reported.

National City declined to comment, other than to say the bank was investigating options with the help of hired advisor, Goldman Sachs Group Inc. (GS).