KKR invests $700m in Sun Microsystems

Sun Microsystems, the Nasdaq-quoted manufacturer of computer servers, has received a $700m (£350m) investment from Kohlberg Kravis Roberts, in a move described yesterday as a surprising foray into the public markets for the private equity powerhouse.

The cash comes from the KKR Private Equity Investors fund, KKR's first public fund, which raised $5bn last year and floated on Amsterdam's Euronext.

The fund was touted at the time as an opportunity for public market investors to gain exposure to the booming world of private equity.

Sun said yesterday that it returned to profit in the final three months of 2006. Its suite of high-end systems for business customers had lost out to cheaper off-the-peg rivals from Hewlett-Packard and others, but the company has recovered because of cost-cutting and new, less costly products.

Both sides were vague on what Sun would use the investment for, beyond pursuing "strategic growth opportunities".

George Roberts - the R in KKR - said: "Jonathan Schwartz [Sun's chief executive] and his team have demonstrated remarkable vision and strong discipline in executing its turnaround strategy."

The investment is in new convertible bonds exchangeable for Sun shares over the next seven years. While the KKR fund has pledged to invest three-quarters of its money in KKR-sponsored private equity deals, the Sun deal is now its biggest single investment.

It comes as investors are questioning whether the private equity boom could be derailed by rising interest rates and soaring competition for private assets, which is pushing prices higher.