(Sergey Tryapitsyn)

Buyout firm KKR is acquiring publicly traded credit investment affiliate KKR Financial Holdings (KFN) in an exchange of stock worth $2.6 billion.

Announced Monday evening, the deal calls for KKR to exchange 0.51 shares of its own stock for each KFN share. According to KKR’s Monday closing price, the deal would value KFN at $12.79 per share, which represents a 35 percent premium over the target’s own stock price at Monday’s close. The transaction, which has been approved by KKR’s board of directors and a committee of independent KFN directors, is expected to close in the first half of 2014, pending regulatory approvals.

KKR is acquiring a debt investment portfolio that it already runs as KFN’s external manager. KKR formed KFN in 2004 and the unit went public the following year in an initial public offering that raised $800 million. KFN now features a portfolio with $2.9 billion in assets with a focus on leveraged credit.

KKR has turned to frequent outside adviser Simpson Thacher & Bartlett as its legal counsel on the deal. New York–based corporate partner Gary Horowitz is leading a team from the firm that also includes tax partner Steven Todrys, capital markets partner Joseph Kaufman and compensation and benefits partner Andrea Wahlquist. Simpson Thacher associates on the deal are Sean Crnkovich, Joseph Ronca, Brian Rosenzweig, Doug Tang, Chinh Vo and Jason Vollbracht.

Despite a recent partner defection, the KFN deal—along with KKR’s $1.6 billion purchase last month of landscaping company The Brickman Group—shows that Simpson Thacher continues to be a go-to firm for KKR. Simpson Thacher consistently represents KKR with regard to major transactions, and the buyout firm’s top in-house attorney is David Sorkin, a former Simpson Thacher private equity partner who became KKR’s first general counsel in 2007, as we have reported previously. In 2008 Simpson Thacher represented KKR in its own public offering, which was achieved through the purchase of another publicly traded affiliate, KKR Private Equity Investors, after KKR ditched its previous plans for a more traditional IPO.

Meanwhile, Cravath Swaine & Moore is advising the independent directors of KKR’s board in connection with the purchase of KFN. Cravath’s team is led by M&A group cohead Faiza Saeed and also includes litigation partner Sandra Goldstein. Associate Ting Chen and law clerk Jennifer Uren are also working on the deal for Cravath.

Wachtell, Lipton, Rosen & Katz is serving as legal adviser to the committee of KFN’s independent directors. Wachtell’s team is led by corporate partners Edward Herlihy and David Shapiro. Antitrust partner Nelson Fitts, executive compensation and benefits partner Jeannemarie O’Brien and tax partner Joshua Holmes are also advising. Wachtell associates Jenna Levine and Mark Stagliano are also working on the deal, along with law clerk Lauren Thomas.