Blackstone Raises $4.13 Billion in Biggest Initial Public Offering in Five Years

[Michelle]

My firm invested a good amount in this IPO so we are pretty happy to see that this came out great. Watch out for KKR and Carlyle

Blackstone Raises $4.13 Billion in Biggest Initial Public Offering in Five Years
NEW YORK (AP) -- Blackstone Group LP on Thursday raised $4.13 billion in the biggest U.S. initial public offering in five years, a sign of the growing power of private equity firms in global finance.The New York-based buyout shop, which controls names like Universal Studios Florida and real estate powerhouse Equity Office Properties Trust, will list on the New York Stock Exchange on Friday morning. The sale values each share at $31 and the entire firm at around $33 billion.

For Blackstone's founders -- who launched the private equity firm in 1985 with a $400,000 investment -- the IPO will mean a big payout. Chief Executive Stephen Schwarzman will walk away with a stake in the company worth about $7.7 billion, putting him among the richest of the rich on Wall Street.

"Blackstone is like any dominant player in a maturing industry, they are successful because they have a great management team," said Peter Shabecoff, founding partner of Stamford, Conn.-based private equity firm Atlantic Street Capital Management. "And now they have the scope and brand name to be successful, and that's what people are buying into."
The big appeal of the IPO was that it gave investors a chance to participate in the booming private equity industry, where firms buy companies, turn them around, and seek to sell them at a profit. And investor appetite was strong to buy a part of Blackstone, even though the stake in its management business has little voting power or any direct connection to its portfolio of companies.

The strength of the sale was despite a last-minute attempt by two powerful members of Congress to have securities regulators block the deal.
Analysts had been monitoring the IPO's pricing throughout Thursday, which was said to be many times oversubscribed. There was some speculation that the interest from investors around the globe would cause Blackstone to raise the price beyond its original range of $29 to $31.

However, the underwriters on the deal might have been cautious about the IPO amid growing scrutiny on Capitol Hill. The deal was criticized for the huge payout it will provide top executives, leading to attempts by lawmakers to change the tax status of Blackstone and similar firms.
The firm acknowledged Thursday that it could face much higher taxes as early as next year if it was taxed as a corporation, as a new bill in the U.S. House of Representatives proposes to do.
Meanwhile, Reps. Dennis Kucinich of Ohio and Henry Waxman of California asked the Securities and Exchange Commission late Thursday to delay the offering, though their requests apparently went unanswered.
Blackstone reaffirmed in a regulatory filing Thursday that taxing the firm as a financial company at a 35 percent rate would cause its earnings to falter. The buyout shop, like other partnerships, is taxed at a 15 percent rate.
That came on top of a previous warning from Blackstone that compensation and other costs related to going public would cause it to not be profitable for years.
But, analysts contend investing in the IPO has more to do with buying into Blackstone's cache -- especially as rivals like Kohlberg Kravis Roberts & Co. and Carlyle Group are considering their own flotations.

 

[Michelle]

A followup article to Blackstone IPO. Here come the others

Blackstone Rival Plans Own I.P.O.
By MICHAEL J. de la MERCED and ANDREW ROSS SORKIN
Published: June 22, 2007

Now that the Blackstone Group is off and running, it needs to start looking over its shoulder.

Just as the private equity group has overcome a maelstrom of opposition and prepares to go public today, its archrival Kohlberg Kravis Roberts is planning an initial offering of its own, people briefed on the matter said yesterday.
Last night, Blackstone priced its eagerly awaited initial public offering at $31 a unit, at the top of its range, raising $4.13 billion.

Over the last week, a number of lawmakers have proposed tax legislation that could trim hundreds of millions of dollars from profit of private equity and offered broadsides aimed at turning aside Blackstone's offering while trying to discourage others from following.
But Blackstone has persevered, and it now it seems that Kohlberg Kravis is determined to match its rival's achievement. The firm has retained investment banks including Morgan Stanley and could file a prospectus within the next month, people familiar with the matter said.
They cautioned, however, that Kohlberg Kravis may decide against an offering, depending upon how Blackstone's stock performs and how the tax issues play out in Washington. A spokeswoman for Kohlberg Kravis declined to comment.

Though it made preparations months ago, Kohlberg Kravis finally moved forward after seeing the overwhelming interest in Blackstone's offering.

The two firms have dueled for years over the size of their fund-raising, their deals and their egos. Over the last year, the two have traded claims to the largest leveraged buyouts ever.
The rivalry extends to the personal realm as well. Relations between the heads of the two firms, Blackstone's Stephen A. Schwarzman and Kohlberg Kravis's Henry R. Kravis, have long been frosty.
At Mr. Schwarzman's lavish 60th birthday party in February, the guest list noticeably excluded Mr. Kravis.

With the industry's two heavyweights pursuing offerings, equity firms like the Carlyle Group, TPG Capital and Apollo Management may need to go public. The move allows the firms to establish a permanent source of capital.
Last night Blackstone, with the help of an army of underwriters, 17 in all, sold 133.3 million common units, or a 12.3 percent stake, in one of the largest offerings in the United States in nearly five years. The firm has already sold a $3 billion nonvoting stake to a Chinese state-owned investment company.
Altogether, the firm, which started in 1985 with just $400,000, will now be valued at $33.6 billion, giving it a higher market value than more established financial players like Bear Stearns, the investment bank.

Blackstone's appearance on the New York Stock Exchange, under the ticker BX, marks a watershed moment for private equity, the industry that uses borrowed money to buy companies, turn them around and resell them for often handsome profits.
The last two years have proved extraordinarily lucrative for these firms, as lenient lenders and an influx of money from investors like pension funds have fueled a leveraged buyout boom.
Unlike before, investors in Blackstone will hold pieces of the firm itself, rather than in one of its multibillion-dollar funds. That means unit holders will share directly in its profit, but in an unusual twist, they will have little say over management of the company.
No one will reap more from the offering than Blackstone's two founders. With a 24 percent position in the firm, Mr. Schwarzman will hold a $7.7 billion stake and could earn up to $677 million from the offering's proceeds. That is on top of the nearly $400 million in compensation he took home last year.

The firm's chairman, Peter G. Peterson, who is retiring, will earn $1.88 billion from the offering and will retain a 4 percent stake.
Another private equity firm, the Fortress Investment Group, went public in February at $18.50 a share. It closed yesterday at $25.88.
Scott Sweet, the managing director of IPO Boutique, said that the Blackstone offering was heavily oversubscribed, with investors not only in the United States but also Europe, the Middle East and Asia clamoring for a piece of the action.
That augurs well for trading of the stock today, Mr. Sweet said.
"I expect a strong opening and an orderly opening," he said, adding that buyers will probably receive far smaller allotments of the stock than they had requested.
Yet on the eve of its offering, Blackstone faced a torrent of opposition. Last week, two senators, Max Baucus, Democrat of Montana, and Charles E. Grassley, Republican of Iowa, introduced legislation to tax publicly traded private equity firms, in what has been called the Blackstone Bill.

Mr. Baucus, chairman of the Senate Finance Committee, also plans to hold two hearings before the August recess to discuss not only those public partnerships but also the question of raising the tax rate for carried interest, or the performance fees that comprise the bulk of buyout firms' compensation.

Other politicians from both the House and the Senate have piled on, citing concerns on a range of issues. In a letter sent to several agencies on Wednesday, Senator James Webb of Virginia requested that the government examine the Blackstone offering for potential national security concerns, citing China's stake in the firm.

And in a letter sent to the Securities and Exchange Commission yesterday, Henry A. Waxman, the Democratic chairman of the House Oversight Committee, and Dennis Kucinich, a representative from Ohio and a Democratic candidate for president, asked the regulator to halt the offering, citing potential risks to individual investors.
The sudden focus on private equity, and Blackstone in particular, stems from a timely intersection of the enormous profits private equity has enjoyed over the last two years, along with ostentatious displays of their executives' wealth, according to Colin C. Blaydon, director of the Center for Private Equity and Entrepreneurship at the Tuck School of Business at Dartmouth College. Politicians looking for new sources of revenue were suddenly presented with an attractive new target.

"There are a lot of people trying to score points," Mr. Blaydon said. "They're rushing to get something through that hasn't been thought through carefully and has the potential for unintended consequences."

 

[Andy Nguyen]

Blackstone tumbles amid debt market scramble

Private equity firm's shares dip as much as 7 percent as bankers struggle to get debt investors to purchase loans.

July 27 2007: 3:40 PM EDT

NEW YORK (Reuters) -- Shares of Blackstone Group LP, the private equity firm that went public late last month, fell as much as 7 percent Friday, amid a debt market freeze that has shut off funding for leveraged buyouts.
Blackstone's stock has fallen 21 percent since its June 21 debut, making it one of the year's worst performers for U.S. IPOs.

The firm's stock was down another 7 percent Thursday,before staging a late-day rally, ending slightly higher. Shares of Blackstone (down $1.18 to $24.52, Charts) fell 4 percent Friday afternoon on the New York Stock Exchange.
Blackstone raised more than $4 billion through its IPO, most of which went to paying out top partners.

Shortly after Blackstone priced its IPO, debt investors began pushing back against the leveraged buyout financing. Banks that loaned private equity firms, such as Blackstone, billions of dollars for buyouts suddenly had trouble getting debt investors to purchase the loans.
Now, more than $200 billion worth of debt is being held by banks and waiting to be sold down to investors sometime after the U.S. Labor Day holiday in early September.

Blackstone's slide Friday followed a broad market decline, with all three major U.S. indexes down more than 1 percent on concerns about the broadening deterioration in credit markets.

 

[Uncle Max]

Blackstone is a very powerful company funded mainly by oil-dollars from Middle East. There is also Blackrock which was founded by Blackstone but then sold. However they still have tight relations. So, they will just fine. Oil is getting closer to $80

 

[luso]

Blackstone is powerful not only the amount of money it has, but more importantly, the sources of monay and its political connections.
Please refer to 7/25 WSJ
China Deals Mark Rebound For Leung With Blackstone
China Deals Mark Rebound For Leung With Blackstone - WSJ.com

Actually, in my work place the ABN Armo deal has been watched closely. In deed most of the European based firms are paying great attention to it. But if you pay attnetion to the recent news carefully, you can see the kind of power connections behind the scene: Barclays, Blackstone, Chinese Gov., Singarpore Gov. etc. It is no longer a secret that Chinese and Singarpore state owned funding are backing up Barclays' move on ABN through Blackstone.

Regardless the price of its stock, I think the Blackstone is getting more powerful and grow stronger.

 

[Yuriy]

Are they the ones to buy Hilton hotels?