Blackstone to Price IPO Thursday

Blackstone to Price IPO Thursday



NEW YORK — Blackstone Group LP, which manages the world's second-largest private equity fund, will set the price of its much-anticipated initial public offering on Thursday _ roughly a week earlier than expected.

The New York-based buyout shop, which controls names like Madame Tussauds wax museums and real estate company Equity Office Properties Trust, could become a public company on the New York Stock Exchange by the end of the week.

Blackstone originally planned to float a 12.3 percent stake in its management division the week of June 25, but underwriter Morgan Stanley confirmed the change on Tuesday. It did not disclose a reason why.

There had been some concern that Blackstone Chief Executive Stephen Schwarzman would pull the offering due to potential changes in the tax laws. The firm warned investors last week a bill before Congress could reduce its earnings substantially in coming years.

Blackstone opposes efforts to tax it as a financial company rather than a partnership. But, if the proposed legislation in the Senate is passed, it would more than double the firm's taxes after a five-year grace period.

Blackstone, and other firms, have been able to take advantage of a two-decade old provision that allows investors in publicly traded partnerships to pay capital-gains taxes of 15 percent on their share of the firm's income. Corporations are currently taxed as much as 35 percent.

Regardless of the tax hit in five years, though, this week's offering could transform the company into one with a market value of about $32 billion.

As the terms currently stand, the deal is expected to raise between $3.87 billion and $4.14 billion, with shares expected to price between $29 to $31. If the underwriters exercise their option for extra shares in full, the total IPO would be worth $4.75 billion.

Also holding major stakes in Blackstone will be China's government, which in May invested $3 billion in the buyout shop. The company's senior executives will hold more than 70 percent of the newly floated management division.

A spokesman for Blackstone would not comment. The company will trade with the ticker symbol "BX" on the NYSE.

 

Behind Blackstone’s Rush to Market
June 20, 2007, 7:56 am


The wait for one of the most eagerly awaited initial public stock offerings of the year got a couple of days shorter Tuesday. The Blackstone Group will price its initial offering Thursday night, according to the Web site of Morgan Stanley, one of the underwriters. The offering was originally scheduled to begin sometime next week.

So what’s the rush to bring the I.P.O. to market? Analysts and industry observers, it seems, were somewhat divided on that question.

Investors should avoid the temptation to divine something significant in the earlier date, said David Menlow, president of the research firm IPOfinancial.com.

“I wouldn’t say this is a defining event for the stock,” Mr. Menlow told The New York Times. “At this point, I believe the deal is going to be on all institutions’ must-buy list.”

Indeed, some industry watchers said the move shows that both Blackstone and its potential investors are committed to it.

“They wouldn’t move the deal ahead if they didn’t have enough orders to get it done,” said Phil Stiller, an analyst at Renaissance Capital in Greenwich, Conn, told The Los Angeles Times. “I think they’re seeing strong demand.”

Since March, Blackstone, one of the world’s biggest buyout firms, has garnered an extraordinary amount of attention over its plans to sell 12.3 percent of its management company. Last month, the Chinese government took a $3 billion nonvoting stake in a private placement.

After the stock offering, Blackstone could be valued at more than $32 billion. The offering for 133.3 million common units, at $29 to $31 each, is expected to earn $3.87 billion to $4.13 billion, amounts that have lured 17 investment banks into underwriting the offering. Blackstone will trade on the New York Stock Exchange under the ticker symbol BX.

But the hefty pay packages of private equity executives have perturbed politicians and labor unions. Last week, the chairman and the ranking minority member of the Senate Finance Committee introduced a bill that would tax at a higher rate publicly traded partnerships that earn most of their profits from managing other people’s assets. In other words, companies like Blackstone.

Congress and unions have both questioned whether the profits that buyout firms earn from managing their assets, known as carried interest, should be taxed at the capital gains rate or the higher ordinary income tax rate. Such a change could shave hundreds of millions of dollars off such firms’ revenues.

“They were really hit from all sides, and must have sat back over the weekend and thought about what they were going to do about all this,” Colin Blaydon, director of the Center for Private Equity and Entrepreneurship at Dartmouth College’s Tuck School of Business, told The Associated Press. “Sooner is better than later when facing all this uncertainty. And maybe moving forcefully, aggressively and successfully will have a positive effect on the debate.”

But The Financial Times said, citing people close to the offering, that the price would not have to be cut and said that demand for Blackstone units remained healthy.

The unusual lengths to which the firm has gone to shroud its inner workings even as a public company have also drawn criticism from several quarters. Analysts have questioned whether Blackstone’s decision to go public signals the zenith of the private equity boom, as co-founders Stephen A. Schwarzman and Peter G. Peterson cash out their holdings.

“One of the reasons that they want to expedite it is the negative news that has been out there,” Scott Sweet, principal researcher at advisory firm IPO Boutique, told The Associated Press. “It has hindered what really should be viewed as a premier and once-every-several-year type IPO.”

With the offering, Blackstone joins another private equity firm, the Fortress Investment Group, in the market. Fortress went public in February at $18.50 a share — at the high end of its expected price range. Its shares closed yesterday at $26.50.