Monday, May 21, 2007

Blackstone Seeks Up to $7.75 Billion in Stock Sales (Bloomberg)

May 21 (Bloomberg) -- Blackstone Group LP plans to raise as much as $7.75 billion selling stock to the public and the Chinese government in the biggest offering of shares by a private-equity firm.

Blackstone, which manages $88.4 billion, will sell as many as 153.3 million shares for $29 to $31 each, bringing in as much as $4.75 billion, the New York-based firm said today in a regulatory filing. It increased the value of the initial public offering by almost 20 percent after agreeing yesterday to sell a $3 billion stake to China's state-owned investment company.

The sale of the minority stakes would value the firm, founded in 1985 by Stephen Schwarzman and Peter G. Peterson, at as much as $33.6 billion, about a third of Goldman Sachs Group Inc.'s market value. Blackstone's owners, which also include insurer American International Group Inc. and 57 senior managing directors, will get as much as $4.5 billion. Proceeds will be used to expand into new businesses and buy out partners as they leave.

``Blackstone is more appealing now because they have the Chinese connection,'' Andrew Metrick, a professor of finance at the University of Pennsylvania's Wharton School in Philadelphia, said today in an interview. ``That will really open a lot of doors for them.''

China's soon-to-be-formed State Investment Co. will buy a nonvoting stake of less than 10 percent, Blackstone said yesterday, giving the firm an ally as it expands into the country's private-equity market. The investment company will hold its Blackstone shares for at least four years and isn't allowed to invest in a competing private-equity firm for a year.

Following Fortress

China, the largest holder of U.S. government debt behind Japan, is creating the investment company to buy potentially more lucrative assets such as private equity. Swelled by export revenue, foreign exchange reserves rose by a record $136 billion in the first quarter to $1.2 trillion, the most in the world, according to China's central bank. Most of it is invested in sovereign debt.

Blackstone is going public as the lowest borrowing costs in a decade have allowed LBO firms to take companies private at a record pace. New York-based Fortress Investment Group LLC was the first U.S. manager of hedge funds and private equity to sell a stake to investors, raising $635 million in February. Apollo Management LP founder Leon Black is also considering whether to go public. Blackstone spokesman John Ford declined to comment.

``Fortress tested the waters and Blackstone is now following in what is undoubtedly going to be a huge success,'' Juan Manuel Mendoza, who helps oversee $96 billion at Clariden Leu AG in Zurich, said in an interview.

Shareholders

Blackstone's existing shareholders will keep a 76 percent stake in the company worth as much as $25.5 billion. Investors are being offered about 14 percent of the company in the IPO, with the Chinese government taking the remainder.

Blackstone's IPO has drawn scrutiny from unions and politicians about its limited partnership structure, which allows it to avoid corporate taxes of as much as 35 percent on most income. The firm also won't be regulated as an investment company under the U.S Investment Company Act of 1940. The AFL- CIO, the biggest labor union in the U.S., is urging the Securities and Exchange Commission to investigate the offering.

Valuation

The IPO values Blackstone at about 14.9 times 2006 net income, less than the 16.7 times earnings Fortress fetched, according to data compiled by Bloomberg. Fortress shares have gained 51 percent since the IPO, and now trade at 25 times estimated 2007 profit. Values for Blackstone's offering are based on the number of shares outstanding if underwriters exercise the so-called over-allotment option, or green shoe.

The IPO will be the sixth-largest of a U.S.-based company since 1999, according to Bloomberg data. The largest was the 2000 IPO of New Cingular Wireless Inc., now a part of AT&T Inc., which pulled in $10.6 billion. Blackstone's offering tops the $3.66 billion raised by Goldman Sachs in 1999.

Blackstone manages about $33 billion in buyout funds, $20 billion in real estate funds, and about $20 billion in hedge, mutual and distressed debt funds. The firm raised $15.6 billion in July for its latest buyout fund, second to the $20 billion gathered by Goldman Sachs. Schwarzman and Peterson have reaped annual net returns of 23 percent from their buyout funds.

Recent Deals

The firm's recent deals include the $39 billion purchase of Equity Office Properties Trust, the largest U.S. owner of office buildings, in February. Blackstone said May 17 it would buy Alliance Data Systems Inc., a credit-card processor and marketing contractor, for $6.8 billion.

Blackstone's net income rose to $1.1 billion in the first quarter, more than twice the $487 million it earned in the same period a year earlier, and almost half the $2.3 billion it earned in the whole of 2006. Each of the company's 770 employees produced an average of $2.95 million in net income, almost nine times the mean for Goldman, Wall Street's most profitable firm.

Morgan Stanley and Citigroup Inc. are managing the Blackstone IPO, according to the filing with the SEC. Merrill Lynch & Co., Credit Suisse Group, Lehman Brothers Holdings Inc. and Deutsche Bank AG are assisting.

The stock will be listed on the New York Stock Exchange under the ticker symbol BX. Blackstone didn't say when it expects the stock to begin trading.

1 comment:

ilanit said...

The world of Los Angeles private equity funds is a fairly rarefied world. The vast majority of these funds are organized as limited partnerships (LP) where the investors are principally institutional investors such as pension funds, banks, and high net worth individuals.The general partner (GP) identifies the opportunity, calls money from its lLP's (also called a drawdown or takedown) up to the amount committed and can do so at any point until the fund is liquidated. When an investment is liquidated, the GP distributes proceeds to the LP's in kind or in cash. The compensation from LPs to GP's consists of a management fee, plus a fraction of the profits called the carried interest.