Tuesday, June 12, 2007

Blackstone founders blessed with billions

Jenny Anderson (New York Times)

MEET Wall Street's soon-to-be $US8 billion ($9.5 billion) man, Stephen Schwarzman, and his $US3 billion business partner, Peter Peterson.

Mr Schwarzman, 60, and Mr Peterson, 81, started the Blackstone Group, the private equity firm that is planning to go public, with $US400,000 in 1985.

On Monday the firm updated its prospectus and included the information everyone on Wall Street has been waiting for: how much money the principals will make in the offering.

Mr Schwarzman will cash out a maximum of $US677.2 million from the offering and his remaining 24 per cent stake in Blackstone will be worth $US7.7 billion if the shares are offered at $US30, the mid-point of the range of $US29-$US31 the company has cited. He earned $US398.3 million last year.

Mr Peterson will put his $US1.9 billion pay-off into a charitable trust but will still control 4 per cent of the company, worth about $US1.3 billion. He earned $US212.9 million last year.

Blackstone plans to sell 133.3 million shares in the offering, which could come late next week. At the mid-point, the firm would raise $US3.8 billion after underwriting costs. Underwriters are expected to sell the over-allotment of 20 million shares because of the high demand. In addition, the Chinese State Investment Co will pay $US3 billion for a non-voting stake.

Other executives listed in the filing include Hamilton James, the firm's president, who will get a maximum of $US188.5 million and own 4.9 per cent; Tomilson Hill, who runs the hedge fund business and who will make $US22.1 million and own 1.6 per cent; and Michael Puglisi, the chief financial officer, who will make $US13.4 million and own 0.7 per cent. Mr James made $97.3 million last year, Mr Hill $US22.1 million and Mr Puglisi $US17.4 million.

The value of the ownership stakes are predicated on Blackstone's ability to meet the market's expectations for growth, which could be difficult considering a number of extraordinary forces have contributed to the recent buyout boom, including strong global growth and widely available cheap debt.

"Everyone knows this is a cyclical business and these returns are not going to be sustained and that a downturn is coming," said Colin Blaydon, director of the Tuck Centre for Private Equity, an academic research group. "Everyone knows that but no one knows when."

The Blackstone Group, which has 770 employees and manages $US88.4 billion in private equity and hedge funds, will have a market capitalisation of about $US32.4 billion. In contrast, the investment bank Lehman Brothers, which has more than 27,000 employees and a far more diversified business, is worth about $US40 billion.

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