Blackstone Raises $4 Billion in Initial Stock Sale

by Scott Horsley 

Morning Edition, June 22, 2007 · Shares of Blackstone Group were up more than 13 percent on the first day of trading Friday, a day after the company launched the biggest initial public offering in five years on the New York Stock Exchange.

The private-equity firm overshadowed the stock market with its eagerly awaited IPO on Thursday. Shares sold at $31 each, the top of its $29-$31 range.

In afternoon trading on Friday, the stock rose to $38 on a volume of 113 million shares. The stock closed at $35.

The New York-based company's offering represents the growing power of private-equity firms. It began in 1985 with $400,000 on its books and raised $4.13 billion in Thursday's IPO, giving it a market value of $33 billion. Blackstone controls names such as Universal Studios Florida and real estate powerhouse Equity Office Properties Trust.

The big appeal is that investors have 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 for 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 initial public offering gave the public a 12.3 percent stake in the business.

"Blackstone is like any dominant player in a maturing industry, they are successful because they have a great management team," says 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 people are buying into."

The company could take in as much as $4.7 billion on the deal if underwriters exercise their option to purchase additional shares.

The deal also shows off the clout of the executives that run them.

Stephen Schwarzman, the co-founder and chief executive of Blackstone, became Wall Street's latest $10 billion man after the deal.

He moves even higher on the list of Manhattan's elite with his $7.7 billion stake in the company. That comes on top of the estimated $3.5 billion net worth he already has.

Washington was critical of the deal, in part because of the huge payout to executives.

Lawmakers tried to change the tax status of Blackstone and similar firms.

Under current law, private-equity companies have been able to go public paying a partnership tax rate of 15 percent, compared with the corporate tax rate of 35 percent.'

The Senate recently proposed a bill that would require financial-service and asset-management partnerships that go public after June 14 to pay corporate taxes. The House is examining whether to follow suit.

Blackstone acknowledged Thursday that it could face much higher taxes as early as next year. It said in a regulatory filing that taxing the firm at 35 percent would cause its earnings to falter.

Still, investors would not be deterred. They even shrugged off a last-minute attempt by two powerful members of Congress to have securities regulators block the deal.

Democratic 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.

From NPR reports and The Associated Press