Blackstone IPO is biggest in five years
NEW YORK — Stephen Schwarzman, the co-founder and chief executive of private equity powerhouse Blackstone Group LP, on Thursday became Wall Street’s latest $10 billion man.
The New York-based buyout shop, which controls names like Universal Studios Florida and real estate powerhouse Equity Office Properties Trust, raised $4.13 billion in the biggest U.S. initial public offering in five years. It represents the growing power of private equity firms, and the escalating clout of the executives that run them.
Schwarzman built an extravagant reputation in New York City’s financial and social circles in February when he threw himself a $3 million 60th birthday party, complete with a private concert from Rod Stewart.
He will move even higher on the list of Manhattan’s elite after Blackstone lists on the New York Stock Exchange today, with his $7.7 billion stake in the company.
That comes on top of the estimated $3.5 billion net worth he already has. For investors who can actually get their hands on one, buying a slice of Blackstone’s management partnership — which Schwarzman leads — will cost a mere $31 per share.
“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 IPO will give the public a 12.3 percent stake, and value the entire firm at about $33 billion.
The strength of the sale — demand was many times supply — came despite a last-minute attempt by two powerful members of Congress to have securities regulators block the deal.
The deal was criticized in Washington 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 cachet — especially as rivals like Kohlberg Kravis Roberts & Co. and Carlyle Group are considering their own flotations.