Don’t read too much into parallels between Google, Blackstone IPOs

NEW YORK — Blackstone Group’s founder Stephen Schwarzman sounded more like Tony Soprano than the head of a soon-to-be public company when he talked to a newspaper about wanting to “kill off” his private-equity rivals. That’s far from the “don’t be evil” comments made by Google’s leaders ahead of its IPO three years ago.

It’s a contrast worth noting as Blackstone enters the public markets and seems to be following a similar script to Google’s $1.66 billion stock offering back 2004.

There certainly are parallels between the two — hot companies in hot sectors offering up much-hyped stocks. But that doesn’t mean Blackstone is destined to be the next Google, with a share price that goes up on day one and never looks back.

Blackstone is the world’s second-largest private-equity firm, controlling a roster of names like Madame Tussauds wax museums and real estate company Equity Office Properties Trust. Its business has been booming, tallying $2.27 billion in profits in 2006.

Its IPO was the sixth largest in U.S. history with the sale of a 12.3 percent stake in its management division. At an offering price of $31 a share, it raised $4.13 billion.

The IPO not only gave investors some access to the private-equity business, it also lavished investment banks — who are underwriting the IPO and who do much of their dealmaking with buyout firms — with a giant windfall.

Blackstone’s stock surged in its first day of trading, rising $4.06, or 13 percent, to $35.06. Blackstone’s market value was about $40 billion. The run-up was much like Google’s initial gains after its August 2004 IPO when its shares rose more than 20 percent in a week’s time.

Back then, Google’s stock climb was somewhat surprising given the troubles that cropped up right before the IPO. While it was the most-watched IPO of 2004 and considered a barometer of the recovering technology market after the dot-com bust, reasons to not buy the stock seemed to mount by the day.

Competitive pressures in the Internet search engine business were rising, while technology stocks were swooning in the stock market, raising questions about whether the timing was right for an IPO.

Google also got flack for the auction model it used to set its offering price and distribute shares. It was largely shunned by individual investors, even though it was targeted at them, and Wall Street didn’t like that Google was defying its conventional wisdom on how to run an IPO.

Yet all that ultimately didn’t spook investors. Once Google hit the markets with an IPO price of $85 a share, its climb began. Nearly three years later, Google has gained more dominance on the Web, and its stock has soared to more than $500 a share.

Blackstone can only hope things go the same way. Like Google, the months before the offering haven’t been trouble free. For one, interest rates have shot higher, boosting the cost of debt that Blackstone relies on so heavily to finance its deals. That could put a drag on the buyout boom, which has been on a record-setting run.

Washington put a bull’s-eye on Blackstone’s back last week, with a bill that could jack up the tax rate for private-equity firms in the coming years.Blackstone’s compensation of its leaders also has been met with sharp criticism. Schwarzman received cash payouts worth nearly $400 million last year, and stands to cash in as much as $677.2 million of his stake during the IPO.

And like Google, there’s a much talked about interview — this one had Schwarzman gabbing to The Wall Street Journal about how he operates his buyout firm. Like Google, that was met with scrutiny by the Securities and Exchange Commission.

“I want war — not a series of skirmishes,” Schwarzman said of his philosophy in a story published in the paper on June 13. “I always think about what will kill off the other bidder.”

None of those issues will disappear fast, so potential Blackstone investors have to weigh the risks before getting into this stock.

That’s why watching how Blackstone’s shares fare long after their opening day really will matter. Then it will be time to decide if Blackstone deserves to be compared to Google.