Blackstone pulls in $4 billion from IPO

Blackstone Group, undeterred by congressional attempts to raise taxes on private-equity firms, raised $4.13 billion in the largest U.S. initial public offering in five years.

Blackstone, founded by former Lehman Bros. executives Stephen Schwarzman and Peter G. Peterson in 1985 with $400,000, said Thursday it had sold 133.3 million shares for $31 each, the top of its expected range.

Sale of the 12.3 percent stake values the New York-based firm at $33.5 billion.

"It's a great confirmation of the private-equity business and the Blackstone management," said Donald Marron, chief executive of buyout firm Lightyear Capital. "It's the first offering in an industry that's a growth industry."

Blackstone's profit more than doubled in the first quarter to $1.13 billion, 15 percent less than the firm made in all of 2005, according to SEC filings.

Buyout firms have spent $535 billion on acquisitions this year, more than double the amount in the same period last year.

Blackstone's biggest competitors, Kohlberg Kravis Roberts and Carlyle Group, are also considering IPOs.

Key facts on Blackstone IPO

The Blackstone Group priced its initial public offering Thursday, raising more than $4 billion, in the biggest U.S. IPO in five years. Blackstone is the first major U.S. private-equity firm to take itself public.

Background: Founded by Peter Peterson and Stephen Schwarzman in 1985. Started with $400,000, after the two left brokerage Lehman Bros.

Employees: 770 employees, includes 60 senior managing directors, and 340 other investment and advisory professionals. Offices in Mumbai, Hong Kong, London, Paris, Boston, Atlanta, Madrid, Los Angeles.

Portfolio: Freescale Semiconductor, TeleDanmark, The Nielsen Co., SunGard, Michaels Stores, Travelport, Pinnacle Foods, Deutsche Telekom, Equity Office Properties Trust.

Payouts: Schwarzman, 60, will own 23 percent of Blackstone after the IPO. Schwarzman's stake is worth $7.74 billion based on the IPO price. He stands to make $677.2 million after the IPO.

Peterson, 81, will get $1.88 billion when the firm goes public. He is keeping a 4 percent stake.

Blackstone President Hamilton James will get $147.9 million after the IPO.

Vice Chairman J. Tomlinson Hill will get $22.1 million after the IPO.

CFO Michael Puglisi will get $13.4 million after the IPO.

Source: Reuters

The growth is drawing scrutiny from Congress and Britain's Parliament because most firms are partnerships and don't pay corporate taxes. The Senate is considering legislation that would require private-equity firms that go public to pay the same 35 percent rate as corporations.

Such a law would more than double Blackstone's taxes after five years.

Blackstone will use the money raised to expand its buyout and asset-management units, and to pay founders Schwarzman and Peterson a combined $2.33 billion. Blackstone's owners will keep 78.3 percent of the company.

"It does take bravery to be the first private-equity firm to go public in scale," said James Lee, vice chairman of JPMorgan Chase, in remarks at the New York Public Library's corporate dinner Monday that honored Schwarzman for helping raise more than $2.2 million for the library.

The firm's market capitalization will be about a third of Goldman Sachs Group, Wall Street's biggest firm, whose shares are valued at $98.8 billion.

The firm manages $88.4 billion, including $19.6 billion in its most recent buyout fund, the second largest after Goldman's $20 billion pool.

In all, Blackstone owns companies with about 375,000 employees and $83 billion in annual sales.

Fortress Investment Group, based in New York, was the first U.S. manager of hedge funds and private equity to sell a stake to investors, raising more than $634 million in February. Its shares have risen 40 percent since to trade at 21 times 2006 earnings.

Blackstone's stock was priced at about 12.6 times profit.

China's soon-to-be-formed State Investment Co. will buy a 9.4 percent nonvoting stake in Blackstone for $29.92 a share, a 4.5 percent discount to the IPO price. China will keep the shares for at least four years and isn't allowed to invest in a competing private-equity firm for a year.

Schwarzman and Peterson left Lehman after losing a power struggle and started their firm with a staff of two. Schwarzman, a mergers-and-acquisitions banker and Peterson's deputy at New York-based Lehman, still approves all Blackstone's capital commitments.

Peterson, a former commerce secretary under President Richard Nixon, and a former chairman of the Federal Reserve Bank of New York, also founded the Concord Coalition, a group advocating lower budget deficits.

Because the company is organized as a public limited partnership, it is selling units, not shares. They are scheduled to begin trading today on the New York Stock Exchange under the ticker symbol BX.