Friday, March 30, 2007

The Taxman Cometh...But Only for Some?

Today Bloomberg reports that the partnership structure Blackstone is proposing in its IPO could give it a tax advantage over such rivals as Goldman Sachs and Morgan Stanley. This is just the latest of the tax-related questions that have come up around the public offering. Last week on NPR's Marketplace, Alan Sloan noted the complications common shareholders might have accounting for Blackstone shares on their own tax forms; a challenge Blackstone itself noted in its filing, stating "Our counsel has not rendered an opinion on the state or local tax consequences of an investment in our common units," and informing potential shareholders that they "should anticipate the need to file annually a request for an extension of the due date of their income tax return" because the firm anticipated delays in furnishing tax information in time. (For more analysis of the tax implications of Blackstone's proposed partnership structure, see Victor Fleischer's blog at

Of course, this debate pales next to that over the overall tax structures that private equity firms operate under, specifically questions about whether the money firms make on the "carry"--or their share of the profits of the fund, typically 20%--should be taxed as capital gains or income tax. Private equity firms stand to lose a lot of money if Congress decides to clarify the law and treat their carry as income (taxable at 35%) rather than as capital gains (taxable at 15%). Avoiding such a hike could be one of the reasons that Blackstone wants to make a public offering now. Stay tuned for responses from politicians, potential shareholders and everyday taxpaying Americans.

Thursday, March 29, 2007

Blackstone Recoups More Than $3.7 Billion on Equity Office Buy-Out This Week

Press releases have been flying fast and furious about purchases of pieces of Blackstone’s recently acquired Equity Office portfolio. According to news stories, sales of buildings in Austin, Portland, OR, , Stamford, CT, and Denver (, total 68 properties and more than $3.7 billion moved off of Blackstone’s ledger. The Equity buyout, finalized less than two months ago, totaled $39 billion, indicating that if the papers have it right, Blackstone made back nearly 10% of the total deal this week.

“Thomas Properties venture to buy $1.15 billion of Austin Real Estate”

“Shorenstein closes $1 billion Oregon property deal”

“RFR agrees to buy EOP’s Stamford Portfolio from Blackstone for $850M”

“$770M Takes EOP’s Former Denver Holdings from Blackstone”

“Blackstone’s Bid for Equity Office Prevails”

Wednesday, March 28, 2007

Goldman Sachs Can Do Anything Blackstone Can Do Bigger

Just when Blackstone thought they held the record for the largest buyout fund ever, at an estimated $18.1 billion, Goldman Sachs announced an even bigger what FINAlternatives had to say about the new fund here

Goldman Plans Buyout Fund Bigger Than Blackstone’s
March 28, 2007 -->
Just a week after being snubbed in The Blackstone Group’s initial public offering, Goldman Sachs announced that the private equity firm’s new $18.1 billion buyout fund—revealed in its IPO prospectus—will not, in fact, be the largest ever. Goldman plans to take that honor itself.
Lloyd Blankfein, CEO of the Wall Street giant, told shareholders at the company’s annual meeting that Goldman will raise upwards of $20 billion for its next corporate buyout fund. “It might be a little more, it might be a little less,” he said.

Monday, March 26, 2007

Searching for the right metaphor for the Blackstone IPO

The news coverage of the Blackstone IPO over the last several days has raised more questions than it’s answered. Newsweek magazine asks who benefits under the structure proposed in the SEC filings. Without typical information like guidance earnings, Newsweek asks, how are investors to know they are sharing in the prosperity? Meanwhile, Time asks if the offer isn’t like “selling full-price tickets to a ball game in the ninth inning,” and the International Herald Tribune speculates that the IPO is largely about easing the retirement of founders Schwarzman and Peterson.

AFX International Focus also noted the proposals for limited shareholder rights, saying that Blackstone was “extending an interesting proposal to retail investors: a piece of the action, just not a seat at the table,” while the Financial Times warned that investors are “strictly along for a the ride” with Blackstone’s management.

In the New York Times, Andrew Sorkin highlights Blackstone’s own “baby steps” toward changing the industry’s image by including a provision for a charitable foundation in their IPO and solicits his readers to help suggest a new moniker for public relations troubled “Private Equity.”

Friday, March 23, 2007

One Billion in Fees and Counting

A few stray thoughts on the IPO released today:

After years of critiquing the operations of public companies—and taking over such notable ones as Equity Office Properties and Pinnacle Foods, Blackstone Group has filed with the SEC for an Initial Public Offering. At more than 200 pages, the document reveals many of the Private Equity firm’s business details for the first time: earnings of $2.27 billion last year, more than $2 billion in Group earnings from investors’ capital, and fees topping $1 billion. However, the filing is also notable for what it does not reveal: compensation packages for co-founders Stephen Schwarzman and Peter Peterson, how many shares Blackstone intends to sell or for how much, and how many shares existing managing directors and other employees will own after the offering.

The IPO promises to have far reaching effects in the financial world. Top Wall Street banks are underwriting the IPO—including Morgan Stanley, Citigroup, Merrill Lynch, Credit Suisse, Lehman Brothers and Deutsche Bank—and Blackstone has raised more than $30 billion in funds from institutional investors over the years. But it also states that the partnership structure will reduce or eliminate some responsibilities to common shareholders—including fiduciary responsibilities. It will take further analysis of the regulatory filing to determine to what extent this IPO will benefit those who purchase the stock, who will receive only limited voting rights or the estimated 375,000 people employed in Blackstone-controlled companie and our country.

Schwarzman to Wall Street: "Do ya think I'm Sexy?"

News that the Blackstone IPO ricocheted around the financial world today as the king of Wall street announced that private equity giant Blackstone was going public...

The IPO has raised serious questions about the company's business model, its lack of transparency, and its over all impact on investors and the economy. Read what the Economist had to say about Blackstone and the deal:

"Few doubt that the clearest winners would be Blackstone's owners and the tight group of senior managers around them. A listing would allow them to extract and diversify some of the value tied up in the company. Mr Schwarzman could free up part of his stake, thought to be 40%, without losing control. He may, however, lose the respect of some of Blackstone's "limited partners", the institutions and wealthy individuals who invest in buy-out funds, if the move is construed as a brazen attempt to cash out at the top of the market. He and other private-equity bosses have acknowledged that the good times cannot last forever."

"Indeed, the limited partners would have few reasons to celebrate an IPO. They would suffer if Blackstone came under pressure from the market to support returns by raising its already plump fees. Some of them might decide to stop investing in its funds and buy its stock instead, retaining exposure without having to hand over a 1-1.5% management fee and 20% of investment gains.Blackstone itself might discover drawbacks too. It would have to disclose more information—lawyers argue over how much—and it would be shackled by what Mr Schwarzman has called the "tyranny of quarterly earnings". On the other hand, greater transparency might reduce the pressure from critics of private equity, who caricature the industry as a destructive force, stripping assets in the shadows. "

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