Leading private equity firm the Blackstone Group is set to raise more than USD4bn from its initial public offering, the sixth largest in US history of 133,333,334 common units representing
Leading private equity firm the Blackstone Group is set to raise more than USD4bn from its initial public offering, the sixth largest in US history of 133,333,334 common units representing limited partner interests in the firm, following the pricing of the offering at USD31 per common unit.
Trading in Blackstone’s partnership units is set to begin on June 22 on the New York Stock Exchange. Blackstone has granted the underwriters a 30-day option to purchase up to 20 million additional common units at the public offering price less underwriting discounts.
The Blackstone Group is one of the largest independent alternative asset managers in the world with businesses include the management of corporate private equity funds, real estate opportunity funds, funds of hedge funds, mezzanine funds, senior debt funds, proprietary hedge funds and closed-end mutual funds, as well as financial advisory services including mergers and acquisitions advisory, restructuring and reorganisation advisory and fund placement services.
The private equity firm says it intends to use a portion of the proceeds from the initial public offering and the concurrent sale of USD3bn of non-voting common units to a Chinese state investment vehicle to purchase interests in its business from its existing owners, to repay short-term borrowings, to provide capital to invest in its existing businesses and to expand into complementary new businesses and for other general corporate purposes.
Morgan Stanley and Citi are the global co-ordinators of the offering and representatives of the underwriters and, together with Merrill Lynch, Credit Suisse, Lehman Brothers and Deutsche Bank Securities, joint book-running managers of the offering.
At USD4.13bn, the offering will be the largest US IPO in nearly five years, according to Renaissance Capital’s IPOhome.com, since commercial and consumer finance firm CIT Group raised a total of USD4.8bn when it went public in July 2002. Apart from CIT, only AT&T Wireless, Kraft Foods, UPS and Conoco have raised more money from IPOs in the US, although there have also been seven larger deals abroad.
The IPO has been clouded by the growing controversy over the level of tax paid by partners in private equity firms, culminating in the tabling of draft legislation in the US House of Representatives on June 20 that would oblige Blackstone and other publicly-listed private equity firms and investment partnerships to pay taxes at a much higher rate.
The bill tabled by Representative Peter Welch, a Democrat from Vermont, would have a more immediate impact on the new breed of public private equity firms than a bill introduced the previous week in the US Senate that would give investment partnerships that are already public, including Blackstone and Fortress Investment Group, a five-year grace period before they become subject to the higher level of tax paid by corporations.
The co-author of the Senate bill, Democrat Max Baucus of Montana, also plans to hold hearings on whether carried interest, the usually 20 per cent of profits that accrue to private equity firms and thus their partners from completed private equity transactions, should continue to be taxed as capital gains at 15 per cent rather than as ordinary income at rates of up to 35 per cent.
Against this background, the decision to bring forward the Blackstone IPO, which was originally scheduled for next week, has been interpreted as a response to the legislative moves. The pricing of the Blackstone IPO at the top of the indicative range suggests that investor appetite for equity in the group, even in a hybrid structure that offers partnership units with little voting power rather than shares, has barely been dented by the controversy.
