Archive for March 2007

Blackstone IPO Mania! (Part II)

blackstoneipoblackstoneipoblackstoneipo.jpgOne reason that you’ll read so many similar stories today about that Blackstone prospectus: everyone’s writing about the same stuff because there’s not much stuff to write about. It’s got more holes than the septum of a Goldman commodities trader! Jonathan Keehner at Reuters explains that investors will get “precious little insight into the affairs of the behemoth or any real control.” How do you spell “blank check?” Oh, right. Like this: Blackstone.
Jenny Anderson explains why Blackstone is confident that it can convince investors to fork over money despite the blank-checky-ness of its prospectus. “Wall Street knows how to keep score. It’s called money,” Jenny writes. And Blackstone seems to mint it somewhere inside its offices.
Larry Ribstein says that the Blackstone structure may be a peak at a dawn of the new era: the Age of the Public Partnership. He’s not sure the publicly traded company model will work for private equity but he does think that Blackstone signals a move away from public companies toward partnerships. We’re reminded that this Blackstone structure will help the ‘Stoners avoid a lot of the things that currently plague public companies—activist shareholders, the threat of shareholder democracy, income taxes. The only question is how long lawmarkers will allow this exit from the corporate form if it starts to become popular.
The Financial Times says that the Blackstone IPO is all about acquiring “permanent capital” that doesn’t need to be returned to investors and will help the ‘Stoners smooth out the business cycles that have plagued the private equity industry. It’s like cutting the Gordian Knot of question of a private equity “market top”: Blackstone may be able to keep to dealflow coming even if the credit market dries up because it will be able to tap into public equity market.
Why were Goldman Sachs and JP Morgan Chase left out of the Blackstone IPO bonanza? There’s been lots of speculation that “this time it’s personal” when it comes to Goldman. As DealJournal has pointed out, Goldman and Blackstone compete in a lot of the same businesses and the ‘Stoners might not have wanted to let team GS in to see the family jewels. One problem with this theory is that the Blackstone prospectus offers so little information, it’s not clear that any of the underwriters got to look very far into the Blackstone books. (Another theory raised by CNBC’s Charlie Gasparino was that Schwarzman’s still bitter about former Goldman boss Hank Paulson getting tapped as Treasury Secretary.) The New York Post has another idea: the KKR IPO! “Those banks along with others are said to be working on the IPO of another big buyout firm rumored to be Kohlberg Kravis Roberts & Co., run by Wall Street legends Henry Kravis and George Roberts,” the Post’s Zachery Kouwe writes.
Last night a friend of ours wondered if Steve Schwarman might drop his $350,000 salary in the backseat of a cab after celebrating the IPO one night. Like a spare umbrella or a girl you met at The Anchor. “It is disclosed that Stephen Schwarzman’s salary will be $350,000. But that’s just the money he uses to tip coat-check ladies,” writes Justin Fox in the Curious Capitalist, a Time Magazine blog on business. Who knew Time writers were allowed to be funny?
Schwarzman’s salary leads Dana Cimilluca to remark, “While it would be considered good take-home pay for most, for Schwarzman it probably would cover a mere slice of his birthday cake.” But don’t forget about his equity. He gets to have his cake and eat it too!
Dana also claims first prize for being the first to ask: Is Blackstone The New Goldman Sachs?

What’s In A Name?

An old adage among hedgie types is that when you’re down and out the best thing to do is pick yourself up and get a makeover. A blow-out can work wonders and has been known on at least one or two occasions to get certain SEC officials to turn a blind eye. Beacon Rock Capital, well aware of the proverb, decided to take it to the next level and see if it would work for them as a means of distancing itself from being the first hedge fund in the U.S. hit with criminal charges for deceptive mutual fund market-timing.
Basically, Beacon Rock Capital, well-aware that it was going to be taken to task for doing some illegal things, decided a few months ago to re-brand its firm, as a sort of preemptive strike, FINalternatives reports. They’ve done away with the not only the “Rock” but also, uh, the entire company. Calls placed to “Beacon Investment Group” were answered by a confused receptionist who said that Beacon Rock Capital “no longer exists.” Companies should be allowed to close up shop as they please, we guess, but the smell of fish wafts through the room like week old Ahi Tuna left out in the sun when one finds out that despite the fact that Beacon Investment Group claims to be an entirely new venture, it just happens to have the same staff, mailing address and website as Beacon Rock.

Read more »

The Real Blackstone Prospectus

schwarzman060508_198.jpgThe problem with IPO prospectuses is that the people writing them are under some sort of obligation to the people they were contracted to write them by to make said people look good, attractive, etc, etc. If a friend asked you to write a profile for her on Jdate, you probably would say stuff about her “shiny hair,” “sparkling personality” and “not at all annoying habit of biting her nails” and “tendency to not be crazy and obsessive in regards to men.” It doesn’t matter if the last two points are lies—she’s two weeks and one kitten away from “cat lady” syndrome and that’s not going to happen on your watch.
For this reason, Morgan Stanley, Citigroup, and a smattering of other underwriters (and, of course, everyone’s lawyers at Skadden and Simpson) chose to give us a view of Blackstone that said “Hey, world, come check out this hot piece of ass private equity. Don’t you want to date buy it? Yeah you do.” It’s sad, really. Fortunately, our pals at Market Poetry decided to take a stand against these lies and deceptions. The real Blackstone prospectus, after the jump.

Read more »

Blackstone IPO Mania! (Part I)

It’s Blackstone IPO media mania today! Stories everywhere, with everyone trying to tease some new facts out of the enigmatic prospectus. And everyone’s also doing round-ups of everyone else’s reporting. Here’s Deal Journal’s round-up. And here’s DealBook’s. Here’s a run-down (or round-up, or whatever) of the stories this morning that caught our eye:
Andrew Ross Sorkin of DealBook fame points out that the ‘Stoners aren’t exactly scrimping when it comes to travel for their top executives. “Mr. Schwarzman has a personal airplane, and Mr. Schwarzman and Mr. Peterson together own a helicopter; their air travel was valued at $4.2 million over the last four years,” Sorkin writes.
Bloomberg digs through the numbers and discovers that Blackstone earns a better return from its real estate investments than from it’s takeover business. This sheds some light on how Jonathan Gray, the top ‘Stoner real estate guy, was able to rally his firm behind that giant Equity Office Properties buyout.

Henry Sender
profiles Hamilton E. James, the guy designated as the successor to Steve Schwarzman mysterious “powers and authorities” at Blackstone. Although he’s only been at the firm for five years, people already call him “Tony!”

Victor Fleischer
over at the Conglomerate raises the tax issue. In order to qualify for the favorable tax treatment that allows Blackstone to characterize its distributions as capital gains rather than ordinary income, Blackstone has to convince the IRS that it is a passive recipient of income comes from interest, dividends, and gains from the sale of capital assets. But in order not to get tagged as an Investment Management Company under the ’40 Act—and therefore get stuck with a heavy regulatory burden—Blackstone has to claim that it is an active manager of the companies it buys, and not a pass-through for investing in the securities of those companies. Can you be passive for tax-purposes and active for SEC purposes? “I’m not saying the structure doesn’t work – quirks in the rules often allow this sort of regulatory arbitrage — just that it seems a little aggressive. I don’t think I’ve ever seen an entity go public with such uncertain tax treatment,” Fleischer says.
Chad Brand, the Peridot Capitalist, says that the IPO signals a market top. It’s the “if they’re selling, why are you buying” argument that we’ve been hearing all week. But just because we’ve been hearing it a lot doesn’t mean it’s wrong. Just tired. Although, frankly, we remember hearing exactly this argument when Goldman Sachs went public. And look who badly that turned out!
Dana Cimilluca at DealJournal calls bullshit on the “end is nigh” line. Taking a close look at the way Schwarzman’s interest in the public company vest over a number of years, Cimilluca says that Schwarzman may be bullish about the future of private equity over the next couple of years. “According to the prospectus for the offering that Deal Journal has been perusing, only one quarter of his partnership units in Blackstone Holdings will be fully vested at the date of the IPO, with the rest vesting over four years, assuming he’s still employed there. Not exactly the deal you cut when you think the bottom is about to fall out of the market,” he writes.
Stayed tuned for Part II!

(Something about how “the market’s not the only organism that’s pulsing.” Hi-yoooo.)
[via CWS]

brianhuntermaybe.jpgDetails are emerging about the funds managed by the hedge fund reportedly founded by Brian Hunter, the energy trader who became famous when his natural gas bets helped topple Amaranth Advisors just six months ago. Notable features of the fund they are calling Solengo: quick exits for investors if portfolio managers cross risk control lines and the ability to opt out of funds managed by Brian Hunter himself. (We’re cribbing all this from Ann Davis, the Wall Street Journalreporter who had the cover story interview with Hunter shortly after news broke of Amaranth’s woes. The closest we’ve ever been to Hunter is hearing he ate at Sparks. Maybe he’s pissed about that fish picture.)
One other notable feature: the fund’s founders won’t discuss why they’ve named it after an Italian wine. Which raises the hairs on the back of our neck. These guys are going to make the very name of their fund an inside joke, and they expect you to give them your money? We’re kind of worried that Solengo might also be the name of the best stripper in Calgary.
Trader Behind Amaranth Collapse Launches Fund Focusing on Commodities [Wall Street Journal]

  • 23 Mar 2007 at 8:57 AM
  • CNBC

Jim Cramer: Just Guilty Of Being Too Honest!

jcramer.jpgJim Cramer called into “Imus In the Morning” yesterday to try to pour some cold water on that fire he started when he described what some have called a “How To Guide To Market Manipulation” on a video. You can listen to the audio clip of the interview here. Cramer’s excuse: he’s given to hyperbole and didn’t do a good job of explaining what he did (legal things) and didn’t do (illegal things).
We’re kind of bored by the whole scandal–it’s pretty clear Cramer didn’t really admit to doing anything illegal (or at least nothing illegal that isn’t done by lots and lots of other hedge fund managers every day) and describing how various players game markets is hardly a crime against the public interest. Sure this sort of thing might hurt “investor confidence” but there’s a very good reason you don’t go into buisness with men whose title begins with confidence.
Also, Cramer is totally still what Bess would call “BFF” with Bob Pisani, the CNBC reporter he used as the model for the type of guy to whom hedge funds might feed manipulative stories. Bob’s “one of the best,” he says.
It’s kind of disappointing because there’s nothing we love better than a good scandal, especially one involving greed, Wall Street and guys who throw chairs against the wall. So we’re onto the next scandal: the battle of the conflics of interest. Here’s the line up.
Cramer & Cramer founded, which has received a lot of attention from this scandal. Who even knew they had video before this story broke? Talk about a viral video campaign!
Cramer & NBC. The has also drawn attention away from the much more embarrassing stories swirling around about ace reporter Maria Bartiromo. Admittedly, that story had began to fade simply because of lack of oxygen (meaning, there was nothing new coming out) and our own attention deficit disorder. But when DealBreaker hasn’t written the words Todd Thompson for days, you know the focus has shifted.
Cramer & NBC, II. Cramer clears his name on the Don Imus show, which is broadcast on MSNBC, a news network that is somehow or another related to CNBC. (You can tell because they both have the same last name.)
Cramer & Newscorp.Cramer brought this up himself on the Imus show. But in the interest of fairness (heh) we’ll let the New York Post tell the story.

Cramer made sure to get in several scripted digs at The Post and its parent company, News Corporation.
“I think most of the discipline is coming from organizations that have kind of an edge against maybe CNBC, maybe of the FOX venue, the “New York Post venue,” he said.
“It’s almost as if they’re about to launch their own business channel.”

Oh snap!

Boo Hoo: Cramer
[New York Post]

Opening Bell: 3.23.07

palm_z22.jpgPalm 3Q Profit Drops 61 Pct. Amid Rumors (Forbes)
Yesterday came and went without a buyout bid for Palm. Instead, investors were forced to look at the company’s results and assume that for the time being, it’ll be a standalone firm. And, not surprisingly, their results were really ugly. Again, Palm could’ve gotten away with bad results if it had simultaneously announced that Silver Lake Partners or Nokia would be coming to rescue them. But, alas, there was no savior to be, at least not yet.
Senators blame mortgage crisis on “neglect” by Fed, Greenspan (Washington Post)
It’s time to give Alan Greenspan the title of Fed Chairman Emeritus. After laying low for awhile, and letting Ben Bernanke get comfortable at the job, Greenspan has roared back onto the scene of late. Not a day goes by when you don’t hear his name, or his opinion on something or a Senator attacking him, as in yesterday, when he was accused of being the person responsible for the subprime fiasco. It’s not clear how, exactly, the whole thing is his fault, but since he was at the helm when all of this began, and most politicians have no idea what the Fed chief does, it’s not surprising that they’d lay into the guy. Knowing Greenspan, he’ll certainly take it in stride. We’re more worried about Bernanke, who never gets mentioned about anything. Meanwhile, if you don’t get in the winning bid to have lunch with Alan Greenspan, you can go skateboarding for a day with Tony Hawk and support the same charity, so whatever floats your boat.
Wal-Mart: Thanks for the Bonuses, But… (BusinessWeek)
Well this was utterly predictable. The big Wal-Mart bonuses that were discussed yesterday are being met with criticism from some who say “too little, too late”. Actually, the critics of Wal-Mart are really self defeating. See, they acknowledge that the $500 million disbursed among its 800,000 workers really isn’t all that much, which means they’d have to concede that if they took all of the executive bonuses away for a year and gave them to the foot soldiers that wouldn’t amount to much either. Ultimately, there’s no changing the fact that Wal-Mart jobs are never going to be real high paying.
Citigroup said to eye ABN AMRO bid (Reuters)
Financial supermarket Citigroup is looking to be the financial supermarket to the world. It’s in involved in a frustrating, and so far futile bid to acquire Japan’s Nikko Cordial, and now there’s word that it may spring for ABN AMRO, which as the news has been report for the last couple of weeks, is being sought by Barclays. While Barclays is ostensibly the sole bank negotiating right now, others suspect that HSBC and Banco Santander may be looking to make a play. All of the sudden, it seems like it’s gonna be a fun summer.

Read more »