Jeffrey Epstein, the high school math teacher turned mysterious money manager turned convicted sex criminal, has been appointed to the board of a charity run by Apollo founder Leon Black, Cityfile is reporting. It’s unclear what the relationship between Black and Epstein might be, although Cityfile speculates that Epstein might be managing Black’s money.
City file also turns in this bit of titillating news:
Black’s foundation’s funds were kept in accounts at Bear Stearns and Epstein was a major Bear client, and was reported to have lost close to $60 million when Bear’s hedge funds went south.
Let’s see what two guys (Kurt Andersen and a friend, who asked requested his name be withheld) had to say about the matter: * Guy New York contributor Kurt Andersen knows who works around private equity “snarls” when he says the name “Steve,” and “blames the current anti-private-equity spasm not on whiny anti-business liberals, but on Steve Schwarzman” * “The fucking birthday party” (attribution to same “guy”) * “Where no one gave a toast, by the way, not one” (same party, same guy) * “We’re where we are right now because of the unbelievable egos of guys running the private-equity firms like Blackstone. They put big targets on their backs by what I consider stupid actions like throwing these big parties.” (same party, different guy—head of the National Venture Capital Association) * “Ostentatious, churlish, megalomaniacal, tone-deaf—and a hypocritical dissembler to boot.” (Andersen, in cahoots with “guy”)
Things got weird today as Dutch chemical giant Basell showed up to the prom with a rebound date after being left heartbroken by Huntsman and co-yearbook committee treasurer Apollo Management.
Basell ended up taking U.S. based Lyondell Chemical to the dance, and footing a $12.1 billion all cash dinner bill. The chemical attraction between the two companies is undeniable (Lyondell’s ethylene to Basell’s polyolefins), and will create a company with $34 billion in revenue and 15,000 employees around the world.
Last week, Basell was outbid at the last minute by Apollo on a $5.6 billion offer to acquire Huntsman Corp. It is rumored that Basell walked away because Lyondell is in its swim unit in gym class and wow, just wow (and Shell Chemicals said that Formosa Plastics said that Huntsman totally “stuffs” its earnings). Certain drama lingers. Dupont said that it heard Basell tell its friend Dow Chemical at BASF’s locker that it still wasn’t over Huntsman.
Regardless, putting its rose in a fisted glove (what does that mean?!) for now, Basell and Lyondell are ready to get it together and make it nice. Basell to Buy Lyondell for $12.1B [AP via Yahoo Finance]
You are forgiven if you were struck with a sudden rush of déjà vu when the Financial Times reported this morning that Apollo had hired JP Morgan and Goldman Sachs to underwrite its “expected IPO.” After all, this is exactly the story that was reported way back on April 3 by CNBC’s Charlie Gasparino. And on April 4th by the Wall Street Journal and the New York Post.
Way back in the bad old days of April, Gasparino, Wall Street Journal reporters Kate Kelly and Robin Sidel and New York Post reporter Zachary Kouwe all reported the details the Financial Times reported today. But almost immediately after the story was broken on CNBC, questions arose about whether Apollo would go for a public offering or attempt to raise money through a private placement. Some even doubted that Apollo was planning any sort of offering at all.
The New York Times’ DealBook was a prominent skeptic. At 1:30 in the morning on Wednesday, April 4th, DealBook announced that there was no Apollo IPO being planned.
Apollo Close to an I.P.O.? Only in Banks’ Dreams
Stop the presses! Leon Black’s Apollo Management is planning to go public!
That’s what CNBC proclaimed late Tuesday in a report that was eagerly picked up by other news outlets. A Wall Street Journal story even identified Goldman Sachs andJ.P. Morgan Chase as being “retained” to work on the offering.
One problem: It’s not true. Apollo is not going public next month, nor the month after that — and probably not the month after that either.
Even the Wall Street Journal expressed doubts about its own story. As we wrote at the time:
Questions remain open. First and foremost: Is this really going to happen? Team Kelley & Sidel cite unnamed “people familiar with Apollo’s thinking” who then cite unidentified people in “Apollo’s executive ranks” who deny that an IPO is “in the works.” Team Kelley & Sidel treat this as “Apollo distancing itself” from the IPO talk—and the boys at the Junior Journal (also known as the Journal’s M&A blog, Deal Journal) read this as a straight forward denial.
But it’s clearly anything but a straight forward denial! Denying something through double blind, unquotable paraphrase is tantamount to, well, admitting it. No one at Apollo, Goldman or JP Morgan seems willing to take responsibility for the denial. Something they could easily do if there was no IPO in the works. This might be “distancing” but one senses Apollo is only backing up while getting ready to charge into an IPO.
The story seemed to shift weekly in the months that followed. One week Apollo was going to do a private placement. The next week an IPO. The next week both. Or neither. And the reporting basically broke into two camps, with DealBook taking the “probably not an IPO” side and CNBC taking the “they’re totally doing an IPO” side.
So what caused all the confusion? It seems that Apollo itself had a prominent role in sowing the seeds of uncertainty. In the Journal’s story, denials about the IPO are said to come from Apollo’s “executive ranks.” DealBook followed it’s initial skeptical article with two more on April 5th, citing “people close to the firm.”
But while unnamed Apollonians were denying that an IPO was in the works, bankers at Goldman and JP Morgan were busy telling reporters that they were working on the IPO. We have no idea who Gasparino’s sources for the story were but it’s clear from Kelley and Sidel’s reporting that bankers were telling them an IPO was coming. And when we did our own reporting, we discovered bankers who were all too willing to spin a yarn about how a certain bank (ahem, Goldman) wasn’t shut out of the Blackstone IPO—it was conflicted out because it was already at work on the Apollo offering.
We’re not sure what moral to draw from this story. And, actually, we’re not even sure that the Financial Times story really means the Apollo IPO will ever happen. There’s many a slip between a cup and a lip, as they say, and that’s not even taking into account the war that certain lawmakers are trying to start with private equity.
But it’s probably not a bad idea to exercise a little skepticism when private equity honchos start talking about their plans. It wasn’t too long ago that Steve Schwarzman, for instance, was complaining that KKR had ruined the IPO chances of private equity when they offered shares in a large fund to the public. It was DealBook, if we recall correctly, who described Schwarzman as “uninspired by the notion of a buyout firm I.P.O. anytime soon.”
“I think the public markets are overrated,” Schwarzman said.
A little more than two weeks later, the world learned that Blackstone was indeed working on an IPO.
Damn the torpedoes! Full speed ahead!
Kohlberg Kravis Roberts have hired Morgan Stanley and Citigroup as underwriters for the potential public offering, CNBC’s Charlie Gasparino reported today. While warning that the plans were still tentative, Gasparino said that KKR would pursue an IPO that would compete in size with Blackstone’s.
There has been rumor and speculation that KKR would follow its rival Blackstone into the public markets since news of Blackstone’s offering broke months ago. But the last time we checked in, people were saying KKR had rejected going forward with an IPO. What’s more, some had wondered if tax legislation recently proposed in the US Senate would have a chilling effect on the urge to go public. The proposed bill would force private equity partnerships to pay taxes at the corporate rate if they go public, instead of treating profits as capital gains taxed when distributed to the partners under the current law.
But despite the potentially higher tax bills, Blackstone seems undeterred in their desire to sell shares. And investors are apparently undeterred in their desire to buy them. Talk that the higher tax bill could knock as much as 20% off the value of Blackstone has not been reflected in the appetite for the shares.
The success of Blackstone’s offering, which is expected to price tonight at the high end of its range and is reportedly oversubscribed by a factor of seven, has sparked talk of offerings coming from not only KKR, but Apollo, Carlyle and TPG. Gasparino says that Apollo is also leaning toward an IPO, something he has steadily maintained despite contrary reports in the New York Times.
There’s something of an irony in KKR following Blackstone in offering shares to the public. According to sources familiar with the genesis of the Blackstone IPO, the idea of going public was hatched after KKR succeeded in selling shares in one of its buyout funds to the public. At the time, Blackstone head Stephen Schwarzman publicly complained that the enormous offering had sucked the air out of the market for exchange traded private equity funds. Selling partnership shares of Blackstone was hatched as a new way of getting at the capital markets. So KKR may have inspired the very offering that they are now looking to imitate. KKR May Launch IPO Later This Year: CNBC’s Gasparino [CNBC.com]
Private equity executives make no secret that relatively plentiful credit is the fuel power the surge in giant leveraged buyout deals, allowing the buyout shops to make acquisitions on companies which might have been untouchable in earlier eras. So it comes as a bit of a surprise to hear so many of them seem to be warning us about rising debt coupled with looser lending standards. Carlyle founder William Conway has rang the alarm bells with a memo of his that was “leaked” to the press everywhere. Remarks of Leon Black and Steve Schwarzman also have been read as warnings.
The latest entrant is the chief executive of BlackRock, Larry Fink. BlackRock is not a private equity shop—it’s an asset management firm that was spun-off of the Blackstone Group way back in 1992. But Fink’s background is in debt and private equity. He was a bond-trader at Credit Suisse and worked at Blackstone before the spin-off. And now he’s telling the Financial Times that the leveraged debt fueling the buyouts may be the next subprime mortgage crisis.
“If I was the chairman of the Federal Reserve, I’d be paying more attention to that because, to me, this is going to be tomorrow’s problem,” Mr Fink said in an interview with the Financial Times. “Standards have deteriorated to levels that we never even dreamed that we would see.”
So has Larry gone over to the other side? Perhaps. His business does compete for investment dollars with private equity firms and hedge funds, and so he may have a vested interest in seeing the current golden age of private equity come to an end.
But there’s a more paranoid theory that was suggested to us by a source (who requested that we keep him anonymous) who works at a smaller private equity shop. His theory was that the big shots in private equity were beginning to worry that the loose credit standards were allowing others in the buyout market to make bids that might once have been exclusively within the reach of the Blackstone’s, Apollo’s and KKR’s of the world. The relatively easy access to credit was fostering competition in the once cozy world of private equity, and driving-up the prices of the companies they want to take private. So they want to talk investors out of getting involved in lending into the buyout market in order to make it harder for competitors to raise funds.
Of course, as even our source admitted, this theory is more than a bit paranoid. But just because you are paranoid doesn’t mean Henry Kravis isn’t thinking about how to crush you. BlackRock chief warns on leveraged loans [Financial Times]
At the beginning of the month a dispute broke out between CNBC’s Charlie Gasparino and DealBook’s Andrew Ross Sorkin. Gasparino had reported that Apollo was considering going public, following the footsteps of the Blackstone Group and the map laid out by Fortress Investment Group into the public markets. Sorkin declared that CNBC had simply got the story wrong. “It’s not true. Apollo is not going public next month, nor the month after that — and probably not the month after that either,” Sorkin wrote.
As the story progressed it seemed that Sorkin was at least half-right. Reports were published indicating that Apollo was not yet getting ready for a public offering of shares. It was said to be considering a private offering of equity instead. Since these privately sold shares would probably come complete with registration rights that would allow them to be sold on the public markets eventually, the CNBC story didn’t look quite as far off as Sorkin’s item made it seem.
But the reports coming out from the Milken Institute’s annual Global Conference indicate that Sorkin may have overshot in his takedown of Gasparino’s report. Apollo founder Leon Black stopped short of commenting on his firm’s plans for an equity offering, but it seems clear they are at least considering a public offering.
Here’s how Business Week describes Black’s remarks at the conference:
But Black did build his case for public ownership of the businesses. He said publicly traded shares would allow him to retain top managers and recruit new ones by offering them stock in the firm. He also said such an offering would give him currency to acquire other, smaller firms. One of the ways Black said he’s been able to achieve superior returns was by hiring investment managers with experience in specific industries. He said he’d like to expand that expertise, noting that health care and energy were two areas in which his firm was weak.
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