How bad is the reputation of private equity? Months after private equity companies began to back away from deals that no longer seem promising in our credit crunched world, the Royal Bank of Scotland has told many of the biggest private equity firms they aren’t welcome in the first round of the auction of the bank’s insurance business, according to the Financial Times reports.
Kohlberg Kravis Roberts, Blackstone and Apax Partners had reportedly planned to bid in the auction, but were told by RBS that they were being excluded. Exclusion from the auction is widely being interpreted as demonstrating a clear vote of no-confidence in the ability of private equity buyers to secure financing necessary to close acquisitions.
RBS spurns buy-out groups [Financial Times]
Blackstone Group
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Blackstone Group
Steve Schwarzman Tells Hard-Studying Bronx Kids That Good Grades Are Over-Rated
By John Carney
“How do you get from here to the rest of the world?”
The question is one of the most heart-breaking moments on this season of the Wire. It’s asked of Cutty, an ex-con turned proprietor of a neighborhood boxing gym. The youngster asking it is Dukie, of the desperate kids caught up in the mess of youthful drug dealing but who is told by friend and foe alike that his talents lie elsewhere. “I wish I knew,” is Cutty’s humble answer.
One guy who might know is Steve Schwarzman, the billionaire head of private equity giant Blackstone. And last week he went to the Sacred Heart School in the Bronx to deliver his answer. Unlike conventional advice—that it was important to work hard at school and stay out of trouble—Schwarzman seemed to propose that doing well in school isn’t all it is cracked up to be.
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Blackstone Group
Being Steve Schwarzman Means Never Having To Stay Home
By Joe Weisenthal
Apparently a quiet night at home in the largest living room in Manhattan wasn’t cutting it for Stephen Schwarzman. His birthday celebration was certainly toned down from the multimillion bash at the Armory the year before. But he still managed to make it out for the night with his wife Christine Schwarzman. The couple was spotted by spies for Page Six at Le Cirque on Schwarzman’s birthday, which also happens to be Valentine’s Day.
DealBreaker was unable to determine if Schwarzman ordered the crab salad.
A Night Of Love [Page Six]
Another private equity deal that has a lot of people paying attention is moving ahead. Blackstone’s $26 billion takeover of Hilton Hotels has been closely watched as another indicator of the strength of the buyout market and the willingness of banks and investors to finance the deals. Yesterday Hilton announced that it was kicking off a $1.8 billion tender offer for its existing notes, which will be paid off with new debt financing the acquisition.
The Hilton deal was the last major buyout announced before the private equity LBO market went into its currently catatonic state. Blackstone agreed to a hefty premium for Hilton—the price tag was a 40% mark-up from where the stock was trading before the deal was announced. The total price tag was around $26 billion—$20 billion cash and $6 billion of assumed debt.
In the current market, the deal is considered far riskier than at the time it was signed-up. The risk of a recession poses a real threat to hotel chains, and investors have been balking at the high levels of leverage involved in many of the largest takeovers. Blackstone plans to raise as much as $21 billion to finance the deal. Bear Stearns, Bank of America, Deutsche Bank, Morgan Stanley and Goldman Sachs all committed to finance the deal when it was closed.
The tender offer is just a first step—a small one—but it will likely be welcomed by thsoe who are concerned that all or part of the nearly $400 billion of buyouts waiting to close later this year might be held up by conditions in the credit market.
Press Release [BusinessWire.com]
Blackstone plunged over 3% and hit $21.30 this morning, pushing well into new low territory since its IPO. Without fearing even the most expensive crabs, Blackstone played “just the tip” with the $21-$22 range earlier in the week and subsequently decided to plunge deep into new, lower territory.
It’s only a matter of time before Blackstone attempts to muster up some good will by claiming that its share price is tumbling for the sake of greater national interests. China has lost over $800 million on its $3 billion investment into the Blackstone IPO so far.
In other misguided IPO news, Fortress is healthily above its 52-week low of $16.05, but heading back in the direction of new depths, down over a percent today at $17.31. Fortress’ 52-week high ($37.00) was almost double its IPO price of $18.50.
How Low Can Blackstone Go? [DealBook]
Blackstone big Steve Schwarzman may have gone into hiding but he’s still the talk of the town. Especially if your plot of land in that town—Greenwich, East Hampton, etc—was bought with private equity tax-advantaged dollars.
“Whenever group of private-equity guys gets together nowadays, the conversation inevitably turns to Steve Schwarzman,” the Economist reports today.
“It was all going so well until Schwarzman went over the top,” one will say. “Yeah, why did he have to hire Rod Stewart to sing at his birthday party?” replies another. “And then make quite so much money in the Blackstone IPO? Now everyone hates us, no one wants to lend to us any more, and Congress wants to tax us to hell and back.”
The forces of envy and political rent-extraction had been aiming at private equity for quite some time but there is little doubt that Schwarzman and the Blackstone IPO provided them with a much easier target. It’s always harder to attack abstractions than actual people. One of the Okies of The Grapes of Wrath once asked, “Who can we shoot?” Schwarzman accidentally volunteered his head—or, well, claws—for the rifle scope.
But it’s not just the politicians, labor unions and tax-eaters who have Schwarzman in their scopes. Another special interest group is looking askance at Schwarzman—his own industry. According to the Economist, a popular question among private equity hochos is “Well, what’s Schwarzman going to do to clean up this mess?”
The suggestion of the Economist editors is philanthropy. That’s a popular decision among the super-wealthy but we’re not sure it’s the right one. For starters, we can’t remember a single malefactor of great wealth whose reputation was rescued within his lifetime by charitable donations. Most of those who have made huge donations recently—say, Warren Buffett or Bill Gates—were already hugely popular. Schwarzman is no Buffett.
What’s more, there’s little evidence that huge donations to institutional charities are effective at accomplishing the presumed goals of the charities. Schwarzman may simply be throwing good money after bad if he pumps up the coffers of our giant charity industry. So what’s a down-on-his-luck private equity king, who brags about his own skill as a counter-puncher, to do to rescue his rep?
Saving Steve Schwarzman [Economist.com]
People used to say that the Blackstone Group was an investment bank pretending to be a private equity shop. Now they might start to wonder whether Blackstone is really a REIT. A REIT with an infinite credit line.
The world got a look for the first time at the quarterly earnings for Blackstone today. The firm said that net income more than tripled, with most of the gain coming from its real estate businesses. And much of that came from sales of properties it had acquired when it bought Equity Office Properties.
Net income rose to $774.4 million from $224.1 million for the same period last year. Revenue jumped to $975.3 million from $324.6 million, a 300% gain. But this number was short of analyst expectations, which had pegged revenues to come in at $991.54 million. But earnings per share after excluding various non-cash charges were 46 cents, which beat the expectation of 40 cents.
We’re terribly bored by the game of beating, hitting and missing expectations. The questions some are now raising is whether Blackstone can repeat this kind of killer performance. There are only so many EOP properties it can sell, and only so many EOPs it can buy to flip out there. And some think that tighter credit conditions might make it harder for Blackstone to see the kind of returns it has in recent years.
But it could have the opposite effect. As the M&A frenzy slows down due to tighter credit conditions and banks being less willing to help smaller firms with steroidal deal-boosters such as bridge equity contributions, Blackstone may find less competition in the buyout market and may concentrate on turning around and selling assets it has already picked up. At least in the short term, Blackstone probably has a mighty revenue stream it can rely on. And long-term, it may be able to find buying opportunities now that smaller players in the PE world are getting squeezed. Medium term? That’s what accounting is for!
“Small funds that were bootstrapping themselves with bridge equity are gone,” Blackstone’s Tony James said today. “The banks are making new loans but they’re being more selective and they’re leaning towards their biggest and best customers.”
In translation: we can still borrow because we pay those guys so much in fees they can’t afford for us to stop making deals.
On the conference call to discuss earnings today, one name was notably absent: Blackstone co-founder Steve Schwarzman. So where was the man who put the black in Blackstone? Deal Journal’s Dana Cimilluca asks and answers the question.
“The Blackstone Group chief sat out the private-equity firm’s first conference call as a publicly traded company today (a day when it reported net income of $774 million for the second quarter, compared with $224 million a year earlier). Schwarzman, who is traveling in China, continues a self-imposed quiet period that followed the company’s initial public offering nearly two months ago,” Cimilluca writes.
So maybe this is Blackstone’s long term plan. If times get tight, they’ll just act like the US Treasury and rely on China for cash.
Blackstone warns of buy-out slowdown [Financial Times]
Where’s Steve Now? [Wall Street Journal]
The Simpsons made $72 million in its opening weekend (our favorite comic book guy scene – facing impending doom, the comic book guy muses (paraphrasing here) “I’ve done nothing in my life buy collect comic books. Life well spent!”), picking up some Hollywood slack this summer by being one of the few films to exceed expectations.
Comic book guy, meet Steve Schwarzman, proud owner of the worst IPO ever, of 2007. In contrast to the ten largest U.S. IPOs this year, averaging a 14% return in their first month, Blackstone shares have dropped 21% in July, losing $7 billion in market value. Keep in mind that we’re talking about IPOs that are larger than $500 million and that Schwarzman still made out like a bandit and got to cockblock Kravis by lowering the PE IPO bar to virtually un-limbo-able depths.
Another Superlative for Schwarzman: Worst IPO [Deal Journal]
Blackstone Group traded up yesterday despite the near-universal melt-down on Wall Street, surging from $23.80 to $25.70 in the final ten minutes. After dropping almost nine percent in the afternoon, BX rallied with a flood of buy-orders, including a block of 114,000 shares at 3:59:55pm.
Was this the work of Morgan Stanley or Citigroup, pulling their big IPO up by the bootstraps; Steven Schwazman, trying to save face with his new cash; or some Blackstone insider, trading on advanced news that Blackstone is taking itself private?
A dark horse (im)possible reason for the signs of life in Blackstone: maybe they’re a takeover target. Market Watch columnist David Weidner suggested yesterday that Kohlberg Kravis Roberts & Co should abandon its plans for an IPO and stick to what it knows best: the buyout business. More concretely, Weidner suggest they should buy Blackstone.
Blackstone is inefficient. It will pay nearly $400 million of Schwarzman and other managers’ taxes during the next decade. Its IPO has generated a political backlash that could end up doubling its tax rate, and the firm expects “significant losses” during the next few years as it absorbs compensation costs and amortizes its goodwill, according the firm’s prospectus.
KKR could eliminate most of those ills by sweeping management out the door and installing its own team.
It’s simply spoiling the fun to point out that the governance structure built into the Blackstone Group would make any hostile takeover impossible. The rights of Blackstone’s common shareholders approach zero. In fact, the only recent deal we can think with less rights was the sale of a stake in Blackstone to a Chinese government entity, where the Chinamen arguably have less than zero shareholder rights.
In any case, Blackstone, the worst $500mn+ IPO of the year is down close to 7% today and 23% since the IPO. It is currently trading in a territory we call “Early Vonage.” China’s State Investment Company may be regretting its major stake in the private equity firm. Even after the 10% discount they received, the Chinese are down 13% in 5 weeks. As Reuters asked today, “Do friends lose friends that much money that quickly?”
The Case of the Mysterious Blackstone Jump [Dealbook]
Blackstone’s great leap forward [Reuters]
Barbarians face to face [Market Watch via Blogging Buyouts]
After the monumental IPO last month, Blackstone Group may already be an appealing target for private equity, Slate columnist Daniel Gross suggests.
What makes a good target? Slumping stock, healthy margins, lots of cash, valuable brand name, manageable debt, liability in public ownership. Check, check, check, check, check, check.
There’s a final bonus to Blackstone taking Blackstone private. Buyout firms pay substantial fees to the investment bankers who steer them toward targets, and help structure, and negotiate deals. Blackstone, of course, has a well-regarded financial advisory unit. So, Blackstone’s partners could essentially pay themselves for advising themselves to take Blackstone private.
Before the IPO, Institutional Investor predicted a Blackstone reprivatization in 2012, but with stock down 25% since June, this may be a conservative estimate. BX is trading down 1.75% today at $25.91.
Blackstone, Meet Blackstone [Slate]
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Blackstone
How Steve Schwarzman Totally Got Paris Hilton and Lindsay Lohan Back Together Again!
By John Carney
The Blackstone Group’s $26 billion bid for Hilton Hotels has certainly ignited speculation about whether another big hotel chain—perhaps Hilton rival Marriot or Starwood—might also get taken out by private equity or whether some group might try to roll-up smaller companies to take advantage of economies of scale and branding.
Supposedly, everyone’s all excited about the hotel business now! Private equity’s here! Chuck Prince is still willing to lend money to keep the music playing! Let’s get this party started! Hot!
All too often the smaller, human-scale stories of the deals get left in the dust while everyone keeps talking about earnings multiples and leverage-to-ebitda ratios. And the story we want to tell is a story of the friendship of two very special young women. A friendship that was torn apart but now, it seems, has been repaired by the healing forces of private equity.
We’re talking, of course, about Lindsay Lohan and Paris Hilton. According to the website Gossip Girls, the “longtime rivalry” between the two favorites of the gossip pages “is over.” It seems that the stint in jail has Hilton rethinking her feuds. But, perhaps more importantly, Hilton has apparently been in good spirits since news of the Blackstone bid broke. A friend of Hilton’s tells the girls that “she’s got to be in a good mood after the Blackstone Group bought the Hilton Hotels, boosting her inheritance.”
Apparently the renewed friendship became public when Hilton attended a birthday party for Lohan on July 3. Somewhere out in St. Tropez, Blackstone chief Steve Schwarzman can breathe the sea air and relax with the ease of a man who knows he has restored a friendship that had long been torn asunder.
Paris Hilton’s Frienaissance With Lindsay Lohan [The Gossip Girls]
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SoFi Answers the Call to Refinance Student Loans and Provides Unique Community Benefits
This is a guest post written by SoFi’s CEO, Mike Cagney.
CLICK HERE TO READ THE FULL ARTICLE
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In a recent article posted on MainStreet.com SoFi General Counsel Rob Lavet had this to say about SoFi’s ReFi products: Read more »
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