Blackstone

Inside the Black(stone) Box: Big Energy Bets

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blackstoneipoblackstoneipoblackstoneipo.jpgThis morning the New York Post takes a look inside the filings of Kailix Advisors—a $1.3 billion hedge fund owned by the Blackstone Group—and discovers that the fund is betting big on energy. Drilling, solar power, ethanol companies—Kailix has a piece of each of them.
The Postturns to James Altucher of StockPickr for an explanation of all this energy investing. Altucher gives two answers: T. Boone Pickens and the peak energy theory.

“It’s like they got off the phone with T. Boone Pickens and said, ‘Help us out here. We’re starting up a hedge fund. What should we buy?,’ ” said StockPickr Chief Executive Officer James Altucher, who has written about the fund.
He speculated that the diversity of energy bets is really Blackstone’s way of wagering on so-called peak oil theory, which holds that the globe’s oil supplies are slowly diminishing.

Of course, many eyes will turn to the Kailix filings as a way of taking a look inside Blackstone in front of the $4 billion public offering that is in the works.
Steve’s Hot List [New York Post]

    Kirk Kerkorian Bids For Chrysler!

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    kirkkerorianbidsforchrysler.JPGThis is getting exciting! Kirk Kerkorian’s investment company, Tracinda, made a $4.5 billion cash bid for the Chrysler Group today, according to reports. This comes fast on the heals of three other headline making Chrysler stories:
    • that Daimler-Chrysler’s big German boss, CEO Dieter Zetsche, confirmed the Chrylser group was for sale,
    • that bids had been submitted by Blackstone, Cerebrus and Canadaian automanufacturer Magna International,
    • and that JP Morgan was putting the deal on a fast track, reviewing the bids beginning this week and hoped to have selected a winner by month’s end.
    Well, you can wipe those off the whiteboards, kids, because the headline is going to Kerkorian’s bid. Not only is it a cash deal, he’s also got the backing of both the United Auto Workers and Chrysler senior management.
    Prior to this announcement it was widely rumored that Magna might have the strongest bid, since it was thought to be the most likely bidder to keep the Chrysler relatively intact and gain the cooperation of unions. But Kerkorian’s offer now seems the front-runner. In fact, it seems so strong that it might entirely change the game.
    “You can bet the boys down at Blackstone and Cerebus are cancelling their Easter weekend plans,” a source who consults for many private equity groups told DealBreaker. “Time to rewrite the bids.”
    Kerkorian has a long, storied history with Chrysler. In the mid-nineties he attempted to takeover the company in an alliance with Lee Iacocca. He remained one of the largest single shareholders in the car company until it merger with Daimler-Benz in 1998. At the time—and to this day—many saw Kerkorian’s handiwork behind the deal.
    In the nineties Kerkorian was often represented as a “corporate raider” and many feared he wanted to own Chrysler only to destroy it, or at least disassemble the company and slice of its less profitable divisions and product lines. These days many fear that the private equity bidders have similar plans, and Kerkorian seems to be promising to keep the company intact.
    “Can KirkKerk actually be the white knight he always claims he is and save Chrysler from the ‘merger of equals’ he initially drove them to? Stay tuned for the next episode of Crazy Chrysler!” Jalopnik editor Ray Wert told DealBreaker. (Note: Ray uses phrases like “he initially drove them to” but this isn’t his fault. It is a well-known condition that car pundits cannot resist automotive puns.)
    “It’s like the late 90′s all over again, only in reverse,” Ray added. (Note: Reverse. See what we mean?)
    Kerkorian Offers $4.5 Billion for Chrysler [New York Times]
    Tracinda’s Letters to Chrysler [pdf via New York Times]
    The Official Car Pundit Drinking Game: Is The UAW In Bed With Kirk Kerkorian? [Jalopnik]
    Chrysler sale looks certain [Detroit News]
    Update: The lads at Deal Journal are outdoing themselves translating the letters from Tracinda speak into a normal human language.
    A sample:

    The returns will not come quickly. Investors that feel the need to show “mark to market” results in their funds in relatively short time frames (just a few years) will not be willing to invest as necessary over an unusually lengthy period of time to achieve the necessary end results.
    Dr. Z., why are you imperiling the future of Chrysler by playing footsie with the fast-money crowd from New York? I don’t have to live by the same rules and can be a better steward than the folks, like Cerberus, who’ve chosen the hound of Hell as their name and mascot.

    Translating Kerkorian’s Chrysler Letter [Deal Journal]
    Translating Kerkorian’s Letter II: The Terms [Deal Journal]

      Blackstone vs. KKR: Primedia Bid

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      KKR vs Blackstone Colorized.JPG Is personal animosity standing in the way of Blackstone’s bid for the enthusiast magazine titles Primedia has put on the auction block? That’s what the New York Post’s Keith Kelly claimed in his column yesterday.
      Although Blackstone is said to have put in a bid for some or all of the titles—which include Surfing, Motor Trend and similar niche magazines—in the first round of the auction, it may have backed out of bidding in the second round, Kelly reports.

      One reason is that Schwarzman and Primedia’s chief shareholder, Henry Kravis are bitter rivals on many high-stakes deals.
      The deal for the Primedia Magazine Group is expected to fetch over $1 billion.
      One source close to the situation said there is “no way” Schwarzman would want to fork over that kind of money to Kravis.

      Is it plausible that Steve Schwarzman has personally quashed the Primedia bidding just to avoid giving money to Henry Kravis. We’re rating this story a “sell” because it doesn’t quite make sense. Why would personal rivalry stand in the way of a second round bid but not the initial bid?

      Fat chance       [New York Post, second item]

        • 04 Apr 2007 at 11:25 AM
        • Apollo

        Is the Apollo IPO A Consolation Prize or A Conflict Story?

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        One storyline that is clearly emerging from the various private equity and hedge fund IPO rumors and reports is that the investment banks are gunning hard for this business. And they’re not waiting around for hedge funds to decide to go public—they’re pitching, even pushing, the idea of launching a public offering on the firms.
        “All over Wall Street, bankers are pushing private-equity shops to move quickly, reminding them that market conditions could deteriorate and diminish investor appetite for any offering,” Wall Street Journal reporters Katie Kelly and Robin Sidel write in today’s paper. “In this case, however, it isn’t clear whether bankers are more concerned about a capital-markets slowdown or getting a high-profile deal to the finish line before rival firms attempt to do the same.”
        A sign of how ultra-competitive the investment banks have become for this business is the public attention paid to the fact that Goldman Sachs was not included as an underwriter for the public offering of Blackstone partnership equity. There was a lot of speculation about why one of the premier banks on Wall Street (yes, yes, Broad Street, we know, “Wall Street” is a metaphor or a synecdoche here) was left out of a deal that seemed to include every other bank on the Street. Was it because Goldman “called bullshit” on the Blackstone IPO, as some said? Or was it personal animosity between the higher-ups at Blackstone and some prominent Goldman personages? Or—and we’re sorry there are so many “ors” here but that’s just the way the world is—was it that Blackstone was hesitant to let Goldman—which competes with Blackstone in many of its businesses—do much digging into its books in preparation for the offering.
        If the reports of an Apollo IPO—a story broken by CNBC’s Charlie Gasparino yesterday and carried several millimeters forward in today’s Wall Street Journal and New York Post—are correct, then it seems we have the answer: Goldman couldn’t take the Blackstone business because it was already working on the offering of its competitor. Now Goldman is famous for finding creative ways to cleverly untie seemingly Gordian knots of conflicts—but underwriting two competing private equity IPOs might have been too going too far.
        That’s the story as we’ve heard it. But the boys at Deal Journal have an alternate reading of the Apollo story. They write that the Apollo IPO isn’t so much of what kept Goldman out of the Blackstone underwriting syndicate—it’s a consolation prize for the banks, a bit of business they apparently pushed to get after being shut out by Blackstone. Of course, Deal Journal has been a big proponent of the Blackstone In Competition With Goldman theory, and this take would allow them to leave that notion in place. The Apollo Conflict theory, in fact, undermines the whole idea that Goldman was shut-out.
        Of course, we’re probably just counting our eggs while they are still in the bush. Or however the saying goes.

          Will Blackstone Break Chrysler Into A Million Little Pieces?

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          Chrysler Detroit.jpgLate last night we met up with a refugee from private equity who claimed to have knowledge of what Blackstone’s plan for DaimlerChrysler’s Chrysler business looks like. He hadn’t seen the bid that Blackstone was rumored to have been on the verge of submitting last week but claimed to have been privy to some internal discussions at Blackstone about the fate of the perpetually troubled automaker. He described Blackstone’s plans as “not so much a break-up, but more like a brick through a window.”
          This was, of course, after a few drinks and we half-suspect that his boasts of inside knowledge of Blackstone’s plans were just that—boasts that had more to do with the quantity of gin that had poured over the lips of the four or five almost empty glasses sitting on the table in front of him than the quality of his knowledge inside of Blackstone. Those gin soaked lime rinds in the bottoms of the glasses did not exactly cry out “reliable source.”
          But it turns out that academic observers who spoke to Fortune about Blackstone’s likely plans agree with our friend. Kind of. Even if not they did not go as far as describing the plans as breaking Chrysler into the “million little pieces” we heard about in the East Village bar last night, the academics seem certain that Blackstone plans to carve up chunks of Chrysler and sell them off. Call it giving Chrysler the EOP treatment.
          “For Blackstone, it’s all about the game. You buy an asset, and there’s a huge amount of value to be unlocked by repackaging the assets and finding buyers,” Rensselaer Polytechnic Institute management professor Phillip Phan tells Fortune. “There are really two ways to make money. One is by cutting costs, rewriting pensions contracts, closing capacity and outsourcing to Asia and Eastern Europe, where the auto sales growth is anyway. Or you just sell off the assets and trim product lines.”

          What would Blackstone do with Chrysler?           [Fortune]

            • 04 Apr 2007 at 9:02 AM
            • Apollo

            Apollo Launching An IPO?

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            charliegasparinoonapollogoldman.bmpGoldman Sachs is advising Apollo Management on an initial public offering, we learned from CNBC’s Charlie Gasparino late in the afternoon yesterday. Later CNBC reported that JP Morgan had a piece of the deal as well. While no final decision has been made to pursue the IPO, the private equity firm was “pretty far along” in the discussions and leaning toward launching an IPO possibly as early as this far, Gasparino said.
            Today’s Wall Street Journal adds to the story, reporting that Apollo has hired J.P. Morgan as well as Goldman Sachs to arrange the IPO, which the Journal’s Kate Kelly and Robin Sidel say would include only a small portion of Apollo equity and could be worth a $1.5 billion. Team Kelley & Sidel also cite “people close to the banks” naming an even earlier IPO date, saying it could come “as early as this month or May.”
            The New York Post weighs in as well this morning, reporting that its sources say that Apollo might file for the IPO as early as… “soon.”
            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.
            Apollo IPO? [CNBC.com]
            Apollo Is Pushed to Become Latest Private-Equity IPO [Wall Street Journal]
            Apollo: Goldman and J.P. Morgan’s Consolation Prize [Deal Journal]
            Apollo Boss Plans To Follow Rival To IPO [New York Post]

              The Harpooning of Blackstone

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              blackstoneipoblackstoneipoblackstoneipo.jpgThe Washington Post’s Allan Sloan rails against the partnership equity structure and the tax structure of Blackstone but is good enough to indicate why he’s been paying so much attention to the private equity firm: because they had the nerve to raise their profile with the IPO.

              If you’re wondering why people like me keep writing about Blackstone Group, the big private-equity player, there’s a simple answer: The whale that comes to the surface gets harpooned. And whales don’t get much bigger than Blackstone, which lately seems to be bidding on every asset in sight.
              When private-equity firms and hedge funds kept low profiles, they were well out of harpoon range. They benefited from an enormous tax loophole that few but the cognoscenti knew about and a nice legal loophole that’s familiar to people in the world of partnerships but that I’d never heard of until last week. These things have now emerged into public view, thanks largely to Blackstone’s bid to become a publicly traded company. The harpoons are flying — as well they should be.

              That’s a refreshingly honest view of the way journalists find their targets, and one that hedge funds and private equity firms considering going public may want to keep in mind. There’s a risk of invoking the prating wrath of the chattering classes.
              Ahoy, Blackstone, and Ready the Harpoons [Washington Post]