Shakedown artist Jesse Jackson is back at it. As Visa’s prepares its $17 billion initial public offering, s expected to be the largest ever in the United States, Jackson is bending ears and twisting arms in an attempt to cut minority-owned investment banks in for a greater share of the underwriting fees. He’s even threatening to have his allies on Capitol Hill launch a Congressional investigation if he isn’t shown the money. And he’s got a specific number in mind: he wants his favored banks to get 10% of the deal, according to DealBook’s report.
“There must be some sense of ‘equanomics’ in the I.P.O. deal — where the representation of minority investment banking firms compares favorably to our consumer use of credit cards,” Mr. Jackson wrote in letters he sent last Friday to Jamie Dimon, JPMorgan’s chairman and chief executive, Senator Christopher Dodd (the chairman of the Senate Banking Committee) and Barney Frank (the chairman of the House Financial Services Committee).
Does that make any sense at all? Larry Ribstein, who says he has “no quarrel with Jackson’s main argument that it would be good to give minority-owned banks a bigger piece of the action on Wall Street,” doesn’t think so.
The fact that a bank is an issuer or an acquirer of card debt doesn’t have much or anything to do with whether it will do a good job managing the underwriting or selling its securities, and therefore whether it should have a cut of the fees. Indeed, one might argue that bringing in an issuer or acquirer as an underwriter is a form of kickback, or perhaps more benignly a price cut. Visa should be nice to its users, including members of minority groups. But the way for Visa to be “nice” is through the price and quality of its services – not by paying kickbacks to banks.
Jackson also cried foul prior to the IPO of private equity giant Blackstone last year but reportedly didn’t succeed in getting his Wall Street Project banks any more of the fees.
A Call for Fairness in Visa’s I.P.O. [DealBook]
Fairness and the Visa IPO [Ideoblog]
Uh-oh. For the fourth time in a decade, Prada is considering an IPO, according to Bloomberg. We remember all too well the last time this happened—in 2002. The markets promptly the beat a hasty retreat—five years backward, to 1997 levels. The dollar declined to historic lows against the euro.
Prada blames the declining markets for their cancelled IPOs but would be investors are lucky they were scrapped. When the company first considered a public offering, analysts valued it at as much as 8 billion euros. Now they’re saying it’s worth between 3 and 4 billion. As Portfolio’s Felix Salmon points out, This decline came at a time when the 14-member Bloomberg European Fashion Index has more than doubled since 2002.
So what happened? To begin with, Prada made two costly acquisitions in 1999 that now look like serious mistakes.
“Jil Sander and Helmut Lang were disasters for Prada,” Fashionista’s Faran Krentcil tells us.
Another challenge has been the crowding of the market niche that Prada once dominated. The list of Prada competitors is far longer than it was in 2001. Brands like Burberry, Marni, and Marc have all made huge strides in what our Fashionista sisters call “quirky chic”
“Prada used to own that aesthetic,” Faran says.
Prada Seeking Advisers for Luxury IPO, People Say [Bloomberg]
Prada’s Underperformance [Portfolio]
If the terrorists lose, ICx Technologies may go out of business, which means the terrorists win. There is no jihad against paradoxes.
ICx is planning a $184 million IPO, according to an S-1 filed yesterday. The homeland security company develops sensing technologies for government agencies and corporations like FedEx and Disney.
How candid can a homeland security company be in an SEC filing? From the looks of it, not very. In the “Growth Strategy” section of the S-1, nowhere does ICx list, “maintaining a constant state of fear” or “the increased rate of things blowing up.” ICx also refuses to acknowledge the risk to ongoing operations that “things may stop blowing up.”
Instead, the closest ICx gets to admitting that it relies on a thoroughly terrorized populace is here:
Our ability to grow will depend in part on the rate at which markets for our products develop and on our ability to adapt to emerging demands in these markets. In particular, our business depends on our ability to offer a broader range of products and services to meet demand for integrated solutions. In addition, geopolitical developments, terrorist attacks and government mandates may cause sharp fluctuations in the demand for our products.
Translation – if you’re long on big explosions, you’re long on ICx. No one is denying the need for basic security (and increased security in certain obvious places, like U.S. ports), but the real question is whether we want a thriving homeland security market in the corporate and private sector, one in which every Disney store needs bomb detection. Do we want ICx to succeed in the first place? Are we long on terror, and will there ever be a time in which an unexpected surge in the share prices of homeland security companies suggest imminent attacks (terrorist insider trading)?
Lehman is lead underwriter on the IPO with Goldman, JPMorgan, Morgan Keegan and Needham & Co. acting as not-quite-so-lead underwriters. The company is planning to trade on the Nasdaq under the ticker ICXT.
ICx Technologies Plans IPO [Forbes]
ICx S-1 [SEC]
Och-Ziff Capital Management filed for a $2 billion initial public offering today, becoming the latest alternative asset management group to sell equity to the investing public.
One question that keeps arising when these offerings are discussed is whether it makes sense for an outsider to get in on a business that the insiders are getting out of. Och-Ziff has a strong reply: they aren’t getting out. In fact, they promise to re-invest the proceeds from the IPO in Och-Ziff funds, with a mandatory five-year lock-up.
We can’t help wonder if there’s not some kind of tax arbitrage behind this scheme. With plans afoot on Capitol Hill to tax hedge fund and private equity partnerships as corporations, this move might allow the owners of Och-Ziff to convert some of their carried-interest into investment capital subject to capital gains taxes.
The firm will remain under the tight control of founder Daniel Och. The current owners will control a majority of the voting rights, and they will sign an agreement giving Och an irrevocable proxy to vote their shares. The Wall Street Journal notes that Market Beat notes the fate of the fund is very much tied to Och himself. Investors in its funds are “entitled to a ‘one-time special redemption right’ allowing them to cash out of the fund if Mr. Och is unexpectedly unavailable to the firm for 90 days for any reason — death, disability, alien abuduction, whatever ,” according to Market Beat.
The role of Goldman Sachs as a lead underwriter of the IPO has prompted Deal Journal’s Dana Cimilluca to put forward something of nepotism theory to explain why Goldman has been landing lead roles in the big hedge fund IPOs but missing out on the private equity offerings.
At Och-Ziff…three of seven executive officers and directors listed in the SEC filing heralding the deal have Goldman on their resume. They include co-founder Daniel Och, who spent more than 11 years at Goldman before starting the eponymous investment firm in 1994. According to the filing, he was in Goldman’s Risk Arbitrage department and later ran proprietary trading in equities and was co-head of U.S. stock trading. At Fortress, the hedge fund and private-equity firm that started the present U.S. trend of alternative asset managers going public in February, three of its 12 chieftains are old Goldmanites.
Meanwhile, Goldman isn’t mentioned anywhere in the section of the Blackstone IPO prospectus that discusses the backgrounds of its 10 honchos, and KKR’s founders are all Bear Stearns alumni.
A yet unremarked connection between the Blackstone IPO and the Och-Ziff IPO is the role of Skadden Arps corporate finance partner, Jennifer Bensch. On Blackstone, Bensch was listed as the second partner at Skadden (who acted as outside counsel to Blackstone) working on the transaction. She’s in the same position in the Och-Ziff IPO. From our experience with big law firms, the placement of law firm partners usually works like this: the first name has the client relationship, and the second name does the work. This raises the possibility that Bensch may be the legal brain at the center of the recent push into the public capital markets by hedge funds and private equity firms. Bensch could not be reached for comment.
IPO Prospectus [SEC]
Och-Ziff Capital Hedge Fund Files for $2 Billion IPO [Bloomberg]
Midday Tidbits: Doc Och [Market Beat]
Goldman’s Hedge Fund Alumni Network [Deal Journal]
For the first time ever, the words “former VP Dan Quayle and former Notre Dame football coach Lou Holtz,” are not the setup to a joke (punchline – because I just gave the lineman a potatoe). Instead Dan & Lou, and CEO of K2 Richard Heckmann, are planning to raise up to $500mm for a SPAC (Special Purpose Acquisition Company). Heckmann is planning on leaving K2 by August 1.
SPACs are publicly raised entities that provide a virtual blank check for a management company to make an acquisition. The acquisition doesn’t have to specified beforehand, although there are strict limits on when a target must be designated, and when a SPAC needs to spring into action (or else it would be the greatest scam ever). Why investors would want to give Quayle and Holtz a blank check is anyone’s guess. I guess a few companies could use more heart and less brains (Quayle plans to make “Rudy” a managing director).
The largest SPAC is Freedom Acquisition Holdings, which raised $528mm last Decemember. SPACs have raised $4.1bn in 33 IPOs this year, taking advantage of the blank check fervor created by the planned and executed IPOs of hedge and PE funds.
Quayle has been busy as chairman of the global investment unit at Cerberus since 1999 and Holtz has been saying nonsensical things on ESPN since retirement.
Quayle joins ‘blank check’ firm’s IPO [Los Angeles Times]
Blackstone closed at $30.75 yesterday, down 5.2% for the day and below its $31 initial offering on Friday; shares fell to $30.48 during pre-market trading. This is embarrassing. Nobody (here) knows for certain why life is being so god damn unfair to Stephen Schwarzman, 5’6”, but perhaps it could have to do with the Schwarz’s outrageous pay package, the nebulous amount of disclosure about the actual content of the Blackstone funds, or the fact that equity investors haven’t been duped into thinking they are LPs.
This also might have something to do with it:
One particularly risqué segment posed a personnel problem more pressing than a potential shunning at Shinnecock. “The kid, Dylan, was either going to hump a chair or hump the nanny’s leg,” Holly [Peterson, Peter’s daughter] said. “As a mother, I wasn’t going to ask my kids or my friends’ kids to do that.” Hence, the dwarf. Jay [Peterson, Peter’s nephew] recalled, “We thought, why we don’t hire a little person? That should get some good laughs.
For his part, and for Blackstone’s sake, the elder Peterson had the decency (and good sense) to appear embarrassed:
Pete Peterson has been trying to distance himself from the video, saying last week via e-mail that he would never have agreed to lend his apartment had he known that “The Manny” was going to be filmed there, rather than, as he thought, a taped interview of his daughter.”
Within Days, Share Price of Blackstone Is Below $31[New York Times]
Schwarzman Stake Sinks Like Blackstone [New York Post]
Making the Manny [New Yorker]
The morning after: not always so pretty, is it?
Neither is the morning after the morning after (weekends don’t count in trading land), especially if you’re Stephen Schwarzman. After closing at $35.06 on Friday, Blackstone’s shares fell 7.5% to $32.44. This translated to a loss of about $655 million for The Schwarz, and (we’re assuming) no crab leg salads for a week.
When we started to write this post, BX had fallen to $31.15. It took us a while to find where the edited Crab Hands graphic was on the computer, and by the time it was located, they were down to $30.60. And not that we’re into kicking people when they’re down, but it should also be noted that Goldman Sachs, Merrill Lynch and Bear Stearns are all up (since yesterday’s close, trending with the market), so BX has no one to blame but itself.
Steve’s $655M Bad Day [New York Post]
Blackstone gives up debut gains [Financial Times]
After opening with a poplet after its initial public offering on Friday, Blackstone’s stock has been trending downward toward the IPO price. On Friday, we asked DealBreaker readers to guess the price of the shares at close. (A move, we happily confess, was a blatant rip-off of a Market Beat item.)
Reader BB called it with his two PM forecast of a $35.01 close for BX. This was just a nickel short of the actual close of $35.06, making BB the winner according to our Price Is Right rules. We’ll be sending him a copies of Jack and Suzy Welch’s Winning: the Answers and Dana Vachon’s Mergers & Acquisitions. BB requested that we maintain his anonymity.
“I arrived at the $35.01 closing price by a combination of technical analysis and luck,” BB told us. “I noticed that after the initial pop in BX shares the stock sold off rather quickly, dropping from $38 and finally catching a bid around $35. It rallied back to $36, but I suspected another wave of selling before the close and guessed that the stock might hold that $35 level once again. Remembering the old Price is Right strategy, I tacked on a penny to my guess – and bingo: $35.01.”
Click here for a pop-up version of the chart BB used for his winning analysis. Arrow indicates the time the closing price forecast was submitted.
Yes, the offering priced at $31 opened 18% higher at $36.55. Yes, Erin Burnett and Mark Haines could barely contain themselves all morning. Yes, DealBreaker wrote 131 articles about the whole thing on Friday alone.
But some people—cynical assholes—seem to think the BX offering was underwhelming. Andrew Ross Sorkin notes Paul Kedrosky, executive director of the William J. von Liebig Center for Entrepreneurism and Technology Advancement at the UCSD found the first day pop “scant,” that lead underwriter Morgan Stanley may have priced Blackstone’s units “low,” and that the offering paled in comparison to that of Fortress, Bukkake Party of IPOs, whose offer surged 68%.
ARS points out, however, that Tom Wolfe was on the scene, and that’s got to mean something. Indeed it does: an open bar (according to 24.3% of the DealBreaker audience). The $7.7 Billion Man and the $1.88 Billion Man (Crab Claws and Peterson, respectively) probably don’t much care either way whether or not you think Friday was a day that will live in infamy but, just for kicks, let’s hear it. The man who enabled “The Manny” deserves no free pass.
A Glamorous Public Debut for Blackstone [NYT]
Shares of the Blackstone Group began trading on the New York Stock Exchange this morning under the ticker symbol BX at $36.45, an 18% premium from the initial public offering price. The opening was slightly behind schedule as the specialists handling the stock sorted out some pretty wild bid margins. One buyer asked for a hundred shares at a price of $1000 a share, according to CNBC.
The IPO raised $4.13 billion dollars last night, making it the sixth largest in US history and the largest in the last five years. (AT&T, Kraft, UPS, CIT Group and Conoco were all larger)—until you adjust for inflation and the relative size of capital markets. The IPO was massively oversubscribed and we’re told that many of the institutional investors came away with far fewer shares than they would have liked as the underwriters stretched the offering to let in as many of the big institutions and funds as possible. Admission to the IPO was more or less the hottest ticket in town last night (arguably hotter, even, than the party at Four Seasons thrown for debut novelist Holly Peterson, the daughter of Blackstone co-founder Pete Peterson).
A trader familiar with the plans of a few prominent institutional investors we spoke with said they wouldn’t be attempting to snap up more shares at the opening this morning, preferring to give the stock “room to breathe” after the IPO. He added that many investors were pleased that Blackstone didn’t try to push the IPO price higher despite the strong demand, a move which more or less guaranteed the stock would open significantly higher than the price they paid.
The Blackstone IPO has been one of the most closely watched—and fiercely challenged—events in recent Wall Street history. Novelist Tom Wolfe even showed up on the exchange floor to watch the action this morning, remarking that he came to witness “the end of capitalism as we know it.” Recent weeks have seen challenges from lawmakers who sought to block the IPO, threats of legislation that would raise taxes paid by private equity firms, concerns over Blackstone head Steve Schwarzman’s very publicly lavish lifestyle, and last minute changes in the unusual way the company accounts for its earnings.
But none of this seems to have dampened interest in owning the shares of Blackstone.
Schwarzman shrugged off the tradition of ringing the opening bell to mark the new listing. Some have said this was a move to lower his profile. (There’s been widespread criticism from others in private equity that Schwarzman has too heavily courted publicity, perhaps inviting political blacklash). Others have said that Schwarzman’s absence was intended to project insouciance and confidence about the stock offering.
We are all quivering with excitement over the Blackstone IPO this week, but some, like Breakingviews.com editor Edward Chancellor, are looking further into the future. Because many of us at Dealbreaker hold or are pursuing advanced degrees in comparative literature with a financial sector specialization, we were fascinated by Chancellor’s piece in the June Institutional Investor: a fictional and dead-serious letter from Stephen Schwarzman to Blackstone shareholders, dated June 1, 2012, regarding the proposed buyback and delisting of Blackstone shares.
According to the letter, after Blackstone goes public this week, it will face five perilous years marked by “deteriorating economic conditions, extraordinary convulsions in the credit markets, a worsening political and legal environment for the buyout industry, and the consequences of what is not commonly referred to as the ‘private equity bubble.’” It will all culminate with a buyback at $15-per-share (a “substantial premium to current price”), about half of the anticipated IPO price.
As a document of 2007, the letter is more didactic than damning, saying of the “Private Equity Bubble,”
The entire buyout industry, including Blackstone, must accept its share of responsibility for our current woes. At the time of our IPO, returns from buyouts had been excellent, largely because both corporate valuations and profits had been rising in tandem for several years.
In hindsight, it’s clear that we became over confident. Too much private equity money was chasing too few opportunities. We found it difficult to resist the urge to raise ever-larger funds. And we put that money to work to quickly. In the takeover frenzy, many private equity firms were over stretched. There was a collective loss of investment discipline. Too many businesses were bought at large premiums when profits were near a cyclical peak. Given the fees on offer and the ease with which assets could be flipped only months after acquiring them, out actions were understandable.
Imagining a not-too-distant world in which Blackstone forsakes its listing [Institutional Investor]
