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]

It appears that the multitude of markets is making us ignorant. Even tiny unprofitable tech companies are trying to take advantage of the fervor in the (public) equity markets.

Voltaire, a networking equipment company based in Herzeliya, Israel and Billerica, MA, filed for an IPO in which the company expects to raise $67.5 million. Voltaire hopes that when it is a question of money, everybody is of the same religion, and that investors will overlook the fact that net losses are ramping up faster than revenue and that the company is based in Israel (is that a legitimate discountable risk these days?). Voltaire dismisses this criticism, commenting that “investors always speak badly when they have nothing to say.”

Voltaire does worry that “the longer analysts dwell on our misfortunes, the greater is their power to harm us,” but has confidence that common sense is not so common, and that investors will overlook any operational red flags and buy in to the IPO. The company plans to sell 5.77 million shares at a target price of $12 to $14 per share and trade on the Nasdaq under the ticker “VOLT.”

Voltaire is candide about the risks it faces in the future, and of the illusory, often metaphysical nature of most company reporting. The company adds as a risk factor in its S-1, “everything’s fine today, that is our illusion,” knowing that it is not enough to conquer the networking equipment market, one must also know how to seduce it.

Voltaire insists that is not responsible for perpetuating any sort Web 2.0 bubble but also muses that no snowflake in an avalanche ever feels responsible. Since business is the salt of life, Voltaire enters the public markets making but one prayer to God, a very short one: “O Lord, make my shareholders ridiculous.” We will see if he grants it.

InfiniBand backer files for IPO [CNET via DealBook]

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 (Schwarzman 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]

When Is the IPO? Blackstone Day will go down sometime during the week of June 25th, its underwrites said today. The exact date hasn’t yet been set. The stock will trade under the stock ticker symbol BX, in a bold repositioning of a brand logo already popular among proud Bronx hip-hoppers.

How Do I Figure Out What Blackstone Is Worth? The truth is that you probably cannot. Blackstone’s recent filings with securities regulators has Wall Street analysts and business journalists scratching their heads trying to figure out what the company might be worth. At one point Blackstone planned to use a complex accounting method to assess the ‘fair-value’ of its investment by listing them on the books at their expected value discounted for the fact that it they might not be sold for several years. This was abandoned after it raised eyebrows from potential investors, journalists (who referred to it as “Enron accounting”) and lawmakers who saw an opportunity to tax the firm.

In its recent filings Blackstone makes heavy use of a rather, uhm, unique measure of its performance—something called “economic net income.” Since almost no-one else uses this measure, it is very hard to compare Blackstone to any other public company. Which may be the point of using it.

Why Should I Get Into Private Equity If They Are Getting Out? This common objection to the IPO is probably misguided. As far as we can tell, only one bigshot at Blackstone is really “getting out”—82 year old Blackstone co-founder Pete Peterson. He is expected to walk away with $1.88 in cash, and will hold just 4% of the equity of the company after the IPO. But Peterson was probably getting out—one way or another—sometime soon anyway. The rest of Blackstone’s top executives are staying in. Blackstone’s other co-founder, sixty-year old Steve Schwarzman will own 23% of the company after the IPO. Other executives will hold significant stakes as well. In all, Blackstone executives will own 70% of the company after the IPO. And the principals will be required to hold the bulk of their shares for as long as eight years follow the IPO.

So Blackstone Is Going Public But Will Still Be Owned By Blackstone? That’s right. Blackstone is selling only 10 percent of its equity to the public, and another 10 percent of non-voting equity to the Chinese government. Almost of all of Blackstone stays with Blackstone’s partners.

Isn’t being a minority partner with limited voting rights risky? Yes it is. You’ll basically be at the mercy of the managers of the firm who are also the owner. There are minimal legal protections for minority limited partners but the key word in that phrase is minimal. Buying into Blackstone means putting your trust in Blackstone. You either run with them or you don’t. But you won’t be calling the shots.

Would Blackstone Buy Blackstone? It’s hard to say. On the one hand, the answer is Definitely No. Blackstone would never buy a company if it understood as little about how it made money and how it made business decisions as many of those who buy into the IPO or buy the stock afterwards will know. Blackstone specializes in buying companies that it knows a lot about. It doesn’t sign checks while it is still scratching its head.
The other hand is also a No. Blackstone’s private equity business likes to control the companies it buys. It does more than private equity, of course. But we’re talking about the core business that made Blackstone Blackstone. And the PE guys didn’t get rich buying small parts of companies that would remain under tight control of the managers and current owners.

There’s a third hand, however, and that hand is Signs Point To Yes. The Blackstone filings are confusing and the way they account for their performance might be described as “rabbits in hats” or “Schroedinger's cat” or “a blackbox you can’t look into.” This means that Blackstone exists in an area made dark by calculational chaos and public ignorance. But this is a territory that Blackstone has specialized in—being better at sorting out calculational chaos than nearly everyone else. We all see through a glass darkly, but Blackstone partners have made bundles of money because they are slightly better at seeing through that glass. Blackstone would buy Blackstone if they believed they understood it better than anyone else.

And, in a way, Blackstone is buying Blackstone. They are signing on to hold their stakes in the company for years after the IPO, and will own the overwhelming majority of the equity. So they do think they enough about the company to own it. What they are asking investors to do is trust that they know their own value. And since investors will only buy Blackstone shares if they think the company is good at uncovering hidden values anyway, this request might not be as strange as it seems.

The old Tang Dynasty (618-907) may have been responsible for starting the practice of foot binding, but the new Tang Dynasty, 3,828 retail outlets strong, is responsible for binding women's feet in pure comfort.

Tang Yu, the chairman of Belle International Holdings, and daughter Tang Ming Wai are the world's latest paper billionaires, controlling 34% ($2.9bn worth) of the leading retailer of ladies footwear in China. Belle began trading yesterday on the Hong Kong exchange. Shares of the company shot up by almost a third, giving Belle a $8.6bn market cap and culminating an IPO process that was 500 times oversubscribed. The IPO brings the number of billionaires in the world closer to that 1,000 mark (from 946 last year).

Even though gals are not as shoe crazy in China (they only purchase 2.3 pairs of shoes a year on the Mainlaind, opposed to the 7.3 pairs a year of furry, pointy or jellied abominations American girls "need"), Belle International does considerable business, offering 300-400 new styles a year in several brands commanding prices up to $260. Spending $260 for shoes in China has to be the equivalent of something insane in the US with the lower cost of everything over there.

Tang Yu is seen as a visionary of sorts, or at least one of the first people who realized that Chinese women would not always be wearing tightly bound ropes and cloths on their feet, kidnapped into villages (most sandals are built in-house) or aborted. Eventually these women, sans deformed lower extremities, would need shoes. Tang got a late start into the shoe game, starting in 1981 at the age of 46. His daughter went to UT-Austin with a degree in business administration, proving that even Longhorns can be billionaires if they just move to China.

Belle IPO Makes Tangs Billionaires [Forbes]

Just because some of Blackstone’s managed funds had a tougher first quarter this year than last year doesn’t mean the private equity firm has slowed down its growth. The most recent filing suggests that the firm’s assets under management grew by nearly $10 billion between March 1 and May 1, from $78.7 billion to $88.4 billion. That would mean that Blackstone tacked on an additional $163,934,426.23 each day. If the last twenty-one days have followed the pattern, Blackstone would now have over $90 billion under management.

Despite the lower rate of return earned by its funds of funds, one of its hedge funds and its mutual funds, the alternative asset fund management business is clearly driving this growth of assets under management. The bulk of the additional $9.7 billion came from this area—which grew from $29.9 billion on March 1 to $35.3 billion on May 1.

Blackstone has also been adding finance professionals, tacking on five more “investment and advisory professionals” since March. The total headcount of finance professionals now stands at 340. With $88.4 billion under management, that breaks down to around $260 million per man or woman.

Blackstone’s fund management business is growing but its performance slipped a bit over the past year, the firm’s most recent filing with the Securities and Exchange Commission suggests. The revised IPO prospectus filed by Blackstone on Monday said the firm had $35.3 billion in its funds of hedge funds and hedge funds, nearly $6 billion more than it said it had in March. But it also shows modestly lower returns in several categories of funds.

The new prospectus provides a rare glimpse into something like a quarterly earnings statement for Blackstone by revealing changes in the past few months. Until now, only Blackstone the wealthy individual and institutional investors in the firm's funds have received reports on their investments. But the public has not been privy to such detailed information. After the IPO, Blackstone will have to begin filing quarterly reports with the SEC.

The new information came to light because the updated prospectus dates uses different dates to measure the performance of the funds than the earlier prospectus. The original prospectus measured annual returns from January 2006 through December 2006. The new prospectus measures the returns from April 2006 through March 2007. This allows the public to see how the performance of the funds has changed and may even provide a glimpse at their prospects. In most areas, the returns have declined. This suggests that returns in the quarter beginning January 2007 were lower than returns from the first quarter of the prior year.

[Details on the changing returns of Blackstone's funds after the jump.]

The Blackstone public offering is back in the news. The private equity firm today released a revised prospectus in a filing with the Securities and Exchange Commission, revealing for the first time the price it expects its shares to fetch at the initial public offering—between $29 and $31 dollars. Blackstone also said it expects to sell 133.3 million units. (The revised prospectus also revealed that Blackstone will be getting another infusion of cash from a different equity sale—the sale of limited partnership shares to China for $3 billion. More on that later.)

At the mid-range of the expected price—$30 a share—the offering would fetch $4 billion, which the number everyone was talking about when the offering was first announced. In the original prospectus, DealBook reminds us. Blackstone had estimated that $4 billion was the upper-end of what it expected from the IPO. Today’s pricing suggests that Blackstone might get as much as seven hundred and fifty million more than that, for a total of $4.75 billion.

DealBook points out that while the estimated share price indicates the IPO might fetch more than expected, the new prospectus also suggests that the firm might be valued lower than the $40 billion often cited in reports on the IPO.

The proceeds may be getting larger, but the new filing also suggested that Blackstone won’t quite reach the $40 billion valuation that was previously reported. Based on the firm’s own estimate of 1.085 billion units outstanding after the offering and a per-share price of $31 — the high end of the expected range — that would value the firm at about $33.6 billion.

By way of comparison, that figure would make Blackstone larger than securities firm Bear Stearns, which has a market capitalization of about $21.9 billion, but smaller than Lehman Brothers, whose market cap is about $38.9 billion.

Eddy Elfenbein points to another comparable—Fortress Investment Group, which sold shares in an IPO earlier this year. At the high end of the price range, Blackstone would be valued at about three times Fortress, Elfenbein writes on his Crossing Wall Street blog. Of course, that might be comparing apples to oranges. Fortress has a much higher market capitalization than its IPO price would have suggested in advance—shares traded up as much as 68% as soon as they hit the public exchanges. It’s possible Blackstone’s shares saw a similar rise on the first day of trading. “Of course, if Blackstone’s shares rise after the I.P.O., its market cap could easily top the $40 billion mark,” DealBook writes in its initial reading of the new prospectus.

There will no doubt be lots more on this story once everyone has a chance to read through the new prospectus.

Blackstone Seeks Up to $7.75 Billion in Stock Sales [Bloomberg]
Blacktone Prospectus [Sec.gov]
Blackstone I.P.O. Could Reach $4.75 Billion [DealBook]
The Blackstone IPO [Crossing Wall Street]

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.

Does that sound like someone who isn’t considering a public offering?

The Predator's New Ball [Business Week]

As of last Friday, Asia has a new richest woman, and she’s completely alive. Yang Huiyan, the daughter of Yang Guoqiang, founder of Guangdong property developer Country Garden Holdings Co., is now worth more than twice the formerly living Nina Wang, who left her $4.2bn to feng shui proponent Chan Chun-cheun. Guoqiang gave his Country Garden shares to Huiyan in 2005, giving her around 60% ownership of the company worth about $9bn after Friday’s IPO. According to the extremely reliable and complete accounts in Chinese media, Guoqiang started out as a poor farmer in the city of Foshan. He moved to construction work and married a bricklayer. Then he moved to real estate in the early 1990s and grew a billion dollar corporation. It's just that easy. We couldn’t find any pictures of Huiyan, so imagine her father, shown here, with a wig.

Country Garden raised $1.6bn in its IPO on the Hong Kong Stock Exchange, about as much as Google in 2004. Morgan Stanley and UBS were involved in the deal.

China Adds Billionaires With I.P.O. – [DealBook]
Woman tops rich list after IPO – [ChinaDaily]

The Blackstone Group’s accounting methods are under further scrutiny today. The Wall Street reported on the first page of it’s C section that Blackstone plans to book estimated future gains from investments as current revenues. Under the plans disclosed in the filings for its public offering, Blackstone would book the present value of fees it expects to receive on its investments at the time the investment is made. If the expected fees increased, the firm could book additional fees prior to the receipt of any actual revenue from the sale of the investment.

In some sense this accounting method will allow Blackstone to present the capital markets with a picture of itself that more closely resembles its own internal perspective. Private equity firms have made tremendous gains in recent years, in part because they have longer time-horizons than the average stock holder. By employing what accountants call “fair value” accounting, Blackstone hopes it will be able to meet market expectations for smooth current revenues while maintaining its traditionally longer term outlook.

But some look at this as gaming the system, and fear that Blackstone can use “fair value” accounting to deceive capital markets. One investment banker we spoke to called it “Back to the Future Accounting” because it allows the firm to capture gains from the future and bring them into the present, if only on paper.

The Wall Street Journal goes so far as to bring up the dreaded E-word: “This method once was used by many companies, most notably Enron Corp., and led accounting rule makers a few years back to ban firms from booking immediate gains from certain transactions that didn't trade in active markets.” And just in case you miss the point, the Journal quotes three experts who disapprove of Blackstone’s accounting choice. Only one expert in favor of fair value accounting is quoted. (Although the paper notes that "fair value" is officially approved and that Blackstone refused to comment for the story.)

Blackstone Tests Fairness of Using 'Fair Value' Rule [Wall Street Journal]

Earlier on DealBreaker: Blackstone Delving Into Black-Scholes Book-Keeping [3.30.07]