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Blackstone IPO Mania! (Part I)

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It’s Blackstone IPO media mania today! Stories everywhere, with everyone trying to tease some new facts out of the enigmatic prospectus. And everyone’s also doing round-ups of everyone else’s reporting. Here’s Deal Journal’s round-up. And here’s DealBook’s. Here’s a run-down (or round-up, or whatever) of the stories this morning that caught our eye:
Andrew Ross Sorkin of DealBook fame points out that the ‘Stoners aren’t exactly scrimping when it comes to travel for their top executives. “Mr. Schwarzman has a personal airplane, and Mr. Schwarzman and Mr. Peterson together own a helicopter; their air travel was valued at $4.2 million over the last four years,” Sorkin writes.
Bloomberg digs through the numbers and discovers that Blackstone earns a better return from its real estate investments than from it’s takeover business. This sheds some light on how Jonathan Gray, the top ‘Stoner real estate guy, was able to rally his firm behind that giant Equity Office Properties buyout.

Henry Sender
profiles Hamilton E. James, the guy designated as the successor to Steve Schwarzman mysterious “powers and authorities” at Blackstone. Although he’s only been at the firm for five years, people already call him “Tony!”

Victor Fleischer
over at the Conglomerate raises the tax issue. In order to qualify for the favorable tax treatment that allows Blackstone to characterize its distributions as capital gains rather than ordinary income, Blackstone has to convince the IRS that it is a passive recipient of income comes from interest, dividends, and gains from the sale of capital assets. But in order not to get tagged as an Investment Management Company under the ’40 Act—and therefore get stuck with a heavy regulatory burden—Blackstone has to claim that it is an active manager of the companies it buys, and not a pass-through for investing in the securities of those companies. Can you be passive for tax-purposes and active for SEC purposes? “I'm not saying the structure doesn't work - quirks in the rules often allow this sort of regulatory arbitrage -- just that it seems a little aggressive. I don't think I've ever seen an entity go public with such uncertain tax treatment,” Fleischer says.
Chad Brand, the Peridot Capitalist, says that the IPO signals a market top. It’s the “if they’re selling, why are you buying” argument that we’ve been hearing all week. But just because we’ve been hearing it a lot doesn’t mean it’s wrong. Just tired. Although, frankly, we remember hearing exactly this argument when Goldman Sachs went public. And look who badly that turned out!
Dana Cimilluca at DealJournal calls bullshit on the “end is nigh” line. Taking a close look at the way Schwarzman’s interest in the public company vest over a number of years, Cimilluca says that Schwarzman may be bullish about the future of private equity over the next couple of years. “According to the prospectus for the offering that Deal Journal has been perusing, only one quarter of his partnership units in Blackstone Holdings will be fully vested at the date of the IPO, with the rest vesting over four years, assuming he’s still employed there. Not exactly the deal you cut when you think the bottom is about to fall out of the market,” he writes.
Stayed tuned for Part II!