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]