In a CNBC EXCLUSIVE, David Faber reports The Blackstone Group is deep into preparations for an initial public offering that could be filed in the next two weeks, citing people familiar with the private equity firm's plans.
Goldman Sachs and Blackstone attorneys are in the process of writing a prospectus, Faber said, and Blackstone has been "sounding out" partners that provide equity for its deals about whether they'd object to an IPO.
"While a final decision on whether to go public has technically not been made and rests squarely with the firm's Chairman and Chief Executive Steven Schwarzman, people familiar with Blackstone's plans tell me the decision has been all but made and the filing will soon follow," Faber said.
Schwarzman himself would stand to score a financial windfall from an IPO. The executive is believed to own about 40% of the firm.
Schwarzman was "non-commital" when asked about the possibility of an IPO earlier this week, Faber said.
Please see unofficial transcript below. All references must be sourced to CNBC.
DATE: March 16, 2007
PROGRAM: "Squawk on the Street"
TIME: 9:00 am ET
DAVID FABER: THANK YOU ERIN. AN IMPORTANT STORY I THINK THIS MORNING FOR MANY PEOPLE, THE BLACKSTONE GROUP IS DEEP INTO PREPARATIONS FOR AN INITIAL PUBLIC OFFERING THAT COULD BE FILED FOR IN THE NEXT TWO WEEKS ACCORDING TO PEOPLE FAMILIAR WITH ITS PLANS. GOLDMAN SACHS IN CONJUNCTION WITH BLACKSTONE'S LAWYERS ARE CURRENTLY CIG A PROSPECTUS FOR THE OFFERING AND BLACKSTONE HAS BEEN SOUNDING OUT ITS LIMITED PARTNERS, THE INSTITUTIONS THAT PROVIDE EQUITY FOR ITS DEALS, ABOUT WHETHER THEY WOULD OBJECT TO SUCH A MOVE. WHILE A FINAL SIGS ON -- DECISION ON WHETHER TO GO PUBLICLY HAS TECHNICALLY NOT BEEN MADE AND RESTS WITH STEVE SCHWARZMAN, PEOPLE TELL ME THE DECISION HAS ALL BUT BEEN MADE AND THE FILING WILL SOON FOLLOW. MR. SWARTZMAN HAS NOT CALLED BACK AND A BLACKSTONE SPOKESMAN HAS DECLINED TO COMMENT. THE COMPANY THAT WILL BECOME PUBLIC IS NOT LOST ON PRINCIPLES. MR. SWARTZMAN HAS EXPLAINED WHY COMPANIES PREFER TO GO PUBLIC RATHER THAN STAY PRIVATE.
STEVE SCHWARTZMAN (ON TAPE- INTERVIEW WITH MARIA BARTIROMO): THAT'S A STRUCTURAL ISSUE WITH PUBLIC COMPANIES TODAY WHERE THERE ARE CERTAIN THINGS THAT THEY'RE NOT ABLE TO DO THAT PRIVATE COMPANIES CAN DO AND THAT ARBITRAGE IS BENEFICIAL TO THE PRIVATE EQUITY FIRMS, AND THE EMPHASIZE ON QUARTERLY EARNINGS WHICH DISCOURAGES RISK TAKING ON THE PART OF CORPORATIONS.
DAVID FABER: BUT AN IPO WOULD CREATE ENORMOUS WEALTH FOR THE FIRM'S PARTNERS, LED BY SCHWARZMAN WHO IS BELIEVED TO OWN 40 PERCENT OF THE FIRM. AND THE OFFERING WOULD GIVE BLACKSTONE THE -- BLACKSTONE THE ABILITY TO USE STOCK. WHEN ASKED ABOUT THE POSSIBILITY OF AN IPO BY MARIA, MR. SCHWARZMAN WAS NONCOMMITAL.
STEVE SCHWARTZMAN (ON TAPE-INTERVIEW WITH MARIA BARTIROMO): I THINK EVERY BANKER HAS TALKED TO EVERY COMPANY THAT'S IN THE PRIVATE EQUITY AND HEDGE FUND BUSINESS ABOVE A CERTAIN SIZE. I MEAN, IT'S LIKE A NATIONAL SPORT AT THIS POINT.
DAVID FABER: IT IS NOW MORE THAN A SPORT, IT WAS THE SUCCESS OF THE PUBLIC OFFERING OF FORTRESS INVESTMENT GROUP WHICH HAS INTRIGUED NOT JUST BLACKSTONE BUT SOME OF THE OTHER GIANTS IN THE PRIVATE EQUITY INDUSTRY. BANKERS AND LAWYERS TELL ME WHILE BLACKSTONE MAY BE FIRST, APOLLO, KKR, CARLYLE ARE EXPLORING PUBLIC OFFERINGS THAT COULD TAKE PLACE LATER THIS YEAR OR NEXT. BLACKSTONE, THOUGH, WOULD LIKE TO BE FIRST, BEFITTING ITS TITLE A THE LARGEST PRIVATE EQUITY FIRM. THE FACT THAT IT'S INSTITUTIONIZED ITS BUSINESS IN INTERNAL ASSETS WILL ALSO HELP THE IPO. IT'S NOT JUST PRIVATE EQUITY THAT BRINGS IN FEES WHICH PROBABLY EXCEED A BILLION DOLLARS A YEAR BUT THE LARGE PRESENCE IN FUND TO FUNDS,DY AND REAL ESTATE ESTATE. WHAT IS BLACKSTONE WORTH? IT'S HARD TO SAY BUT BANKERS TELL THE. THE MARKET VALUE ABOUT EASILY EXCEED $20 BILLION. THAT WOULD MAKE MR. SCHWARZMAN'S STAKE A COOL 8 BILLION, HIS COMPENSATION ALREADY EXCEEDING HALF A BILLION DOLLARS. WITH AN IPO WILL COME GREATER TRANSPARENCY WITH PAY DAMAGE DEALS AND OTHER ONES FOR SENIOR MANAGEMENT BUT THE TRANSPARENCY COULD BE A BENEFIT AS BLACKSTONE FACING INCREASES RESISTANCE TO SOME OF ITS DEALS, PARTICULARLY IN THE UK. AND COULD TURN AND SAY HEY, WE'RE A PUBLIC COMPANY AND ACQUIRING OTHER PUBLIC COMPANIES. IF AND WHEN THE PROSPECTUS IS FILED, ERIN, IT MAY BE CALLED SWISS CHEESE IN NATURE, A LOT OF BLANKS TO FILL IN BUT NONETHELESS AN HISTORIC MOMENT IN SOME WAYS IF IT SHOULD HAPPEN AND AGAIN, WE'RE HEARING, BY THE END OF MARCH. BACK TO YOU.
ERIN BURNETT: DAVID, IT'S AN AMAZING STORY AND I'M CHUCKLING HERE BECAUSE I'M THINKING ABOUT MAYBE IF KKR CAN GET THEIR PAPERS TOGETHER AND BEAT STEVE SCHWARZMAN TO THE PUNCH. YOU TALKED ABOUT APOLLO, KKR AND CARLYLE CONSIDERING AN IPO. DO YOU EXPECT MORE PRIVATE EQUITIES TO GO THAT WAY BEFORE MORE HEDGE FUNDS BECAUSE THERE WAS A BOO HA HA ABOUT THE FORTRESS IPO ON THE BIG BOARD DISBHOO ON
DAVID FABER: BOTH SIDES, THERE'S NO SHORTAGE ON BANKERS CALLING ON HEDGE FUNDS THAT HAVE A SOMEWHAT INSTITUTIONALIZED BUSINESS AND CAN MAKE THAT ARGUMENT, NO DOUBT ABOUT IT AND MANY ARE LOOKING FOR OPPORTUNITIES TO MONETIZE. YOU KNOW, IF YOU'RE A SH -- STEVE SCHWARZMAN AND RUN A HEDGE FUND AND CREATED VALUE BUT AT THE END OF THE DAY, IF YOU DON'T TAKE IT PUBLIC, YOU WALK AWAY. YOU'VE ALREADY MADE SO MUCH MONEY IT'S HARD TO SPEND IT BUT YOU HATE TO LEAVE THAT MONEY ON THE TABLE THAT'S WHAT'S GOING ON. PRIVATE EQUITY IS ABOUT THE MONEY AND TAKING THE. S PUBLIC. SO HEDGE FUNDS, YES, AND PRIVATE EQUITY. CARLYLE MAY BE IN THE MIDST OF RAISING NEW MONEY, BUT AGAIN, WHAT I'M HEARING, IT IS GOING TO BE A POTENTIAL FEEDING FRENZY.
ERIN BURNETT: DAVID FABER, THANK YOU VERY MUCH, DAVID FABER, BREAKING THE BLACKSTONE STORY RIGHT HERE ON CNBC.
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