U.S. News

Blackstone IPO Expected to Be Among Biggest in U.S. History


The IPO market may not be as large as it once was, but there is still expected to be plenty of room for this week's debut of private equity powerhouse Blackstone Group, likely one of the biggest initial public offerings in U.S. history.

Blackstone's IPO is expected to raise between $3.87 billion and $4.14 billion. If it comes in at the high end of the range, it will be the sixth-largest U.S. offering of all time and the biggest in nearly five years, according to Renaissance Capital and IPOHome.com.

The IPO stood at about seven times subscribed this week, according to a report in the Financial Times, indicating that demand for the shares remained strong.

The size of the deal has been matched only by the controversy surrounding the offering.

Fear & Greed: Blackstone IPO

Blackstone first defied expectations when it said in March it would go public, having made its fortune taking companies private. It also raised eyebrows by structuring the company to hand little control to investors -- instead tying their stakes to the management committee that runs the firm.

Since then, Blackstone made headlines by disclosing that Chief Executive Stephen Schwarzman made $400 million in 2006 and could walk away from the IPO with a stake in the company valued at as much as $7.7 billion.

"Everything's Been Unusual"

"Everything about this deal's been unusual," said Phil Stiller, an analyst with Renaissance Capital.

The market has cooled some since its peak in the late 1990s, when there were more than 400 initial public offerings a year. The last blockbuster IPO was MasterCard Inc.'s $2.4 billion offering a little over a year ago.

But the market is ramping back up and the number of IPOs so far this year has jumped 28%cent over the same period in 2006.

One area where the IPO market may cool, though, is among competitors to Blackstone in the private equity business. A new bill pending in the U.S. Senate would tax publicly traded partnerships that derive profits from managing other people's assets at the same tax rate as corporations, abolishing a two-decade old provision that grants the partnerships a lower tax rate.

That would effective double the tax rates for private equity firms.

While Blackstone would get a five-year exemption (since it filed to go public before the bill was introduced), the potential for a tax hike has at least temporarily slammed the brakes on the possibility of firms like the Carlyle Group, Apollo Management, and Kohlberg Kravis Roberts following in its footsteps.

No Reason to Wait

The pending legislation may have played a role in Blackstone rushing its IPO to market this week, but analysts also say there was probably no good reason to wait.

Renaissance Capital's Stiller said the firm may have simply had sufficient demand to accelerate the timetable for the IPO, which was initially planned for next week.

"If you have enough orders there's no point in waiting," he said.

Francis Gaskins, president of research company IPOdesktop.com, said the accelerated timetable also may have been designed to ensure there are no distractions.

Blackstone has shifted its IPO into a particularly slow week. According to Gaskins, only three other companies are set to go public this week, compared with six next week.

"This is the time to have the spotlight," Gaskins said.

Meanwhile, the leaders of the Senate Banking Committee asked the Treasury Department and the Securities and Exchange Commission for analysis of the legislation that would raise taxes on private equity funds going public.

Sens. Christopher Dodd and Richard Shelby, the Democratic chairman and senior Republican on the panel, respectively, asked about the bill's "likely impact on the nation's capital markets, including the potential effects on investor protection, capital formation and other relevant issues."